What is a foreign subsidiary?
A foreign subsidiary is an Indian company in which a foreign holding entity owns more than 50% of the equity share capital. The Indian company is treated as Indian for all domestic statutory purposes (Companies Act, GST, Income-tax) but the inbound capital is governed by the FDI Policy and FEMA. The two common forms are:
- Wholly-owned subsidiary (WOS) — foreign holding entity owns 100% of the shareholding (where the FDI sector permits 100%).
- Joint venture (JV) — foreign and Indian partners hold the equity in negotiated proportions.
The choice is driven by the sector cap under the FDI Policy, partner strategy and route (automatic vs. government approval).
When to incorporate a foreign subsidiary in India
Foreign principals incorporate Indian subsidiaries when they want a permanent revenue-generating presence: hiring local employees, signing customer contracts in INR, building inventory, taking title to revenue, claiming Indian tax treaty benefits, and accessing the domestic market beyond what a branch or liaison office would allow. The classic use cases are SaaS subsidiaries of US / EU / UK parents, manufacturing subsidiaries of European / Japanese / Korean groups, and the Indian arms of professional services firms.
Governing provisions
The relevant statutory layer is:
- Companies Act 2013 — SPICe+ incorporation, MoA / AoA, post-incorporation compliance.
- FDI Policy (DPIIT) — sectoral caps, automatic vs. government approval route, eligibility conditions.
- FEMA Notification 20(R)/2017 (Foreign Exchange Management (Non-Debt Instruments) Rules) — pricing guidelines, allotment timeline, repatriation rules.
- RBI Master Direction on Reporting — FCGPR within 30 days of allotment, ARF before allotment.
- Income-tax — transfer-pricing on intra-group transactions, Section 195 TDS on outbound payments, Section 9 nexus rules.
How we incorporate a foreign subsidiary
- FDI route check — sector cap, automatic vs government approval, conditions like minimum capitalisation or local-ownership requirements.
- Entity structuring — Pvt Ltd vs Public, holding-vs-WOS, single-tier vs multi-tier.
- Name reservation via SPICe+ Part A.
- SPICe+ Part B — consolidated incorporation, PAN, TAN, EPFO, ESIC, GSTIN.
- Inbound capital infusion — AD-Bank confirmation of inward remittance (FIRC), Advance Reporting Form (ARF) within 30 days.
- FCGPR filing within 30 days of allotment of shares against the inward remittance.
- Annual compliance setup — Annual Return on Foreign Liabilities and Assets (FLA) every July, transfer-pricing documentation, TDS, and Section 92E filings.
Documents we’ll ask for
- Certificate of incorporation and registered office address proof of the foreign holding entity.
- Apostilled / consularised resolution authorising the Indian subsidiary.
- KYC of foreign directors who will sit on the Indian board (passport, address proof, photograph).
- KYC of any Indian-resident director and shareholder.
- Proposed activity / business plan and SAC / HS classification.
- Registered office address proof in India (rent agreement, NOC, utility bill).
- Capital structure and pricing rationale (CCM / DCF / NAV) at the time of allotment.
How long it takes and what it costs
End-to-end incorporation typically lands in 20–30 working days from a complete document set — the apostille / consularisation step is the typical bottleneck. Inward remittance and FCGPR can run in parallel once the entity is incorporated and can hold a bank account. Our fee bundles include the FDI advisory, incorporation, valuation report (where allotment requires Rule 21 valuation), FCGPR filing, and the first FLA return. We share an indicative quote on the discovery call.
Frequently asked questions
What is the difference between a WOS and a branch office?
A WOS is a separate Indian company — full FDI route, separate balance sheet, separate tax. A branch office is an extension of the foreign company — RBI approval needed, narrower permitted activities, more restrictive repatriation. WOS is the right choice for full operating subsidiaries.
Can a foreign individual hold 100% of an Indian Pvt Ltd?
Yes, subject to the FDI sector cap. A Pvt Ltd needs at least two shareholders, so typically the second share is held by another related entity or the founder via a separate vehicle.
What pricing rules apply to share allotment to a foreign holding company?
Allotment must happen at or above the FEMA fair value — certified by a SEBI-registered Category-I Merchant Banker or a Chartered Accountant under Rule 21 of NDI Rules. Below-fair-value allotment is permitted only for ESOPs and rights issues to existing foreign investors.
What are the recurring foreign-investor reporting obligations?
FLA every 15 July, transfer-pricing on intra-group transactions (Form 3CEB / Form 48), audit, ROC filings, and FCGPR / FCTRS on every fresh allotment or transfer involving the foreign shareholder.
Talk to a partner.
A 30-minute call with a partner — no deck, no follow-up email blasts. Just a read on whether we’re the right team to set up your Indian subsidiary.