If you are a founder based outside India and you have decided your next market needs a legal entity here rather than a contractor arrangement, the questions that actually matter are rarely covered well in one place. Most guides either stop at the incorporation certificate or bury it inside thousands of words about company law history. This post covers what a foreign parent needs end to end: the ownership structure, the FDI route, the SPICe Plus filing with a foreign subscriber, the FEMA reporting calendar that starts the day shares are allotted, the taxes the subsidiary will actually pay, and a realistic view of cost and timeline.
What Counts as a Subsidiary in India
An Indian subsidiary is a company incorporated under Indian company law whose shares are held, wholly or in majority, by a foreign parent. It is a distinct Indian legal person, not a branch of the foreign company. It signs its own contracts, hires its own employees, pays its own Indian taxes, and its liability is generally limited to its own assets.
Wholly Owned vs Majority Owned
A wholly owned subsidiary in India is one where the foreign parent holds effectively all the shares, with a small number of shares sometimes held by a nominee individual or entity to satisfy the minimum shareholder requirement under current company law. A majority owned subsidiary has an Indian partner or investor holding a minority stake, while the foreign parent retains control. Most foreign founders setting up a wholly owned entity do so as a private limited company, since it allows full foreign ownership in most sectors under current regulations, gives limited liability, and is the structure most familiar to overseas investors, banks, and future acquirers.
Subsidiary vs Branch vs Liaison Office
A branch office and a liaison office are extensions of the foreign parent itself, not separate Indian companies, and both are generally permitted only for specific limited purposes with restrictions on the activities they can carry out, typically requiring case by case approval routes rather than automatic registration. A wholly owned subsidiary, by contrast, can generally undertake full commercial operations, hire at scale, raise local debt, and enter into ordinary business contracts as any Indian company would. For founders planning to actually sell, deliver services, or build a team in India rather than merely liaise or represent the parent, a subsidiary is almost always the right structure.
The FDI Route in Plain English
Foreign investment into an Indian company is governed by Foreign Exchange Management Act regulations, generally referred to as FEMA, along with the consolidated FDI policy. The route that applies to your investment determines whether you can simply remit funds and file a report, or whether you need prior government approval.
Automatic Route vs Approval Route
Under the automatic route, a foreign investor can bring in capital and receive shares without seeking prior permission from the government, subject only to post facto reporting to the Reserve Bank of India. Under the approval route, the investment first requires clearance from the relevant government ministry before the capital can be remitted and shares allotted. Whether your sector falls under the automatic or approval route depends on the current FDI policy in force, and this is worth confirming specifically for your business activity before you commit to a structure, since sector classifications are revised from time to time.
Sectors Where 100 Percent Is Allowed
Under current policy, full foreign ownership is generally permitted under the automatic route for most services and manufacturing activities, including sectors such as software, IT services, e commerce marketplace models (subject to conditions), and most trading and consulting businesses. A smaller list of sectors, such as defence, certain media categories, and specific financial services, carry caps on foreign ownership or require approval route clearance, and a few sectors remain restricted or prohibited to foreign investment altogether. Before you finalise your business description for incorporation, it is worth checking your exact activity against the current sectoral list, since the classification can be more specific than it first appears.
Pricing and Valuation Rules on Entry
When shares are issued to a non resident investor, FEMA pricing guidelines generally require that shares are not issued below a fair value determined under an internationally accepted valuation method, certified by a chartered accountant, merchant banker, or similarly qualified professional depending on the transaction. This is a floor price rule designed to prevent undervaluation of shares issued to foreign investors, and it applies at the time of the initial investment as well as to any subsequent share issuance or transfer involving a non resident.
Registering the Subsidiary Step by Step
Incorporation itself is a single integrated filing in India, but a foreign parent as subscriber adds a few extra steps around documentation and authentication that purely domestic incorporations do not need.
SPICe Plus With Foreign Parent
Indian companies are incorporated through a unified web form generally known as SPICe Plus, filed with the Ministry of Corporate Affairs. It bundles the company name reservation, incorporation, PAN and TAN allotment, and certain other registrations into a single application. When the subscriber to the memorandum is a foreign company rather than an individual, the form requires board resolutions from the parent authorising the subscription and the appointment of authorised signatories, along with the parent's own corporate documents, all of which need to be properly authenticated before filing.
Documents and Apostille
Documents executed outside India, such as the parent company's certificate of incorporation, board resolution, and the identity documents of foreign directors, generally need to be either notarised and apostilled, or notarised and consularised, depending on whether the country of origin is party to the Hague Apostille Convention. Most jurisdictions relevant to founders in the United States, United Kingdom, European Union, and Canada are Hague members, so apostille is usually the applicable route, while documents from a small number of non member countries in the Middle East and elsewhere may need consularisation through an Indian embassy or consulate instead. Building in time for this authentication step is one of the most common causes of delay in an otherwise straightforward incorporation.
Resident Director and Registered Office
Indian company law generally requires at least one director on the board who has stayed in India for a minimum period during the preceding financial year, commonly referred to as the resident director requirement. Many foreign parents appoint a local professional or a relocating team member to satisfy this, alongside the foreign directors who sit on the board. The company also needs a registered office address in India at the time of incorporation, which can be a leased commercial address, a coworking arrangement, or in some cases the registered address of a professional services firm acting as agent, subject to the landlord's consent and proper documentation.
Capital Remittance and Share Allotment
Once the company is incorporated, the foreign parent remits the subscription capital into the company's Indian bank account through normal banking channels. The company's bank will report this inward remittance, and the company then needs to allot shares to the foreign parent against that capital within a period generally prescribed under current FEMA regulations. This allotment is the trigger point for the FEMA reporting obligations described in the next section, so the paperwork around the remittance, the board resolution allotting shares, and the share certificate should be kept tightly documented from day one.
The FEMA Calendar After Incorporation
This is the part almost no guide sets out clearly, and it is where many otherwise well run subsidiaries pick up avoidable compliance issues. Getting the company incorporated is the easy half; the ongoing FEMA reporting calendar is what keeps the foreign investment properly recognised on record.
| Filing | Trigger | Frequency |
|---|---|---|
| FC-GPR | Allotment of shares to the foreign parent | One time per allotment, within a window prescribed under current FEMA rules |
| Annual Return on Foreign Liabilities and Assets (FLA) | Any year end foreign investment or overseas liability on the books | Annually, generally due by a date in July, to verify against the current RBI circular |
| Downstream investment reporting | The Indian subsidiary itself investing in another Indian entity | Within a window prescribed under current rules, triggered by each downstream investment |
| ODI or overseas reporting | If the Indian subsidiary later invests outside India | As and when triggered |
FC-GPR After Share Allotment
After shares are allotted to the foreign parent against the remitted capital, the company is generally required to file Form FC-GPR with the Reserve Bank of India through its authorised dealer bank, reporting the details of the foreign investment received. This is generally expected to be filed within a specified window after allotment under current FEMA reporting norms, and delayed filings can attract compounding proceedings, so it is worth treating this as a fixed item on the post incorporation checklist rather than something to get to later.
The Annual FLA Return
Any Indian company that has received foreign direct investment or holds foreign liabilities or assets on its books as of the financial year end is generally required to file the Annual Return on Foreign Liabilities and Assets with the Reserve Bank of India. This is a standalone annual filing, separate from the company's tax return and separate from the FC-GPR, and it is generally due within the early part of the following financial year, with the exact date to be confirmed against the current circular each year. It is commonly missed by subsidiaries once the founders' attention moves entirely to operations, and it applies every year the foreign investment remains on the books, not just in the year of incorporation.
Downstream Reporting People Forget
If the Indian subsidiary itself goes on to invest in another Indian company, whether by acquiring shares or setting up a further subsidiary, that investment is generally treated as downstream investment under FEMA and carries its own reporting requirement, since the ultimate source of funds traces back to foreign investment. Founders who structure an Indian holding layer, or who later acquire a smaller Indian business, sometimes miss this because it does not feel like a fresh foreign investment event, even though regulation generally treats it that way.
Taxes a Subsidiary Actually Pays
Once incorporated, the subsidiary is a resident Indian company for tax purposes and is taxed on its worldwide income under current income tax law, currently the Income Tax Act 2025, which replaced the earlier 1961 Act.
Corporate Rate Reality
Indian companies are taxed at a corporate rate that depends on factors such as turnover and whether the company opts into a concessional tax regime available under current law, subject to conditions. The applicable rate, any surcharge, and any cess should be confirmed with your chartered accountant against the current schedule for the relevant financial year rather than assumed from a headline figure, since concessional regimes carry their own eligibility conditions and trade offs around deductions.
Transfer Pricing With the Parent
Any transaction between the Indian subsidiary and its foreign parent, whether it is a service fee, a royalty for use of the parent's brand or technology, a cost allocation, or intercompany financing, is generally subject to transfer pricing rules under current regulations. These require the pricing of such transactions to be at arm's length, supported by contemporaneous documentation and, where thresholds are crossed, a transfer pricing study and an accountant's report filed with the tax return. This is one of the areas foreign parents most commonly underestimate, since intercompany agreements drafted for convenience abroad may not hold up to Indian transfer pricing scrutiny without proper benchmarking.
Repatriation: Dividends, Royalties, Service Fees
Profits can generally move back to the foreign parent through dividends, royalty payments for licensed intellectual property, or fees for management or technical services, each carrying its own tax treatment and withholding obligation. Payments to a non resident generally attract withholding tax under current law, a provision that now sits under section 393(2) of the Income Tax Act 2025 (the successor to the earlier Section 195), with the applicable rate depending on the nature of the payment and any relief available under the tax treaty between India and the parent's home jurisdiction. The compliance around such payments, including certification currently required under Form 145 and Form 146 (successors to the earlier Forms 15CA and 15CB), should be handled by your accountant before the remittance is made, not after, since banks generally require this documentation to process the outward payment.
Costs, Timeline and the Build vs EOR Question
Founders comparing options usually want two things: an honest number and an honest timeline, not a quote that only becomes real after the first invoice.
A Realistic All In Budget
Setting up an Indian wholly owned subsidiary generally involves government fees for incorporation and stamp duty that vary by the state of the registered office and the authorised capital chosen, professional fees for the incorporation and FEMA filings, apostille and document handling costs, and the cost of registered office arrangements if you are not leasing your own premises from day one. Ongoing costs then include statutory audit, annual company law filings, the FLA return, tax return filing, and any transfer pricing documentation, along with payroll and GST compliance once operations begin. A precise all in figure depends heavily on your state, your capital structure, and your operating scale, and is best requested as a written, itemised quote rather than a single headline number, since bundled flat fee quotes sometimes exclude government charges and taxes that apply on top.
Week by Week Timeline
A realistic sequence generally looks like this: name reservation and document preparation running in parallel with apostille of the parent's documents in the first stretch, followed by SPICe Plus filing and incorporation once documents are in hand, then bank account opening, capital remittance, share allotment, and the FC-GPR filing. Apostille turnaround in the parent's home country is usually the single largest variable in this timeline, more so than the Indian incorporation process itself, so founders who start document authentication early tend to have a materially faster overall experience than those who treat it as a formality to handle later.
When EOR Genuinely Fits
An employer of record arrangement lets you engage people in India without incorporating anything, and it is a genuinely sound choice when you are testing a small team, have no need for an Indian bank account or local contracts with Indian customers, and want to stay flexible for a limited period. It quietly becomes the wrong choice once you need to invoice Indian customers directly, hold Indian intellectual property, raise local debt, sign enterprise contracts that require an Indian counterparty, or once your headcount and payroll cost through an EOR start to exceed what a subsidiary's compliance overhead would cost. At that point, the EOR fee is no longer buying you speed, it is quietly costing you the company you should already own.
Frequently Asked Questions
Can a foreign company have a subsidiary in India?
Facing this in your own entity?
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