How Foreign Companies Can Set Up a Subsidiary in India

India crossed a historic milestone in 2024 — accumulating over USD 1 trillion in cumulative foreign investment since April 2000. FDI inflows in FY 2024-25 stood at USD 80.62 billion, and the first half of FY 2025-26 has already clocked USD 50.36 billion — the highest ever recorded for any first half of a financial year. Every major economy from the US and UK to Japan, Singapore, and the UAE has deepened its corporate footprint here.

Yet for any foreign company looking to set up a subsidiary in India, the regulatory landscape can feel overwhelming at first. Multiple authorities — MCA, RBI, DPIIT, FEMA, and sector-specific regulators — each play a distinct role. Miss a step and you face delays, penalties, or worse, a defective structure that needs to be unwound.

This guide walks you through every stage: choosing the right structure, navigating FDI routes, the incorporation process, post-incorporation compliance, and the ongoing regulatory obligations that keep your Indian subsidiary in good standing — including FEMA and RBI filings that many foreign investors overlook entirely.

Why Foreign Companies Choose a Subsidiary Over Other Structures

Before you incorporate, it helps to understand why an Indian subsidiary is often the preferred choice — and when it isn't.

India offers four primary structures for a foreign company to establish a presence:

Wholly Owned Subsidiary (WOS) / Private Limited Company

A separate legal entity incorporated under the Companies Act, 2013. The foreign parent holds more than 50% of shares (WOS means 100% ownership). Treated as a domestic Indian company for tax and compliance purposes. Can undertake full commercial operations, hire employees, enter contracts, own assets, and repatriate profits. This is the most common structure for foreign market entry.

Liaison Office (LO)

Permitted only for market research, brand promotion, and communication between the parent and India. Cannot earn any income in India or undertake commercial activity. Requires prior RBI approval (not on the automatic route). Annual reporting to RBI is mandatory. Valid for 3 years initially (extendable).

Branch Office (BO)

Allowed for specific categories of foreign companies — typically manufacturing and trading companies. Can undertake commercial activity and remit profits, but cannot undertake retail trading or manufacturing directly. Requires RBI approval.

Project Office (PO)

Established to execute a specific project in India. Requires a formal contract with an Indian entity. RBI approval is needed unless certain conditions are met (project funded by foreign inflow, awarded by a government entity, etc.).

For most foreign companies, a Wholly Owned Subsidiary structured as a Private Limited Company is the optimal choice. It provides the widest operational scope, is the only structure that allows 100% FDI under the automatic route in eligible sectors, and is treated as an Indian entity — making banking, hiring, and contracting straightforward.

Understanding the FDI Framework: Two Routes, Many Sectors

India's Foreign Direct Investment policy, governed by FEMA 1999 and its Non-Debt Instruments Rules 2019, and administered jointly by DPIIT (Department for Promotion of Industry and Internal Trade) and the Reserve Bank of India (RBI), allows foreign investment through two routes:

The Automatic Route

Under the automatic route, a foreign investor can bring capital into India without seeking prior approval from either the RBI or the Government of India. The investor simply needs to comply with applicable sectoral laws, pricing guidelines, and post-investment reporting requirements.

More than 90% of all FDI inflows into India come through this route. Sectors where 100% FDI is permitted under the automatic route include IT and software, manufacturing, e-commerce (B2B), logistics, construction and development, and most service industries.

Recent liberalizations have expanded the automatic route to defence (up to 74%, raised from the earlier 49%), telecom (100%), insurance (74%), and the space sector (100%).

The Government Approval Route

For certain sensitive or strategic sectors, prior approval from the relevant government ministry is required. Proposals are submitted through the Foreign Investment Facilitation Portal (FIFP) at fifp.gov.in, managed by DPIIT, which routes the application to the appropriate ministry.

Sectors requiring government approval include:

• Defence and strategic manufacturing (above 74%)

• Multi-brand retail trading

• Print media and news broadcasting

• Satellite communications

• Mining of certain minerals

The timeline for government route approvals is typically 6 to 10 weeks — though complex cases can take longer. Investors should build this into their project timeline and begin the process at least 12 weeks before their target launch date.

Press Note 3 — Land Border Countries

A critical restriction that many foreign investors overlook: under Press Note 3 of 2020, any entity that is a resident of (or whose beneficial owner is a citizen of) a country sharing a land border with India must obtain prior government approval before investing in India — regardless of the sector or the FDI amount. This applies to companies and individuals from China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan. Early screening for beneficial ownership is essential if there is any connection to these jurisdictions.

Choosing the Right Type of Indian Subsidiary

Under the Companies Act, 2013, a foreign parent can incorporate its Indian subsidiary as:

Private Limited Company (most common)

Maximum of 200 shareholders. Shares cannot be offered to the public. Restrictions on share transfer. Minimum two directors (at least one must be a resident of India — i.e., someone who has spent 182 or more days in India in the previous calendar year). No minimum paid-up capital mandated by law.

Public Limited Company

Required when the Indian subsidiary plans to eventually list on Indian stock exchanges or needs more than 200 shareholders. Minimum seven shareholders, three directors. More complex compliance.

Limited Liability Partnership (LLP)

Available to foreign investors for specific sectors. Simpler annual compliance, but more restrictions on FDI — LLPs cannot receive FDI under the automatic route in all sectors, and there are restrictions on profit repatriation for LLPs with foreign investment. Needs at least two designated partners, one of whom must be a resident in India.

For foreign companies seeking full commercial control and operational flexibility, a Private Limited Company is almost always the recommended structure.

Step-by-Step: How to Incorporate a Foreign Subsidiary in India

The entire incorporation process is conducted on the MCA V3 portal (mca.gov.in). Here is the complete process:

Step 1: Confirm FDI Eligibility and Route

Before beginning any paperwork:

• Verify whether your business sector permits FDI — and at what percentage cap

• Determine whether you fall under the automatic route or the government approval route

• Check for beneficial ownership issues under Press Note 3 if any parent entity has connections to land-border countries

• Identify whether your sector requires approvals from sector-specific regulators (SEBI, IRDAI, TRAI, etc.) beyond the standard MCA/RBI framework

This step is non-negotiable. Proceeding without confirming FDI eligibility can result in a defective structure that requires compounding under FEMA to regularise — a costly and time-consuming process.

Step 2: Obtain Digital Signature Certificates (DSC) for Directors

All directors and subscribers must have valid Class 3 Digital Signature Certificates (DSC) to sign incorporation documents on the MCA portal.

For foreign nationals:

• DSC is issued by MCA-authorized Certifying Authorities

• The name on the DSC must exactly match the name on the passport — including spacing and middle names

• Processing time for foreign nationals: 5 to 10 working days depending on location and the Certifying Authority

Resident Director requirement: At least one director must have stayed in India for 182 or more days in the previous calendar year. This person must also obtain a DSC and their own Director Identification Number (DIN), which is allotted automatically through the SPICe+ incorporation form.

Step 3: Reserve the Company Name

File SPICe+ Part A on the MCA V3 portal to reserve the proposed company name. You can propose up to two name choices. MCA checks the proposed name against:

• Existing registered company and LLP names

• Trademark registrations on the Trade Marks Registry

• Prohibited and sensitive words under the Companies (Incorporation) Rules, 2014

• Names that are too generic or phonetically similar to well-known brands

Name approval typically takes 2 to 3 working days. Once approved, the name reservation is valid for 20 days — SPICe+ Part B (the actual incorporation application) must be filed within this window, or the name lapses.

Alternatively, a name can be reserved through RUN (Reserve Unique Name), which gives a 60-day validity.

Step 4: Prepare Incorporation Documents

The following documents must be prepared and, for foreign-origin documents, notarized and apostilled (or consularized if the country is not a signatory to the Hague Convention):

From the foreign parent company:

Certificate of Incorporation (apostilled)
Board Resolution authorizing the incorporation of the Indian subsidiary and naming the authorized representative (apostilled)
Latest audited financial statements
Address proof of the registered office of the foreign parent
Proof of identity and address of each foreign director / subscriber (passport — apostilled)

From Indian directors/subscribers (if any):

• PAN card and Aadhaar (for Indian nationals)

• Passport or government-issued ID and address proof

For the registered office:

• Lease agreement or NOC from property owner

• Utility bill (electricity/telephone) for the address

Company documents to be drafted:

• Memorandum of Association (MoA) — defines the company's objects clause. For foreign subsidiaries, MoA and AoA cannot be filed in e-format (eMoA/eAoA) — they must be physical copies, apostilled, attached as PDF

• Articles of Association (AoA) — internal governance rules

Important: Apostilling takes 1 to 3 weeks depending on the country. Start this process before filing the name reservation to avoid losing the 20-day window.

Step 5: File SPICe+ Part B on the MCA Portal

SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) is the integrated web form on the MCA V3 portal that handles incorporation. Part B bundles 10 government services into one application:

• Company incorporation under the Companies Act, 2013

• DIN allotment for up to three new directors

• PAN allotment for the company

• TAN allotment for the company

• GSTIN (optional — via linked AGILE-PRO-S form)

• EPFO registration

• ESIC registration

• Profession Tax enrolment (Maharashtra, Karnataka, West Bengal)

• Bank account opening request (sent to the selected bank)

• Import Export Code (IEC) request (via DGFT, optional)

Key things to note when filing Part B for a foreign subsidiary:

• Select sub-category as "Subsidiary of Company incorporated outside India"

• The foreign parent company is listed as a subscriber with its shareholding percentage

• Attach the apostilled Certificate of Incorporation and Board Resolution of the parent

• The MoA and AoA must be attached as PDF (not e-form) for foreign subscribers

• After uploading, download the PDF, affix DSCs of all directors and subscribers, and re-upload

Step 6: Pay Fees and Submit

MCA filing fees are based on the company's authorized share capital. Stamp duty is charged separately and varies by state (Maharashtra has higher rates than states like Delhi or Karnataka). Pay online through the MCA payment gateway within 7 days of SRN generation.

Step 7: Receive Certificate of Incorporation (COI)

Once MCA processes and approves the application, the Certificate of Incorporation (COI) is issued digitally, along with the Corporate Identification Number (CIN), PAN, and TAN. The entire process — from name reservation to COI — typically takes 7 to 20 working days when all documents are correct and apostilled in advance.

Post-Incorporation: The Critical First 30 Days

Getting the COI is the beginning, not the end. The first 30 days after incorporation are action-packed with regulatory obligations:

Open an Indian Bank Account

The foreign parent must remit the initial share subscription amount to an Indian bank account in the company's name. This is the legal channel for FDI — all foreign capital must enter India through the banking system via an Authorized Dealer (AD) bank.

File Form FC-GPR Within 30 Days of Share Allotment

FC-GPR (Foreign Currency — Gross Provisional Return) is one of the most time-sensitive filings in Indian corporate law. Under FEMA, the Indian company must report the receipt of foreign investment to the RBI through the FIRMS portal (firms.rbi.org.in) within 30 days of the date of allotment of shares to the foreign investor.

FC-GPR must be filed through the company's AD bank. Required attachments include:

• FIRC (Foreign Inward Remittance Certificate) from the AD bank confirming receipt of funds

• KYC documents of the foreign investor

• Valuation certificate from a SEBI-registered Category I Merchant Banker or a CA (for unlisted companies)

• Board resolution for allotment of shares

Missing the FC-GPR deadline is one of the most common FEMA violations committed by newly incorporated foreign subsidiaries. Late or non-filing requires compounding under FEMA — a formal regularisation process that attracts penalties up to 3 times the transaction amount or ₹2 lakh, whichever is higher.

File Form INC-20A — Declaration of Commencement of Business

All companies incorporated after November 2019 must file Form INC-20A before commencing business operations. This declaration confirms that all subscribers have paid up their initial capital into the company's bank account. It must be filed within 180 days of incorporation.

Commencing business without filing INC-20A attracts a penalty of ₹50,000 on the company and ₹1,000 per day on defaulting officers.

GST Registration

If the subsidiary will supply goods or services — and most will — it must register under the Goods and Services Tax (GST) Act within 30 days of becoming liable for registration. This can be done simultaneously through the AGILE-PRO-S linked form at the time of SPICe+ filing.

Other Registrations Depending on Business Activity

• Import Export Code (IEC): Mandatory if the company will import or export goods/services

• EPFO and ESIC: Mandatory for companies with 10 or more employees (ESIC) and 20 or more employees (EPFO)

• Shops & Establishment Registration: Required in most states before commencing operations

• Professional Tax Registration: Mandatory in Maharashtra, Karnataka, West Bengal, and other states

Ongoing Compliance: The Annual Calendar for a Foreign Subsidiary

Running an Indian subsidiary involves two layers of annual compliance: MCA/ROC filings (as discussed in our ROC return filing guide) and FEMA/RBI filings specific to companies with foreign investment. Both layers are mandatory.

MCA Annual Compliance

FEMA / RBI Annual Compliance

FLA Return (Foreign Liabilities and Assets) Every Indian company that has received FDI must file the FLA Return with the RBI by 15 July every year through the FLAIR portal (flair.rbi.org.in). The FLA Return reports the company's foreign liabilities (FDI received) and foreign assets (ODI made) as at the end of the financial year. It requires audited or certified financial data — directly linked to your AOC-4 filing.

If audited accounts are not finalized by 15 July, the FLA can be filed based on unaudited (provisional) figures with auditor certification, with a revised return due by 30 September.

FC-TRS (Foreign Currency Transfer of Shares)

Whenever shares are transferred between a resident and a non-resident — for example, when a foreign investor buys additional shares from an Indian co-founder, or when a foreign parent transfers shares to another entity — FC-TRS must be filed through the FIRMS portal.

Annual Performance Report (APR)

If your Indian subsidiary has made any overseas direct investment (set up its own foreign subsidiary, for instance), the APR must be filed by 31 December every year through the FIRMS portal via the AD bank.

Pricing Compliance for Share Issuances and Transfers

All future issuances of shares to foreign investors and transfers between residents and non-residents must comply with RBI pricing guidelines. For unlisted companies, shares must be valued by a SEBI-registered Category I Merchant Banker or a CA at fair market value. This applies to every funding round that involves foreign investors.

Key Prohibited and Restricted Sectors

Not all sectors are open to 100% FDI. Foreign companies must verify the applicable cap before structuring their investment. Current restrictions include:

Always verify against the DPIIT Consolidated FDI Policy Circular (available at dpiit.gov.in) and the FEMA (Non-Debt Instruments) Rules, 2019 for the most current sectoral caps and conditions.

Tax Framework for Indian Subsidiaries of Foreign Companies

The Indian subsidiary is taxed as a domestic company under the Income Tax Act, 1961. Key considerations:

Corporate Income Tax

Domestic companies with turnover up to ₹400 crore (in the previous year) are taxed at 25% (plus surcharge and health and education cess). Companies opting for the concessional tax regime under Section 115BAA are taxed at 22% (effective rate approximately 25.17% with surcharge and cess). Newly incorporated manufacturing companies opting under Section 115BAB may qualify for a 15% concessional rate.

Transfer Pricing

All transactions between the Indian subsidiary and its foreign parent (or other group companies) are classified as international transactions and must be conducted at arm's length price. Transfer pricing documentation under Section 92 to 92F of the Income Tax Act is mandatory if international transactions exceed ₹1 crore in a financial year. A transfer pricing study by a Chartered Accountant and filing of Form 3CEB are required.

Withholding Tax on Payments to the Foreign Parent

Royalties, technical service fees, interest, and dividends paid by the Indian subsidiary to its foreign parent attract Tax Deducted at Source (TDS) under the Income Tax Act. The applicable rate depends on whether a Double Taxation Avoidance Agreement (DTAA) exists between India and the parent company's country of residence. India has DTAAs with over 90 countries. Where applicable, DTAA rates are typically lower than the domestic withholding tax rates.

Dividend Distribution

A significant tax law change from AY 2023-24: the concessional 15% rate on dividends received from foreign subsidiaries (Section 115BBD) was withdrawn. Dividends are now taxed at the applicable corporate rate (plus surcharge and cess). Proper DTAA planning at the holding structure level can still reduce effective tax rates.

GST

Supplies of goods and services by the Indian subsidiary are subject to GST at applicable rates (0%, 5%, 12%, 18%, or 28% depending on the nature of supply). Cross-border services received by the Indian subsidiary from the foreign parent (such as management fees or software licenses) may attract Reverse Charge Mechanism (RCM) under the GST framework.

Documents Required from the Foreign Parent Company — Quick Reference

Common Mistakes Foreign Companies Make During India Entry

Starting operations before filing INC-20A

Many subsidiaries open a bank account, begin hiring, and start operations without realizing they need to file Form INC-20A first. The penalty is ₹50,000 plus ₹1,000 per day.

Missing the FC-GPR 30-day deadline

This is the single most common FEMA violation for new foreign subsidiaries. The clock starts from the date of share allotment — not from when the money is received or when the COI is issued. Build the FC-GPR filing into your incorporation timeline.

Assuming the automatic route applies without checking the sub-sector

Many investors confirm their main sector (e.g., "defence") allows FDI under the automatic route, but miss that specific sub-sectors have different caps. Always check the specific activity, not just the broad sector header.

Not complying with Press Note 3

Companies with any beneficial ownership connection to land-border countries assume they qualify for the automatic route. Press Note 3 requires government approval regardless of sector or investment amount.

Ignoring the FLA Return deadline

The FLA Return (due by 15 July) is one of the most underreported FEMA obligations. Missing it attracts a Late Submission Fee (LSF) and can delay future FEMA filings, including fresh rounds of equity.

Incorrect resident director compliance

Appointing a director who has not spent 182+ days in India in the previous calendar year as the "resident director" creates a compliance gap under Section 149(3) of the Companies Act. This is particularly common for foreign subsidiaries that rely on an expat employee who has not yet completed the residency threshold.

Transfer pricing non-compliance

Treating intercompany transactions with the foreign parent (such as management fees, royalties, or shared service charges) casually without arm's length documentation creates significant transfer pricing exposure — and has been a focus area of the Indian Income Tax Department in recent years.

Why Professional Guidance Is Not Optional Here

Setting up a foreign subsidiary in India is not simply a company registration task. It requires simultaneous navigation of the Companies Act, FEMA 1999, the Non-Debt Instruments Rules 2019, DPIIT's FDI Policy, the Income Tax Act, and GST law — each with their own timelines, forms, and penalty frameworks.

A single error — wrong sub-category in SPICe+, delayed FC-GPR, missing the FLA Return, or undocumented transfer pricing — can create liabilities that far exceed the cost of getting the setup right the first time.

For foreign companies, the investment in expert guidance pays off in two ways: faster market entry with zero compliance gaps at inception, and a structure that supports fundraising, exits, and regulatory approvals smoothly in the years ahead.

Our team specializes in end-to-end India market entry — from FDI structuring and government approvals to incorporation, FEMA filings, transfer pricing, and ongoing compliance for foreign subsidiaries, NBFCs, and regulated entities.

Ready to establish your Indian subsidiary? Get in touch for a complimentary India entry consultation at CorpE.