For any business, setting up a subsidiary company in India is a smart choice. When a global business commits, a subsidiary becomes more than a structural choice. It is a signal that the company is not merely exploring but anchoring itself with intention. However, entering the market without a clear understanding of the legal pathway brings unnecessary risk.
Everything that follows depends on how efficiently the entity is set up. Incorporation, director appointments, capital infusion, foreign investment reporting, and regulatory approvals create the foundation on which the entire operation stands. When handled with clarity, the subsidiary moves from a legal formality to a strategic asset that supports expansion across India.
Why Choose a Subsidiary of a Foreign Company Structure?
A subsidiary works better than a liaison or branch office for most long-term plans. It’s treated as an Indian company, which makes things simpler when it comes to taxation, investment, and governance.
Key benefits include:
- Full local incorporation and tax-residency benefits.
- Complete foreign ownership allowed in most sectors.
- Easier management of compliance under Indian laws.
This structure has become the go-to choice for global businesses that want stability, control, and local credibility.
Step by Step Process for Setting Up a Subsidiary Company in India
Step 1: Understanding the Regulatory and Policy Context
It is essential to note that, before setting up a subsidiary company in India, foreign businesses should get acquainted with the policy framework comprising FDI rules, entity options under Indian law, and compliance regimes.
Entity types and regulatory options
There are multiple option establish operations in India, including the formation of a subsidiary, joint ventures arrangements, or opening of various offices such as branch or liaison offices. Each structure suits different types of commercial activity. Key factors to analyse include:
- Identifying whether the chosen business activity falls under the automatic FDI route or requires regulatory approval.
- Selection of an appropriate entity, where private limited subsidiaries usually provide greater control and growth opportunities.
- The subsidiary will be treated as an Indian Company under the Companies Act 2013, and will be subject to Indian company law, tax law, transfer pricing, and FEMA regulations.
Key statutes and policy-instruments
Operating a subsidiary company in India requires adherence to some major regulatory frameworks. Some of them include the following:
- Companies Act, 2013 governs incorporation, structure, directors, reporting, and compliance of Indian companies.
- Foreign Exchange Management Act, 1999 (FEMA) regulates foreign investment, inward remittances, foreign parent reporting, and compliance with the norms of the Reserve Bank.
- FDI policy and sectoral caps issued by the Government of India from time to time set out whether automatic or approval route applies for foreign investment in a given activity.
- Tax laws, inclusive of income tax, Goods & Services Tax, and transfer pricing rules apply once operations begin for the subsidiary.
Government initiatives and ease-of-doing-business context
The Government of India has actively pursued policies to promote foreign investments and simplify the procedures. A series of initiatives under the “Invest in India” program has involved creating the portal and the regulatory framework in a way that facilitates foreign flows, simplifies the incorporation process, and reduces regulatory burdens. Understanding these elements gives a sound basis toward the steps for incorporation.
Step 2: Planning and Preparatory Work
After understanding the regulatory backdrop, a little bit of time should be spent by the parent company in outlining its business plan and thus preparing the ground for operations in India. This is the stage when decisions about structure, scope, and compliance direction shall be taken.
Key activities at this stage include:
- Business Activity Definition: Define what operations will be undertaken in India, i.e., manufacturing, services, trading, or R&D. This will decide the form of entity and approvals and tax structure.
- Shareholding/Ownership Structure: Choose a shareholding/ownership structure. The subsidiary can either be wholly owned or a joint venture with a local Indian or any other partner. While 100% foreign ownership is allowed in many sectors, sectoral FDI differs in some.
- Capital Structure: Even though India does not have many minimum capital requirements, clearly indicate investment size, shareholding, paid up capital and share structure
- Directors Appointment: One or two directors are appointed. Among these at least one of them shall be a resident in India, having stayed in India for 182 days or more in the previous financial year. Foreign directors may also serve, provided they comply with DIN/DSC requirements.
- Select registered office: A registered office address needs to be identified by the candidate in India. This would act as an official address for correspondence purposes and should meet the requirements for address verification.
- Compliance roadmap: Identify post-incorporation filings, tax registrations (PAN, TAN, GST), labour law registrations, banking arrangements, and transfer pricing documentation. Up-front planning reduces start-up risk.
Step 3: Incorporation of the Subsidiary
This is the stage at which the Indian subsidiary legally starts its operations. Setting up a subsidiary company in India is done online through the MCA portal, and the steps involved are as follows:
This stage marks the formal legal beginning of the subsidiary in India. The incorporation process is completed digitally through the MCA portal and follows a defined step. The steps are as follows:
- Name reservation: The desired company name can be reserved using SPICe+ Part A on the MCA Platform.
- SPICe+ Application: The SPICe+ incorporation form is filled, which also facilitates the allotment of PAN, TAN, and DIN in a single application.
- Document filing: It involves filing the Memorandum and Articles of Association along with a resolution of the foreign parent company, the incorporation certificate from its home country, registered office proof, and the personal documents of the directors. Certain documents may be required to be apostilled or legally attested based on jurisdiction.
- Foreign investment filing: Upon the issue of shares to the foreign parent, file Form FC-GPR with the Reserve Bank of India or any other form as may be so required within the stipulated time period.
- Certificate of Incorporation: The Registrar of Companies issues a certificate of incorporation as proof that the company has been legally constituted.
- Bank account and capital infusion: The subsidiary has to open a current account in the name of the subsidiary, bring the capital from abroad, and issue share certificates against the same.
Step 4: Licenses, Registrations, and Tax Set-Up
After incorporation, the next step in the process, before commencing business operations, is to obtain the necessary tax and regulatory registrations. These would typically include:
- Goods and Services Tax (GST): If the subsidiary supplies any taxable goods or services in India and crosses the threshold limit (for example, ₹20 lakh in many states), then registration would be required. Input tax credit, invoicing rules, and regular returns are applicable.
- Labour and employment compliance: Ensure registrations under Shops & Establishment Acts, EPFO (Employees’ Provident Fund Organisation) and ESIC (Employees’ State Insurance Corporation) if applicable, minimum wage compliance etc.
- Sectoral licenses/permits: Depending on the industry, approval may be needed for manufacturing facilities, export, Import, IEC, professional services and financial operations. State level benefits and scheme are also reviewed.
- Transfer pricing compliance: Any cross-boarder or group level transactions must be priced at arm’s length and supported with proper documentation and reporting.
- Tax planning: A clear tax structure should be defined covering corporate tax rates, incentives, repatriation policies, treaty use, withholding requirements, and statutory levies.
Step 5: Commencement of Business and Operational Compliance
Once the process of setting up a subsidiary company in India is completed, actual commencement of business requires adherence to some key areas:
- Board Meetings: According to the Companies Act, the first meeting of the Board shall be held within 30 days of its incorporation and thereafter at least four meetings in a year. The gap between two consecutive meetings shall not exceed 120 days.
- Statutory Registers & Filings: Maintaining statutory registers regarding members, directors, share transfers, filing annual returns with MCA, appointment of auditor, financials filing within prescribed timelines.
- Filing of income tax return: The subsidiary has to file a corporate return in India, payment of advance tax, and payer obligations like TDS on payments made to residents/non-residents.
- Dividend repatriation: Understand conditions for repatriation of dividend by foreign parents, profit remittance rules, and comply with FEMA/ RBI reporting for remittances.
- State and local compliance: Depending on the state, there may be shops & establishment registration, state-level taxes, property levies, labour permissions, etc. It is very important to synchronise central and state-level compliance.
- Ongoing monitoring: FDI policy changes in India are ongoing; tax law amendments in this regard will be required to rationalise corporate tax rates, surcharge, and GST; labour law reforms; sector-specific compliance.
Step 6: Considerations of Exit Strategy and Restructuring
While most entities are concerned with the setup, the planning for exit or restructuring is equally important. A foreign parent company should advance plan for any potential reorganisations, share sales, winding down or merger into another entity.
- Exit Route: If the subsidiary is no longer required, sale of shares, liquidation of an Indian company under the Companies Act, or its merger with some other entities are the available options. Each one of them has its respective tax implications, procedural steps, and regulatory approvals.
- Restructuring in Indian law includes: changing shareholding, changing capital structure, amalgamation with other entities, demerger or migration of registration must all be carefully planned.
- Taxation: On repatriation, there are possibilities of capital gains payment and withholding obligations upon exit. Transfer pricing adjustments and retrospective tax exposures need to be anticipated. There has been increased tax scrutiny on foreign entities in India.
Legal, Tax, and Policy Key Considerations for Foreign Businesses
Foreign companies should pay special attention to the following issues in order to avoid surprises:
- Beneficial ownership and substance: Indian regulatory authorities and tax authorities are increasingly scrutinising foreign investments for substance, beneficial ownership, and treaty-shopping. Ensure that the subsidiary has actual commercial activity, Board oversight, Indian resident director(s) and local operations.
- Transfer pricing and related-party transactions: Since the subsidiary will be regarded as an Indian company, all transactions with the foreign parent need to be at arm’s length; otherwise, adjustments may be made, and additional tax could be imposed.
- Tax rate and surcharge: The effective corporate tax rate includes both surcharge and cess. Additionally, if concessional tax incentives were given earlier, for example to manufacturing units, investors have to keep track of the sunset clauses and legacy obligations.
- Foreign tax credit / DTAA issues: Repatriation of income, royalty, interest and dividend need analysis under India’s DTAAs to avoid double taxation.
- Sector-specific FDI caps and approval: Some sectors like defence, telecom, media may have sectoral caps, mandatory government approval, or conditionalities. Always check the current policy circular before committing capital.
- Government incentives & state-level benefits: Most Indian states offer various incentives on setting up manufacturing facilities, export-oriented units, SEZs, and R&D centres. These can dramatically add to the viability in case the subsidiary is proposed to perform these activities.
- Regulatory change and investment security: India is maturing as an investment destination, and yet foreign companies frequently cite regulatory risk, tax dispute risk, and changing policy regimes as causes for concern. Maintaining compliant and transparent operations becomes vital.
Conclusion
A subsidiary is not just a market entry route; it is a long-term business commitment. It requires patience because the first step is largely administrative. Clear documentation, proper reporting, and regulatory alignment makes the difference between smooth operations and ongoing disruptions. The early learnings in the process often becomes valuable as it prepares the organisation for future compliance work.
After setting up a subsidiary company in India, the organisation shifts its gears from creating the entity to running it. Operational discipline of the organization determines its success. Timely filings, tax management, and compliance across labour and sector specific laws define how well the company performs in real time. With the right system in place, a subsidiary becomes more than a legal presence. It becomes a dependable platform for sustainable growth in India’s ever evolving economy.
