How do we get profits from our Canadian subsidiary back to India?
Through a distribution, through interest if part of the funding is debt, or through fees for something the Indian parent genuinely supplies. Funding choice drives withholding on the way back, because dividends, interest and service fees are treated differently by the treaty. That is why the question is really asked at the start, when the Canadian company is being capitalised, rather than at the point cash is needed. If the subsidiary is funded entirely with share capital, a distribution is the only route available. If it is funded partly with debt, or if the parent really does supply services, other routes exist, provided the arrangements were in place and documented before they were used.
Does an Indian parent have to report its Canadian subsidiary in India?
Yes. The Indian side has its own annual reporting on the overseas investment, and it continues for as long as the investment is held rather than being a single filing made at the time of setting up. It is a separate obligation from anything the Canadian subsidiary does, owed by the Indian company, and it is easy to miss precisely because the Canadian entity's own compliance feels like the whole of the job. Groups that treat Canadian incorporation as the end of the setup usually find the Indian reporting has been outstanding for a long while. Diarise it in India at the same time the Canadian entity is formed.
Is our Canadian subsidiary an Indian company or a Canadian one for tax?
It is a Canadian taxpayer that happens to have an Indian parent. That means Canadian corporate returns on its own results, Canadian obligations on its own staff and sales, and no assumption that decisions taken in India travel with it. At the same time the relationship with the parent is visible on both sides, because transfer pricing applies to every intercompany charge from day one. Groups get into difficulty when they run the Canadian entity as a branch office in everything but name, with instructions coming from India and costs absorbed there, since the entity's legal character and its daily reality then point in opposite directions and only one of them is written down.
When does transfer pricing start for a brand new Canadian subsidiary?
From day one, not from the first profitable year or the first large charge. Transfer pricing applies to every intercompany charge, which in a new subsidiary usually means the small ones: shared software, a director's time, group insurance recharged, a loan from the parent to cover early costs. These are the charges nobody documents, because they feel administrative. They are also the ones that establish the pattern an authority will look at later. The work at the start is modest, being simply to write down what is being supplied, by whom, and why the charge is what it is. It is far cheaper than reconstructing years of small charges afterwards.
Should we lend money to our Canadian subsidiary or subscribe for shares?
Both are used, and the choice is about more than the route home. Debt has to be real to be respected: a loan needs terms, a repayment expectation, a rate, and a reason the rate was set where it was, and it is examined as an intercompany transaction like any other. It also has to be serviced, which a young Canadian business may not be able to do out of its own cash. Share capital is simpler to administer and harder to reverse, since returning it is not the same exercise as repaying a loan. Work out what the Canadian business will actually need over its first few years, and how it expects to generate cash, then fund it in a way that matches that rather than one that looks efficient on paper.
Do both India and Canada look at the same intercompany agreements?
They do, and that is the single most useful thing to know before drafting them. Both authorities read the same intercompany agreements, so an agreement written to suit one side is being read by the other. A charge described one way in a Canadian file and another way in an Indian one is not two positions, it is one contradiction. In practice this means the documents should describe what actually happens, rather than what would be convenient in either country, and the same set should be capable of being handed to either authority without editing. Groups that keep two narratives usually discover this when one authority asks for the other's file.
Do NRIs have to file an Indian tax return?
If you have Indian-source income above the filing threshold, or you want a refund of tax withheld at source, or you are claiming treaty relief — then yes. Interest, rent, capital gains on Indian shares or property, and TDS deducted at a rate higher than your real liability all commonly force or reward a return. Filing is also how a lower-rate treaty claim and a foreign tax credit get onto the record. See NRI tax return filing.
What is Schedule FA and who has to complete it?
It is the foreign asset disclosure in an Indian return, and the trigger is residential status rather than income: a resident discloses foreign bank accounts, custodial and equity holdings, foreign life insurance with a cash value, immovable property and other assets held at any time in the year, plus any beneficial interest. A non-resident does not. The obligation is disclosure-based, so it applies to an account that earned nothing, and the penalties under the black-money legislation are what make it worth getting right. See Schedule FA reporting.
