- A subsidiary is a separate Indian company; a liaison, branch or project office is an extension of the foreign company that needs the approval of an authorised dealer bank or, in some cases, the RBI.
- Equity inflow must come through banking channels, shares must be allotted within 60 days of receipt, and Form FC-GPR must be filed within 30 days of allotment.
- Investment from entities of countries that share a land border with India, or whose beneficial owner is such a country’s citizen, requires government approval under the policy changes of 2020.
- An annual FLA return to the RBI is due by 15 July, in addition to the company’s Companies Act and tax filings.
The vehicles compared
| Wholly owned subsidiary | Branch office | Liaison office | Project office | LLP | |
|---|---|---|---|---|---|
| Legal character | Separate Indian company | Extension of the foreign company | Extension of the foreign company | Extension of the foreign company | Separate body corporate |
| Can it earn revenue in India? | Yes, in permitted sectors | Yes, in permitted activities such as import/export, professional services and R&D | No — representative activity only | Yes, for a specific project | Yes, where FDI is allowed |
| Approval | Automatic route in most sectors; government route where required | Authorised dealer bank approval; RBI in certain cases | Authorised dealer bank approval; RBI in certain cases | Authorised dealer bank approval; no approval where project is funded from abroad or authorised by Indian authority | Automatic route where 100 percent FDI is allowed without performance conditions |
| Tax | Company taxed on income; dividends taxed on distribution | Foreign company taxed on India-sourced profits at its higher rate | No business income; expenses funded from abroad | Taxed on project profits | LLP taxed on profits; no distribution tax on partners |
| Shareholding / ownership | Shares held by the foreign parent | N/A | N/A | N/A | Contribution and profit-share by partners |
Incorporating a wholly owned subsidiary
Incorporation and funding
- 01
Structure
Confirm the sector is on the automatic route and not on the prohibited list; check the land-border rules and any sectoral conditions.
- 02
Name & people
Reserve a name and incorporate through SPICe+; appoint at least two directors, one a resident; obtain DIN and digital signatures.
- 03
Documents
Parent’s incorporation certificate and board resolution authorising the investment, apostilled or notarised, and identity proofs of directors.
- 04
Bank & funds
Open the company’s bank account; parent remits subscription money by inward remittance, with FIRC and KYC from the authorised dealer bank.
- 05
Allot
Allot shares within 60 days of receiving funds, failing which the money must be refunded; a valuation certificate supports the issue price.
- 06
Report
File Form FC-GPR through the Reserve Bank’s portal within 30 days of allotment; file the beneficial-owner declarations under the Companies Act.
What the Reserve Bank expects in the first year
Compliance in the first year
- Day 0Certificate of incorporation issued.
- Within 30 daysFirst board meeting, first auditor appointed and registered with the ROC.
- On remittanceFunds received through banking channel; FIRC and KYC obtained.
- Within 60 days of receiptShares allotted to the foreign investor.
- Within 30 days of allotmentFC-GPR filed, with valuation and auditor certificates as required.
- Within 180 daysDeclaration of commencement of business filed.
- By 15 JulyFLA return filed on the RBI portal for the preceding financial year.
Tax and cross-border dealings
- Transfer pricing. Transactions between the subsidiary and its foreign affiliates — services, royalties, loans — must be at arm’s length and documented. See Taxation & Regulatory.
- GST. The subsidiary registers in each state where it has a place of business and may export services as zero-rated supplies.
- Dividends and repatriation. Profits are repatriated by dividend, subject to withholding tax and the applicable treaty rate; capital is repatriated on buy-back, reduction of capital or sale of shares, in line with pricing guidelines.
- Debt. Loans from the parent are External Commercial Borrowings under FEMA with end-use, maturity and pricing conditions.
Subsidiary set-up file
- Sector check: automatic route, government route or prohibited
- Parent’s board resolution, incorporation papers and ownership chart to ultimate beneficial owner
- Nominee directors’ identity and address documents, with apostille or notarisation
- Registered office proof and NOC from the owner
- FIRC and KYC for each inward remittance
- Valuation report for share allotment
- FC-GPR acknowledgement and FLA calendar
Frequently asked
Can a foreign company own 100 percent of an Indian subsidiary?
In most sectors yes, on the automatic route; in some sectors the cap is lower or government approval is needed, and a few sectors are prohibited. The sector list and caps are in the consolidated FDI policy and the Non-Debt Instruments Rules.
Is a liaison office cheaper than a subsidiary?
It is cheaper to run but limited: it may not earn income in India and is confined to liaison, promotion and communication. Many businesses start with a subsidiary because it can contract and invoice.
Does an Indian subsidiary need an Indian director?
It needs at least one director who has stayed in India for at least 182 days in the previous calendar year, and at least two directors in all for a private company.
What happens if the FC-GPR is late?
Late reporting is regularised on payment of a late-submission fee computed on the amount and the delay under the FEMA compounding framework, or by compounding with the Reserve Bank in more serious cases.
FDI policy, sectoral caps, Press Note 3 conditions and RBI reporting forms are revised by notification. Confirm the current consolidated FDI policy and the RBI’s FIRMS portal requirements before acting. Not a substitute for advice from an advocate or chartered accountant on your facts.