Indian Subsidiary of a Foreign Company: How to Set Up
In short
A foreign company usually enters India by incorporating a private limited company under the Companies Act, 2013 and holding all or most of its shares. The company needs at least two shareholders and two directors, one of whom must stay in India for at least 182 days in the financial year. The parent must first check that its sector allows foreign investment under the automatic route, then remit the capital through banking channels, have shares allotted within 60 days and see that the subsidiary reports the issue to the RBI in Form FC-GPR within 30 days of allotment.
Most foreign businesses that want to sell, hire or build in India do it through an Indian subsidiary: a private limited company incorporated in India whose shares are held by the foreign parent. It is an Indian company in every legal sense, so it can sign contracts, employ staff, invoice customers and remit dividends to its parent, while the parent's liability stays limited to the capital it puts in.
Two sets of rules apply. The Companies Act, 2013 governs how the company is formed and run. The Foreign Exchange Management Act, 1999 (FEMA), the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) and the RBI's Master Direction on Foreign Investment in India (updated up to 15 June 2026) govern the foreign money coming in. This guide walks through both, in the order a foreign parent meets them. Section references to the Companies Act and its rules are checked against the ICSI e-book, which records each amendment.
What is an Indian subsidiary of a foreign company?
It is a company incorporated in India in which a foreign company controls the board or holds more than half of the total voting power. That is the test for a "subsidiary" in section 2(87) of the Companies Act, and for this purpose "company" includes any body corporate, which under section 2(11) includes a company incorporated outside India. So a parent incorporated in the US, the UK, Singapore or anywhere else can be the holding company of an Indian company.
When the parent holds all the shares, the Indian company is usually called a wholly owned subsidiary (WOS). When an Indian partner also holds shares, it is a joint venture, but the setup steps below are the same.
An Indian subsidiary is not a "foreign company" under the Act. Section 2(42) uses that term for a company incorporated outside India that has a place of business in India, such as a branch. The subsidiary is incorporated in India, files with the Registrar of Companies like any other Indian company, and is taxed as a domestic company.
Should a foreign company choose a subsidiary, a branch or a liaison office?
A subsidiary is the only one of the three that can carry on the full range of business in India in its own name. A branch office or liaison office is part of the foreign company itself and needs approval under the RBI's Master Direction on Branch, Liaison and Project Offices (updated as on 18 May 2021), applied for in Form FNC through an authorised dealer bank.
| Point | Wholly owned subsidiary | Branch office | Liaison office |
|---|---|---|---|
| Legal status | Separate Indian company | Extension of the foreign company | Extension of the foreign company |
| Approval needed | None in automatic route sectors; government approval in others | Through the AD bank under FEMA 22(R) | Through the AD bank under FEMA 22(R) |
| Parent's track record | No minimum | Profits in each of the last 5 years, net worth at least USD 100,000 | Profits in each of the last 3 years, net worth at least USD 50,000 |
| What it can do | Any lawful business allowed for foreign investment in that sector | Only the activities listed in Annex C of the Master Direction, such as export and import, consultancy, research, IT services and technical support | Only representation, promoting trade and collaborations, and acting as a communication channel |
| Validity | Perpetual | Until closed | Generally 3 years (2 years for NBFCs and construction and development), extendable |
| Liability | Limited to capital invested | Parent fully liable | Parent fully liable |
A liaison office suits a parent that only wants to test the market and keep in touch with Indian buyers. Once it needs to sell, invoice Indian customers or employ a large team, a subsidiary is usually the better vehicle.
Is the parent's business allowed foreign investment in India?
Check this first, because it decides whether you can start at all. Para 5.1 of the Master Direction describes two entry routes:
- Automatic route: no prior approval from the Central Government. Para 5.2.3 says foreign investment is allowed up to 100% under this route in any sector not listed in Schedule I of the NDI Rules and not prohibited, subject to applicable laws and conditions.
- Government route: prior approval is needed, and the investment must follow the conditions in the approval.
Some sectors have a cap below 100% or come with sector conditions, so look up the parent's actual activity in Schedule I before planning the shareholding. A handful of sectors are closed to foreign investment altogether (para 3.1): lottery business, gambling and betting, chit funds, Nidhi companies, trading in transferable development rights, real estate business or construction of farm houses, manufacture of cigars and cigarettes of tobacco or tobacco substitutes, and atomic energy and railway operations.
Separately, para 3.2 puts every investment on the government route, whatever the sector, if the investor is an entity or citizen of a country that shares a land border with India, or if the beneficial owner of the investment is a citizen of, or situated in, such a country. A parent with shareholders from such a country should map its beneficial ownership before it sends any money.
A newly formed subsidiary with no operations can receive foreign investment under the automatic route for activities that are themselves on the automatic route without FDI-linked performance conditions (para 5.2.7). It will need government approval before it takes up any activity that is on the government route.
Who can be directors and shareholders of an Indian subsidiary?
A private company needs at least two directors (section 149(1)) and at least two members (section 3(1)(b)). Because the parent alone is one member, a wholly owned subsidiary usually has a second shareholder, often a group company or an individual holding one or a few shares as the parent's nominee.
Section 149(3) requires every company to have at least one director who stays in India for a total of 182 days or more during the financial year. For a newly incorporated company, the requirement applies proportionately at the end of the financial year in which it is incorporated. The test is physical stay, not nationality, so the resident director may be a foreign national who lives in India, but many parents appoint an Indian director or a senior employee based in India. The other directors can live abroad.
Each director needs a Director Identification Number (DIN) and a digital signature certificate. Foreign directors use their passport as proof of identity, and every director must keep their DIN details current through DIR-3 KYC.
Which documents does the foreign parent need, and how are they attested?
Rule 16 of the Companies (Incorporation) Rules, 2014 lists the particulars filed for each subscriber. Where the subscriber is a foreign body corporate, they include a copy of its certificate of incorporation and its registered office address, a certified copy of the board resolution authorising the investment, the number of shares it will take and the name of the person who will sign for it, and the identity details of that signatory. Individuals who are foreign nationals give their passport and proof of nationality, with a residential proof such as a bank statement or utility bill not more than two months old.
Rule 13(5) sets out how a foreign national residing outside India must have their signature, address and proof of identity attested:
| Where the signatory lives | Attestation |
|---|---|
| A Commonwealth country | Notarised by a notary public in that country |
| A country party to the Hague Apostille Convention, 1961 | Notarised in the country of origin and apostilled |
| Any other country | Notarised and then authenticated by an Indian diplomatic or consular officer |
| Visiting India | Allowed if the person holds a valid business visa (not needed for a person of Indian origin or an OCI) |
Rule 13(4) adds that the person authorised by a body corporate to sign the memorandum on its behalf cannot also be a subscriber in their own name. Start the notarisation and apostille early: it is usually the step that takes longest for a foreign parent.
How is the Indian subsidiary incorporated?
Incorporation is a single online application to the Registrar of Companies in the state of the proposed registered office, filed in SPICe+ (Form INC-32) under rule 12 of the Incorporation Rules. In practice the steps are:
- Check and reserve the name through SPICe+ Part A. Many subsidiaries use the parent's brand followed by "India Private Limited".
- Obtain digital signatures for the directors and the parent's signatory. DINs for new directors are allotted within SPICe+ itself.
- Draft the memorandum and articles around the planned business, with object clauses that stay within the activities allowed for foreign investment.
- Collect and attest the parent's documents and the foreign directors' identity proofs as shown above, plus proof of a registered office in India.
- File SPICe+ Part B with the linked forms for the memorandum and articles, PAN and TAN, and the AGILE-PRO-S form, which can also apply for GST registration, EPFO and ESIC registration and a bank account.
- Receive the Certificate of Incorporation with the Corporate Identity Number (CIN), PAN and TAN.
If any object of the company needs registration with a sector regulator such as the RBI or SEBI, rule 12 requires that approval before the company pursues that object, and a declaration to that effect at incorporation. The Companies Act prescribes no minimum paid-up capital, so the parent can set authorised and paid-up capital to suit its plans, subject to any sector conditions under the FDI rules.
How does the parent's capital reach the subsidiary?
The money must come in through banking channels, as an inward remittance or from the investor's repatriable account in India. The usual sequence after incorporation is:
| Step | Time limit | Source |
|---|---|---|
| Receive the capital as an inward remittance through banking channels, usually into the subsidiary's bank account | Before shares are issued | Master Direction, para 2.1 of Annex 1 |
| Allot shares to the parent | Within 60 days of receiving the money | Para 2.3 of Annex 1 |
| Refund the money if shares are not allotted | Within 15 days after the 60 days end | Para 2.3 of Annex 1 |
| Report the allotment in Form FC-GPR on the RBI's FIRMS portal | Within 30 days of allotment | Reporting Regulations, regulation 4(1) |
| File the annual return on foreign liabilities and assets (FLA) | By 15 July every year | Regulation 4(2) |
The shares must be issued at not less than fair value, certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant. Our guide to FC-GPR filing covers the FIRMS registrations, attachments and late submission fee in detail, including FC-GPR for the subscriber shares taken by the parent at incorporation.
If the parent pays set-up costs before the subsidiary has a bank account, para 1.3 of Annex 1 to the Master Direction lets a wholly owned subsidiary in a sector with 100% automatic route and no FDI-linked performance conditions issue shares to the parent against those pre-incorporation or pre-operative expenses. The limit is 5% of authorised capital or USD 500,000, whichever is less, the FC-GPR must be filed within 30 days of issue and not later than one year from incorporation, and a statutory auditor's certificate on the use of the money must go with it.
What must the subsidiary do after incorporation?
Beyond FEMA reporting, a foreign-owned subsidiary has the same Companies Act calendar as any private company: first board meeting and auditor within 30 days, the declaration for commencement of business in Form INC-20A within 180 days, board meetings through the year, the annual general meeting, and Forms AOC-4 and MGT-7 or MGT-7A. Our compliance checklist for a new private limited company sets out each deadline, and MGT-7 vs MGT-7A explains which annual return applies.
Two things are specific to a foreign-owned company. Payments to the parent for services, royalties, interest or goods are international transactions with an associated enterprise, so the subsidiary must price them at arm's length and keep transfer pricing documentation. And if the subsidiary later invests in another Indian company, that downstream investment counts as indirect foreign investment and follows the same sector rules.
How can KNAP Advisory help set up an Indian subsidiary?
Our FEMA and cross-border advisory team checks the parent's sector, entry route and beneficial ownership before anything is signed, then plans the shareholding, capital and pricing. We prepare the attestation checklist for the parent's documents, incorporate the company through our private limited company registration service, coordinate the valuation and bank paperwork, and file the FC-GPR within the 30 days. We then run the subsidiary's ROC, tax and FEMA calendar so that the parent sees one point of contact in India.
Frequently asked questions
What is a wholly owned subsidiary in India?
It is an Indian company whose entire share capital is held by its holding company, which may be a company incorporated abroad. Because a private company needs at least two members under section 3 of the Companies Act, the parent usually holds almost all the shares and a nominee or group company holds the rest on its behalf, so the parent still owns the whole economic interest.
Can a company incorporated abroad be a holding company under Indian company law?
Yes. Section 2(87) treats a company as a subsidiary if another company controls its board or more than half of its total voting power, and the explanation says "company" includes any body corporate. Section 2(11) defines body corporate to include a company incorporated outside India, so a foreign parent can be the holding company of an Indian private limited company.
Is an Indian subsidiary a foreign company under the Companies Act?
No. Section 2(42) defines a foreign company as a company or body corporate incorporated outside India that has a place of business in India and carries on business here, such as a branch. A subsidiary is incorporated in India, so it is an Indian company, files with the Registrar of Companies like any other and is taxed as a domestic company, even if a foreign parent owns all of it.
Can a wholly owned subsidiary in India have only one shareholder?
Not as a private limited company. Section 3(1)(b) requires at least two persons to form a private company, so a second shareholder is needed, often an affiliate or an individual nominee holding one or a few shares. A One Person Company is not an option for a foreign parent, because rule 3 of the Incorporation Rules allows only a natural person who is an Indian citizen to form one.
Does the resident director of an Indian subsidiary have to be an Indian citizen?
No. Section 149(3) asks only that at least one director stays in India for 182 days or more in the financial year, so the test is physical presence, not citizenship. A foreign national posted to India can qualify. For a company incorporated during the year, the 182-day requirement applies proportionately at the end of that first financial year.
Which sectors are closed to foreign investment in India?
Para 3.1 of the RBI's Master Direction prohibits foreign investment in lottery business, gambling and betting including casinos, chit funds, Nidhi companies, trading in transferable development rights, real estate business or construction of farm houses, manufacture of cigars and cigarettes of tobacco or its substitutes, and atomic energy and railway operations. A subsidiary cannot be set up with foreign capital to carry on any of these.
Can a company from China or another neighbouring country set up a subsidiary in India?
Yes, but only under the government route. Para 3.2 of the Master Direction requires prior government approval for any investment by an entity or citizen of a country sharing a land border with India, or where the beneficial owner is a citizen of, or situated in, such a country. This applies even in sectors that are otherwise fully open under the automatic route.
Does an Indian subsidiary need government approval before it has started business?
Not if it will carry on activities under the automatic route without FDI-linked performance conditions. Para 5.2.7 of the Master Direction lets a company with no operations and no downstream investment receive foreign investment under the automatic route. If it later takes up an activity that is on the government route, it must obtain approval before starting that activity.
How are a foreign director's documents attested for incorporation in India?
Under rule 13(5) of the Incorporation Rules, signatures, address and identity proof are notarised in a Commonwealth country, notarised and apostilled in a Hague Convention country, or notarised and authenticated by an Indian diplomatic or consular officer elsewhere. A foreign national who is visiting India and signs here must hold a valid business visa, though this does not apply to persons of Indian origin or OCI cardholders.
What documents does the foreign parent company provide for incorporation?
Rule 16(2) of the Incorporation Rules asks for a copy of the parent's certificate of incorporation, its registered office address, a certified copy of the board resolution authorising the investment and naming the authorised signatory, the number of shares it will take, and the signatory's own identity and address details. Documents signed abroad must be attested in the manner rule 13(5) prescribes.
Is there a minimum investment for a foreign-owned company in India?
The Companies Act prescribes no minimum paid-up capital, so a subsidiary can start with whatever capital its plans need. The FDI rules do not set a general minimum either, but some sectors in Schedule I of the NDI Rules carry their own conditions. The parent should also keep capital large enough to fund operations, because the money must come in through banking channels.
What happens if shares are not allotted within 60 days of receiving the parent's money?
Para 2.3 of Annex 1 to the Master Direction requires the subsidiary to refund the money through banking channels within 15 days after the 60 days end. Holding the money longer without allotting shares or refunding it is a FEMA contravention that the late submission fee does not cover, and it may have to be compounded with the RBI.
Can the foreign parent pay incorporation costs before the subsidiary opens a bank account?
Yes, within limits. A wholly owned subsidiary in a 100% automatic route sector without FDI-linked performance conditions may issue shares to the parent against pre-incorporation or pre-operative expenses up to 5% of authorised capital or USD 500,000, whichever is less. It must file FC-GPR within 30 days of issue and within one year of incorporation, with a statutory auditor's certificate on how the money was used.
Can a liaison office in India earn income?
No. Annex C of the RBI's Master Direction limits a liaison office to representing the parent or group companies, promoting exports and imports, promoting technical or financial collaborations, and acting as a communication channel. It cannot sell goods or services in India, so a foreign company that wants to invoice Indian customers needs a subsidiary or, for the listed activities, a branch office.
What are the eligibility conditions for a branch office of a foreign company in India?
The foreign company must have made profits in each of the five preceding financial years in its home country and have a net worth of at least USD 100,000, under the RBI's Master Direction on branch, liaison and project offices. A subsidiary of another company that falls short may submit a letter of comfort from a parent that meets the criteria. The branch can only carry on the activities listed in Annex C.
Does an Indian subsidiary have to file the FLA return every year?
Yes. Regulation 4(2) of the RBI's reporting regulations requires every Indian company that has received foreign direct investment to file the annual return on foreign liabilities and assets by 15 July each year. It is filed online with the RBI and is separate from the FC-GPR filed after each share issue and from the company's ROC annual filings.
