MCA Clarifies Requirements for Foreign Company Registrations in India

The government has clarified that there is currently no automatic data-sharing mechanism between the ministry of corporate affairs (MCA) and the Reserve Bank of India (RBI) for foreign company registrations. In a frequently asked questions (FAQ) document on registration of foreign companies and subsidiaries of foreign bodies corporate, the MCA said that documentation requirements of the two regulators differ and that RBI approval does not by itself replace the separate MCA filing and documentation requirements. The clarification comes in the backdrop of foreign companies having to comply with requirements under both the Companies Act and foreign exchange regulations. The ministry said the National Single Window System (NSWS) can help foreign companies find out which approvals they need, but it does not replace MCA filings or approvals from sectoral regulators. Foreign companies must still file form FC-1 along with the required regulatory approvals, including those from the RBI under FEMA. The MCA has also clarified that a foreign company can operate outside the exclusive categories of branch office (BO), liaison office (LO) or project office (PO) under the Foreign Exchange Management Act (FEMA). If a foreign company’s presence in India falls outside these categories, the Registrar of Companies (RoC) may seek clarification on the nature of the establishment, it said. Typically, when a foreign company establishes a physical presence in India without creating an Indian subsidiary, it does so through one of these FEMA structures. Despite the available FEMA structures, a large majority (85-90%) of foreign companies still prefer to set up a separate Indian subsidiary as it gives them operational freedom, allows manufacturing activities, and provides access to lower domestic tax rates. “A foreign company under the Companies Act is not required to fall exclusively into BO/LO/PO categories under FEMA, though most do,” the document said. The document has further noted that a foreign company does not need to have an Indian director. It only needs to appoint one or more people resident in India who can receive legal notices and other official communications. But, a company incorporated in India must have at least one resident director, regardless of the person’s citizenship. “The law requires an authorised representative resident in India, not necessarily an Indian citizen or director,” it said. Separately, the MCA said that an Indian company does not become a “foreign company” simply because it is wholly owned by an overseas entity. A foreign entity that incorporates a subsidiary in India creates an Indian company, rather than a foreign company under Section 2(42) of the Companies Act. Similarly, an Indian company fully acquired by a foreign company continues to remain an Indian company unless it ceases to be incorporated in India.