Setting up an Indian subsidiary of a foreign company

Law

Companies Act 2013 and FEMA 1999

FDI rules

FEMA (Non-debt Instruments) Rules 2019

Share issue report

FC-GPR within 30 days

Directors

Minimum 2, one resident in India

Subsidiary, branch or liaison office

A foreign company can operate in India through a liaison office, a branch office, a project office or an Indian company. Liaison and branch offices need RBI approval through an authorised dealer bank, have restricted activities, and the foreign company itself becomes taxable in India on the branch's income. A subsidiary is a separate Indian company, so:

• it can carry on any activity permitted under the FDI policy, including manufacturing, services and trading within the policy's conditions;
• the parent's liability is limited to its investment;
• it is taxed as a domestic company, and dividends are paid to the parent after tax, with treaty benefits available under the relevant tax treaty;
• Indian customers, banks and government bodies deal with it like any other Indian company.

FDI route: automatic or government approval

Foreign investment in an Indian company is governed by FEMA, 1999, the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and the Consolidated FDI Policy. Each sector falls under one of these:

Sectoral caps and conditions change through press notes, so the policy in force on the date of investment governs. We confirm the route for the subsidiary's exact activities before incorporation.

Press Note 3 (2020): an investor from a country sharing a land border with India, or where the beneficial owner of the investment is situated in or is a citizen of such a country, can invest only under the government route, whatever the sector. Groups with shareholders or ultimate owners in those countries need approval before the money comes in, and this must be checked through the whole ownership chain.

Incorporation and structure

The subsidiary is incorporated like any private limited company, through SPICe+ with the e-MOA and e-AOA. Points specific to a subsidiary:

• Shareholders: a private company needs at least two. For a wholly owned subsidiary, the parent holds almost all shares and a second group company or an individual holds one or a few shares as nominee for the parent.
• Directors: at least two, and under Section 149(3) at least one must have stayed in India for 182 days or more in the financial year. Foreign directors obtain a DIN with their passport and a foreign address proof.
• Parent documents: the parent's certificate of incorporation, its board resolution authorising the investment and nominating its representative, and identity documents of foreign directors must be notarised and apostilled (or consularised) in the home country.
• Articles: we draft the articles to reflect the group's reserved matters, board control and the parent's approval rights, using tailored MOA and AOA drafting.
• Significant beneficial owners: the individuals who ultimately control the parent must be identified and declared under the SBO rules.

Bringing in the capital and FEMA reporting

After incorporation, the subsidiary opens a bank account and the parent remits the subscription money through normal banking channels. The bank completes KYC of the foreign remitter. Under the Non-debt Instruments Rules, shares must be issued within 60 days of receiving the money; otherwise the money must be refunded within 15 days after that period. Shares issued to a non-resident must not be priced below their fair value determined under the rules.

The issue of shares is reported in Form FC-GPR on the RBI's FIRMS portal within 30 days of allotment, with the valuation certificate, the company secretary's certificate and the bank's KYC report. The subscriber shares taken at incorporation are reported in the same way. Every year, an Indian company with foreign investment files the Annual Return on Foreign Liabilities and Assets (FLA return) by 15 July. Late reporting attracts late submission fees and, for larger delays, compounding.

Tax, transfer pricing and ongoing compliance

The subsidiary is a domestic company for income tax. Transactions with its parent and group companies, such as service fees, royalties, purchases, cost recharges and loans, are international transactions with associated enterprises and must be at an arm's length price under the transfer pricing provisions. The subsidiary must keep transfer pricing documentation and file an accountant's report on these transactions each year. These rules were in sections 92 to 92F of the 1961 Act and continue in the Income-tax Act, 2025 under new numbers.

Alongside tax, the subsidiary has the full ROC annual compliance of an Indian company: board meetings, statutory audit, AOC-4, MGT-7 or MGT-7A, and director KYC. Its accounts are often consolidated by the parent, so year-end timetables need to be aligned early.

Common mistakes in setting up a subsidiary

• Receiving the parent's money before the bank account and KYC are in place, or issuing shares after 60 days.
• Missing the FC-GPR deadline because the team believes incorporation filings are enough.
• Not checking the ownership chain for Press Note 3, and finding out after the investment that approval was required.
• Group service agreements signed without a transfer pricing basis.
• No resident director lined up, which delays incorporation.

Funding the subsidiary after incorporation

Further capital from the parent is brought in by a rights issue or preferential allotment, each reported in FC-GPR within 30 days. Loans from the parent are not FDI: they fall under the External Commercial Borrowing framework, with its own eligibility, cost ceilings and reporting through the bank. Converting a loan into equity later is possible but is treated as a fresh issue of shares with valuation and reporting. Where the subsidiary itself invests in another Indian company, downstream investment rules apply and must be reported. Planning the mix of equity and debt at the start avoids repeated approvals.

Costs and timeline

Government costs are the incorporation fees and state stamp duty on the MOA and AOA, which depend on authorised capital and the state. The parent will also pay for notarisation and apostille in its home country. Our professional fee covers incorporation, the FDI route check, FC-GPR and the first year's compliance calendar, quoted in writing. Incorporation usually takes two to four weeks after the documents arrive.

Documents you need

From the foreign parent and the proposed directors (foreign documents notarised and apostilled):

• Certificate of incorporation and constitutional documents of the parent
• Board resolution of the parent approving the investment and naming its representative
• Passport and address proof of each foreign director
• PAN, Aadhaar and address proof of the resident Indian director
• Proof of the Indian registered office and owner's no-objection letter
• Shareholding chart of the parent up to the ultimate beneficial owners
• Business plan or description of activities, for the FDI route check
• Details of the nominee shareholder

How we handle it for you

1. FDI route check

   We map the activities and the ownership chain against the FDI policy and Press Note 3.

2. Documents and DSC

   We send the parent a document list with apostille instructions and issue DSCs.

3. Incorporation

   SPICe+, e-MOA and e-AOA are filed and followed to the certificate of incorporation.

4. Capital and FC-GPR

   We coordinate the remittance, valuation, share allotment and FC-GPR within 30 days.

5. Annual compliance

   ROC filings, FLA return and transfer pricing documentation are put on a calendar.

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