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INDIA: Company Subsidiaries Capped at Two Layers to Crack Down on Illicit Fund Flow

A company incorporated in India will now be permitted to hold not more than two layers of subsidiaries. While the regulation will apply to all companies registered in India on or after 20 September 2017, established businesses with more than two layers of subsidiaries will be required to furnish requisite details regarding such entities to the Indian government within 150 days.

Banking and non-banking financial institutions, insurance firms and public sector companies have been exempted from the new rule. Further, the government has clarified that the new rule will not prevent an India-registered company from acquiring an overseas entity, which has more than two layers of subsidiaries as per the laws of the country where the latter is incorporated.

The latest regulation comes as part of the Indian government’s bid to crackdown on the illicit flow of funds through the formation of shell companies. The measure also comes in the wake of the government’s recent move to disqualify more than 300,000 company directors for holding positions in entities that have not filed financial returns for at least three years, as well as to cancel the registrations of more than 10,000 such companies.

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