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US LLC owners shift their operations in India to streamline costs, expand teams, or build long term scalability. Once the decision is made, they must understand how the US entity will transition into the Indian framework. The process requires clarity on the corporate restructuring options available and how both tax systems will interact during the shift.
The process quickly becomes a detailed exercise in planning entity structuring, identifying required registrations, and understanding tax rules in both countries. This stage demands coordination between advisors who manage US compliance and professionals who specialise in Indian regulations. Since DPIIT regularly updates FDI rules and publishes official data, companies must rely on these sources while preparing their shift into the Indian market.
A US LLC can be treated in several ways under United States federal tax law. It may function as a disregarded entity, a partnership, or a corporation based on its classification. Most single member LLCs operate as pass through entities for federal income tax purposes. This treatment affects how profits are taxed in the United States, and it also plays a role when the US LLC begins to conduct activities in India.
India evaluates foreign businesses under concepts such as Permanent Establishment, which appear in both domestic legislation and the India United States Double Taxation Avoidance Agreement listed on the Income Tax India portal. A Permanent Establishment is created when a foreign company performs income generating activities within India through a fixed place of business, employees with decision making authority, or agents who habitually conclude contracts. If these thresholds are met, India treats the foreign entity as having a taxable presence in line with the guidance in the Reserve Bank of India Master Directions on foreign investment.
Before any restructuring begins, the founders must evaluate whether the US LLC has already created a Permanent Establishment in India. Activities such as signing contracts from India, delivering services from India for foreign customers, or maintaining inventory in India can trigger this status. This assessment helps determine the best structure for the future and ensures compliance with FEMA regulations that govern the establishment of branches or offices by foreign entities.
After assessing the current tax and corporate position, businesses can evaluate the most appropriate structure for Indian operations. The goal is to create a compliant framework that supports operational efficiency while managing tax exposure in both countries. Under RBI guidelines, foreign entities such as US LLCs require approvals for branches, liaison offices, or project offices. Authorized Dealer Category I banks process most applications.
Most businesses choose to incorporate a private limited company in India. The subsidiary can be owned directly by the US LLC or by the founders. This structure provides legal separation between the Indian entity and the US parent, ensures limited liability, and provides a clear compliance and taxation pathway.
The Indian subsidiary is treated as a domestic company under the Companies Act, 2013. It can conduct all commercial operations such as hiring employees, signing contracts, invoicing customers, and generating revenue. Profits can be repatriated to the United States after completing foreign exchange compliance. For most US businesses, this is the cleanest operational model. It is further supported by 100 percent FDI permitted under the automatic route for most sectors as per DPIIT regulations. DPIIT’s official statistics for April 2024 to December 2024 highlight consistent inflows, particularly in services and manufacturing.
A branch office allows a foreign entity to undertake limited business activities within India. These units are regulated under FEMA through RBI Master Direction No. 10/2015-16, updated through 2021. Applicants must demonstrate a profit-making track record of five years along with a net worth of at least USD 100,000 and must file Form FNC through an Authorized Dealer bank.
A liaison office is more restricted and is permitted to perform only communication, representation, or market research activities. It cannot perform revenue generating activities. A branch office may earn income but is taxed as a foreign company, which usually results in a higher total tax outflow. RBI requires liaison office applicants to demonstrate a net worth of USD 50,000 and a profitable record for at least three years. While branch offices in Special Economic Zones enjoy a simplified process and can engage in direct activities, most US LLCs still prefer the subsidiary structure because of operational flexibility and lower corporate tax.
Some founders choose to collaborate with Indian partners through joint ventures or Indian Limited Liability Partnerships. These structures allow shared participation in operations and risk. LLPs allow foreign direct investment under the automatic route in various service sectors, in accordance with RBI directions. Such arrangements require detailed partner agreements, well defined obligations, and a clear review of tax implications before execution.
Once the structure is finalized, businesses must comply with several regulatory frameworks including corporate law, foreign exchange regulations, taxation rules, and operational registrations. The RBI requires all branch offices, liaison offices, and project offices to file Annual Activity Certificates by March 31 every year with both Authorized Dealer banks and the Directorate General of Income Tax for International Taxation.
Every Indian company must comply with the Companies Act, 2013. Standard obligations include:
These requirements apply even if the company is entirely foreign owned.
Foreign investment in Indian companies is regulated by the RBI under FEMA. When shares are issued to a US LLC, specific filings are required, including:
• Form DI within 30 days of issuing shares
• Annual Foreign Liabilities and Assets return by July 15
Non compliance may result in penalties and delays in repatriation. Authorized Dealer banks are required to closely examine reporting accuracy and notify the RBI of any irregularities.
Transactions between the Indian entity and the US LLC or related parties must comply with Indian transfer pricing rules. India follows principles aligned with the Organisation for Economic Cooperation and Development. Cross border transactions must be benchmarked at arm’s length and documented annually. Lack of adequate documentation can lead to adjustments, penalties, and interest exposure.
Taxation is a central consideration when shifting operations, and applicable rates depend on the structure chosen. Relief under the India United States Double Taxation Avoidance Agreement is available as published on the Income Tax India portal.
A foreign company that earns taxable income in India faces a corporate tax rate of about 35 percent for FY 2025, excluding surcharge and cess. This applies if the US LLC creates a Permanent Establishment or operates through a branch.
Indian private limited companies may select a concessional corporate tax regime that offers a base rate of 22 percent plus surcharge and cess. This is often preferred because the effective rate is lower than what applies to foreign companies.
Minimum Alternate Tax applies at roughly 15 percent of book profits for companies not choosing the concessional regime. Goods and Services Tax registration becomes mandatory once annual turnover exceeds INR 20 lakh, although export of services may qualify as zero rated. Withholding taxes apply to outbound payments such as royalty, interest, or fees for technical services. Under the India United States DTAA, rates are generally reduced to between 10 and 15 percent.
Tax Reference Summary
| Tax Element | Rate for Foreign Entities | DTAA Relief for US LLCs |
|---|---|---|
| Business Profits | 35 percent plus surcharge and cess | Taxed in India only if Permanent Establishment exists |
| Dividends | 20 percent withholding | Up to 25 percent |
| Interest | 20 percent, 10 percent, or 5 percent | Typically 10 to 15 percent |
| Royalties or Fees for Technical Services | 10 percent | 10 to 15 percent |
Profits may be repatriated from an Indian subsidiary through dividends after payment of withholding tax. Branch offices may remit net profit after obtaining a certificate from a chartered accountant and completing RBI formalities.
Impact on Founders and Key Personnel
Founders relocating to India must consider individual tax residency rules. Residents are taxed on global income. Non residents are taxed only on India sourced income. Relief may be available under the DTAA.
Treatment of Intellectual Property
If intellectual property is owned by the US LLC but used in India, licensing arrangements are required. Royalties must comply with transfer pricing standards and are subject to withholding tax.
Banking and Foreign Exchange Operations
Indian entities must open local corporate bank accounts. Branch and liaison offices have restricted credit and debit permissions under RBI rules. All foreign currency inflows and outflows must be reported through Authorized Dealer banks.
Employment Law
Businesses must comply with local labour rules including statutory benefits, minimum wages, provident fund contributions, and establishment registrations. Entities with ten or more employees must register for EPF and ESIC where applicable.
The process of shifting a US LLC to India brings together several responsibilities that continue well beyond the initial setup. By addressing structure, FEMA requirements, transfer pricing, and corporate taxation, businesses position themselves to operate with clarity and predictability. The regulatory paths outlined by RBI and the filing duties under Indian law form the framework that keeps the Indian operation aligned with local standards.
With official FY 2025 investment data from DPIIT showing continued foreign participation, businesses operating in India benefit from a consistent regulatory landscape. Completing the transition with a well organised compliance plan gives the company the stability it needs to run operations confidently and meet the expectations of both jurisdictions.
