Expanding your business internationally is a bold and strategic move, but it comes with layers of legal, regulatory, and financial considerations. For foreign companies and NRIs looking to tap into India's vast consumer base and skilled workforce, setting up a 100% foreign-owned subsidiary is one of the most effective entry routes.
India’s steadily growing economy, robust legal system, and investor-friendly policies make it a preferred destination for international businesses. Whether you’re a US-based SaaS startup, an NRI entrepreneur, or a European manufacturer looking to outsource operations, establishing a foreign subsidiary in India can unlock tax advantages, ease of doing business, and long-term scalability.
However, it’s not as simple as registering a name and hiring a team. You’ll need to navigate RBI regulations, FEMA compliance, tax planning, local directorship rules, and more.
This comprehensive guide will walk you through every essential aspect from understanding what a foreign subsidiary is, to setting it up legally, managing compliance, and optimizing your structure for success.
A foreign subsidiary is a private limited company incorporated in India that is wholly or partially owned by a foreign parent company. When a foreign entity owns 100% of the equity shares, the Indian company is referred to as a 100% foreign-owned subsidiary. This setup is recognized under the Companies Act, 2013, and is treated as a separate legal entity with its own rights, obligations, and tax liabilities in India.
In simpler terms, a foreign subsidiary operates like any other Indian company but is controlled by a foreign parent. It can enter into contracts, acquire assets, hire employees, and conduct business in India under its own name.
Let’s say a U.S.-based technology firm, TechGlobal Inc., wants to expand into India. Instead of entering via a joint venture or partnership, it sets up TechGlobal India Pvt. Ltd., a wholly owned subsidiary under Indian law. This new entity is legally Indian but fully owned and funded by the U.S. parent giving TechGlobal full control with local execution.
Setting up a foreign subsidiary in India can offer significant advantages from tapping into a growing market to benefiting from cost-effective operations. However, it also demands a deep understanding of India’s legal, financial, and regulatory frameworks. Below are the key factors every global business or NRI entrepreneur should evaluate before taking the leap:
India allows 100% Foreign Direct Investment (FDI) in many sectors, but all foreign investments are governed by the Foreign Exchange Management Act (FEMA). Depending on your industry, you may be required to seek approval from the Reserve Bank of India (RBI) or follow the automatic route.
More importantly, once the investment is made, reporting obligations such as FCGPR filing and FIRA filing kick in. These filings are critical for legalizing foreign investments and ensuring full compliance with Indian laws.
🔗 Explore our specialized service on FEMA Compliance & FCGPR/FIRA Filing
The most common form of foreign subsidiary in India is a Private Limited Company. It allows 100% foreign ownership and offers limited liability, separate legal identity, and strong corporate credibility. However, choosing the right entity (private limited, LLP, or branch office) depends on:
Your business goals (e.g., manufacturing, consulting, trading)
Capital investment size
Level of control and operational flexibility you require
Foreign subsidiaries are treated as resident Indian companies and must follow Indian tax laws. This includes:
Income Tax (including surcharge and cess)
Goods & Services Tax (GST) for supply of goods/services
Withholding Tax (TDS) on payments
Transfer Pricing regulations for cross-border transactions
Annual filings with the Registrar of Companies (ROC)
Missing compliance deadlines can result in severe penalties, so it’s advisable to have a local CA or compliance expert to manage routine filings.
After incorporation, your subsidiary will need to open an Indian corporate bank account for receiving foreign capital. You’ll also need to follow RBI’s reporting procedures when transferring profits, royalties, or dividends back to the parent company. Keep in mind that India has Double Taxation Avoidance Agreements (DTAA) with many countries, which can help reduce withholding taxes on repatriated income.
Ask yourself: Do I need a full-fledged company, or would a simpler presence suffice for now?
If you're entering India for testing the waters, a liaison office or joint venture might serve your needs initially. But if you're looking to scale operations, hire a team, and build infrastructure, a wholly owned subsidiary offers greater autonomy and long-term benefits.
Establishing a subsidiary is not just about registration it includes:
Drafting MoA/AoA (constitution documents)
Securing a registered office address
Appointing directors (at least one Indian resident director is mandatory)
Obtaining PAN, TAN, GST, and other licenses
Regular audit and compliance costs
Understanding these costs up front will help you allocate the right budget and avoid financial surprises.
Our Company Setup Services for Non-Residents make the process simple, compliant, and stress-free.
Establishing a foreign subsidiary in India can be a strategic move, but it’s important to weigh the benefits against the potential challenges. Here's a balanced look at the key advantages and disadvantages every global company, startup, or NRI entrepreneur should consider.
Want a deeper perspective? Explore the full pros and cons of foreign subsidiaries in India here → Read More
Once your foreign subsidiary is established in India, maintaining compliance isn’t just a legal obligation; it's critical for uninterrupted operations, investor confidence, and long-term sustainability. Indian laws require foreign subsidiaries to follow a range of recurring and event-based compliance tasks across tax, corporate, and foreign exchange regulations.
Every Indian subsidiary must file its Annual Return (MGT-7) and Financial Statements (AOC-4) with the Registrar of Companies. These filings capture the company’s financial health, shareholding structure, and board-level decisions. Delays attract stiff penalties and could flag your business for regulatory scrutiny.
As a resident Indian company, the subsidiary must file annual income tax returns, regardless of profitability. If it engages in transactions with its foreign parent, Form 3CEB is mandatory to disclose and justify pricing under transfer pricing regulations. In case the turnover exceeds prescribed thresholds, a tax audit under Section 44AB is also applicable.
Foreign investments must be reported to the Reserve Bank of India (RBI) through the FIRMS portal. Two key submissions include:
Form FC-GPR: Reporting of shares issued to the foreign parent.
Annual FLA Return: Declaration of foreign liabilities and assets by July 15 each year.
These filings ensure your capital structure is legally recognized under FEMA guidelines.
If your subsidiary supplies goods or services within India, GST registration is mandatory upon exceeding the prescribed threshold. Monthly or quarterly returns like GSTR-1 and GSTR-3B must be filed on time to avoid penalties and preserve working capital through proper Input Tax Credit (ITC) utilization.
Your company must maintain updated records including:
Share certificates and registers for equity tracking.
Board and general meeting minutes documenting key decisions.
Contracts and inter-company agreements, especially for cross-border transactions.
Audited financial statements for transparency and legal compliance.
⚠️ Non-compliance can lead to penalties, disqualification of directors, or restrictions on fund repatriation making it vital to have an experienced compliance advisor or Chartered Accountant onboard.
Understand the complete compliance lifecycle in this dedicated guide → Read More
Registering a foreign subsidiary in India involves compliance with several legal and regulatory provisions under the Companies Act, 2013 and FEMA regulations. Below are the key requirements that every foreign entity must understand and fulfill:
Step-by-step registration process is explained in detail here → Read More
Foreign subsidiaries operating in India are treated as Indian domestic companies under the Income Tax Act, 1961, which means they are taxed in the same manner as any other Indian company. However, understanding the nuances of India’s corporate tax structure is essential for ensuring compliance and optimizing tax efficiency.
Foreign subsidiaries are subject to corporate income tax on their global income earned or accrued in India. As of the latest provisions, the base corporate tax rate for domestic companies is 22% (plus applicable surcharge and cess), provided the company does not claim any special tax incentives or deductions. This effectively brings the total tax liability to around 25.17%.
If the foreign subsidiary qualifies as a new manufacturing company incorporated after October 1, 2019, and commences operations before March 31, 2024, it may opt for a lower tax rate of 15% (effective rate approximately 17.16%), subject to certain conditions.
In addition to income tax, subsidiaries may also be liable to Minimum Alternate Tax (MAT) if they have book profits but are not otherwise paying tax due to exemptions. However, companies opting for the concessional 22% or 15% tax rates are exempt from MAT.
Other tax obligations include:
Goods and Services Tax (GST): Applicable for supply of goods and services in India.
Transfer Pricing Compliance: Transactions between the subsidiary and its foreign parent must follow arm’s length pricing, requiring detailed documentation and transfer pricing audits.
Dividend Distribution Tax (DDT): Abolished as of April 2020. Now, dividends are taxed in the hands of shareholders. If the parent company is based abroad, the dividend may be subject to withholding tax under the Income Tax Act or applicable Double Taxation Avoidance Agreement (DTAA), typically at 5% to 15%.
Tax Audit Requirements: If total turnover exceeds the prescribed threshold (currently ₹10 crore for companies not involved in cash transactions), the company must undergo a tax audit under Section 44AB.
Finally, foreign subsidiaries must ensure timely and accurate filing of annual income tax returns, TDS returns, Form 3CEB (for transfer pricing), and maintain robust books of accounts.
Proactive tax planning and compliance are crucial to avoid penalties and ensure smooth business operations. Collaborating with an experienced Chartered Accountant in India can greatly ease this process.
Explore detailed tax implications for foreign subsidiaries here →Real More
Setting up a 100% foreign subsidiary in India is a powerful gateway for global companies and NRIs to tap into one of the world’s fastest-growing economies. With the right legal structure, tax planning, and compliance strategy, your Indian subsidiary can become a high-performing extension of your global business.
However, navigating regulatory frameworks, FEMA filings, taxation, and documentation requires precision and that's where professional guidance becomes invaluable.
👉 Connect with us today for tailored support on company incorporation, FEMA compliance, and end-to-end subsidiary setup in India.
Let CA Vijay Singh & Co. be your trusted partner in building a strong and compliant business presence in India.
📘 Advantages & Disadvantages of Setting Up a Foreign Subsidiary in India
📘 Essential Compliances of a Foreign Subsidiary in India
📘 Legal Requirements to Register a Foreign Subsidiary in India
📘 Taxation Rules for Foreign Subsidiaries in India