A foreign company sets up an Indian subsidiary by incorporating a private limited company in which it holds all or nearly all the shares, with a second shareholder holding at least one share. Under the automatic FDI route no prior approval is needed, except in capped sectors or where the parent or its beneficial owners are from a country sharing a land border with India. The subsidiary needs one resident director and must report the foreign investment in Form FC-GPR within 30 days of allotting shares.
- Vehicle
- Private limited company
- Approval
- Automatic route in most sectors
- Shareholders
- Parent plus one nominee or group company
- FEMA filings
- FC-GPR in 30 days; FLA by 15 July
Subsidiary, LLP, branch or liaison office
Before incorporating, it is worth confirming that a subsidiary is the right form. The main options for a foreign company are:
| Option | Approval | What it can do | Tax and liability |
|---|---|---|---|
| Private limited subsidiary | Automatic route for most sectors | Any lawful business within FDI rules | Taxed as an Indian company; parent's liability limited to its investment |
| LLP with foreign partners | Automatic only where 100% FDI is automatic and there are no FDI-linked performance conditions | Services and trading in permitted sectors | Taxed as a firm; investors and lenders often prefer a company |
| Branch office | AD bank, and RBI in some cases | Limited listed activities such as export, import, professional services, IT services | Taxed as a foreign company; parent fully liable |
| Liaison office | AD bank, and RBI in some cases | Representation and communication only, no income | No business income; parent fully liable |
A subsidiary is usually preferred when you will employ people, sign local customer contracts, raise local finance or eventually bring in Indian partners. Our branch and liaison office page covers the alternatives in detail.
What the parent company has to provide
The parent acts through its board. We draft a resolution approving the investment, naming the subsidiary, fixing the initial capital and authorising one officer to sign the subscriber documents and the DSC application. That officer's DSC is issued after video verification, so he or she signs everything from the parent's office.
The Registrar needs the parent's certificate of incorporation, constitutional documents and the resolution, each notarised and apostilled in a Hague Convention country or attested by the Indian mission elsewhere. Where documents are not in English, a certified translation is legalised with them. The second shareholder, often another group company or a senior employee holding one share as nominee, signs a declaration of beneficial interest so the parent's ultimate ownership is properly recorded under section 89 of the Companies Act.
Capitalising the subsidiary under FEMA
The parent can fund the subsidiary with equity shares, compulsorily convertible preference shares or compulsorily convertible debentures, all of which count as FDI. Instruments that are optionally convertible or redeemable are treated as debt and must follow the external commercial borrowing rules instead.
- Shares are issued at not less than fair value under an internationally accepted pricing method, certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant. At incorporation the subscription is normally at face value.
- Money must come by inward remittance through banking channels, or from the parent's account in India where permitted. Shares must be issued within 60 days of receiving the money, or the money is refunded within the next 15 days.
- The subsidiary files FC-GPR within 30 days of allotment, and the annual FLA return by 15 July.
Later rounds, rights issues and share transfers between group companies each have their own reporting, which we diarise when we set up the company.
Intra-group arrangements and transfer pricing
A subsidiary that provides software, back-office or sales support to its parent is usually remunerated on a cost-plus basis. That arrangement should be in writing from day one. Indian transfer pricing rules require international transactions between associated enterprises to be at arm's length, with an accountant's report filed each year, and tax officers look closely at service fees, royalties and reimbursements paid to the parent.
We draft the intercompany services agreement, IP licence and cost-sharing terms, and coordinate with your tax advisers on permanent establishment risk, for example where parent employees regularly conclude contracts in India. GST on cross-border services also turns on these documents; see GST for foreign businesses.
Running the subsidiary from abroad
Board meetings can be held by video conference, and minutes are signed electronically. The resident director is the local anchor for statutory registers, bank mandates and government notices. Many parents keep a simple governance pack: an annual compliance calendar, a delegation of authority for signing contracts and spending, a related-party transactions register, and quarterly reports from the Indian team.
Annual obligations include the statutory audit, annual general meeting, financial statements and annual return with the Registrar, the income tax return and transfer pricing report, GST returns if registered, and the FLA return. Missing a single filing can trigger penalties against the company and its directors, including the resident director, so we recommend a named owner for each deadline.
Mistakes overseas parents make with Indian subsidiaries
- Treating the subsidiary as a department. Parent managers who negotiate and sign Indian contracts themselves can create a permanent establishment of the parent in India, exposing the parent's own profits to Indian tax.
- No intercompany agreement. Without a written services or distribution agreement, the tax officer decides what an arm's length margin looks like, usually at a higher figure than the group expected.
- Paying expenses from abroad. Salaries, rent and vendor bills paid directly by the parent create FEMA, GST and tax questions. Fund the subsidiary and let it pay its own costs.
- Allotting shares late. Shares must be issued within 60 days of receiving the remittance. Late allotment means refunding the money or compounding the breach.
- Forgetting the nominee. The second shareholder's declaration of beneficial interest, and the parent's corresponding filing, are easy to overlook and hard to reconstruct years later.
- Ignoring local labour registrations. Shops and establishments registration, provident fund and the POSH committee are needed as soon as staff join; see our employment law page.
Timeline, cost and common delays
Most subsidiaries are incorporated within four to six weeks of instructions. The longest step is usually legalising the parent's documents. Other delays come from name objections, mismatches in the parent's name across documents, and banks that ask for additional KYC on the ultimate beneficial owners.
Our fee is fixed and quoted in writing, covering incorporation, the first FC-GPR and a first-year compliance calendar. Government fees, stamp duty, notary, apostille, courier and valuation costs are listed separately so the parent's finance team can approve the budget once.
Documents you need
From the parent company and the people who will act for it:
- Parent's certificate of incorporation and constitutional documents, legalised
- Board resolution approving the subsidiary and naming the authorised signatory, legalised
- Passport and address proof of the authorised signatory and any foreign directors, legalised
- Details and KYC of the nominee or second shareholder, with declaration of beneficial interest
- Resident director's PAN, Aadhaar and address proof
- Indian registered office proof and owner's no-objection letter
- Chart of the group showing ultimate beneficial owners
- Proposed names and business activities
How we handle it for you
Scoping call
We confirm the FDI route, any Press Note 3 issue, capital and the second shareholder.
Board pack
Resolution, declarations and signing instructions sent for the parent's board.
Legalisation and DSC
Documents apostilled or attested; DSCs issued after video verification.
Incorporation and bank
SPICe+ filing, PAN, TAN and bank account opened with an AD bank.
Capital and reporting
Inward remittance, allotment, FC-GPR, INC-20A and intercompany agreements.
Why clients choose ProudLegal
Built for clients abroadVideo calls in your time zone and documents signed where you live.
Advocates who appear in Indian courtsYour case is drafted and argued by enrolled advocates in India.
Written fee quote firstScope and fees confirmed in writing before any work starts.
Updates after every stepScans of every filing and order on WhatsApp and email.
Frequently asked questions
Can a foreign company own 100% of an Indian subsidiary?
Yes, in sectors where 100% FDI is permitted. Because a private company needs two shareholders, the parent holds all shares except a nominal holding by a second shareholder, whose beneficial interest is declared to belong to the parent.
Is RBI approval needed to set up a subsidiary?
Not under the automatic route. Government approval is needed for sectors on the approval route and for investors from countries sharing a land border with India. The RBI is informed after the event through FC-GPR.
Who can be the resident director?
Any individual who has stayed in India for at least 182 days in the financial year. It can be an employee, a trusted contact or a professional director appointed under an agreement.
How long does it take to set up an Indian subsidiary?
Typically four to six weeks, most of which is legalising the parent's documents abroad. The online incorporation itself takes one to two weeks once the papers are ready.
Can the subsidiary pay the parent for services or IP?
Yes, at arm's length and under a written agreement. Payments abroad are subject to withholding tax, treaty relief and, for amounts over the prescribed limits, Forms 15CA and 15CB.
Is a subsidiary better than a branch office?
For most businesses yes, because a subsidiary limits liability, can do more, needs no RBI approval in most cases and may pay tax at a lower rate. A branch suits some project or regulated activities.
Can the parent lend money to the subsidiary?
Yes, as an external commercial borrowing within the RBI's ECB framework, with reporting through the AD bank. Optionally convertible instruments are also treated as debt.
How do we close the subsidiary later?
By selling it, merging it, voluntary liquidation or, for a dormant company, striking off. Exit proceeds are repatriated after tax and FEMA reporting.