{"id":463,"date":"2026-10-19T05:14:18","date_gmt":"2026-10-19T05:14:18","guid":{"rendered":"https:\/\/kbcca.com\/blog\/?p=463"},"modified":"2026-10-19T05:20:28","modified_gmt":"2026-10-19T05:20:28","slug":"setting-up-wholly-owned-subsidiary-india-guide","status":"publish","type":"post","link":"https:\/\/kbcca.com\/blog\/setting-up-wholly-owned-subsidiary-india-guide\/","title":{"rendered":"Setting Up a Wholly Owned Subsidiary of a Foreign Company in India: The 2026\u201327 Guide to Incorporation, FEMA and Tax Compliance"},"content":{"rendered":"

Nearly every first conversation with an overseas founder or CFO starts the same way: “Can we just open a small office in Delhi and see how it goes?” It is a sensible question. It is also the one where the answer matters most, because the entry vehicle you pick in month one shapes your tax bill, your hiring options and your reporting burden for years afterwards.<\/p>\n

For most US, UK, European, Singapore and Japanese businesses that plan to hire people, sign Indian customer contracts or own intellectual property here, the answer is a wholly owned subsidiary (WOS)<\/strong>: an Indian private limited company whose shares are held by the foreign parent. This guide walks through the whole path as it stands in October 2026: choosing between a subsidiary and a branch or liaison office, the FDI rules (including the March\u2013May 2026 changes to Press Note 3), the incorporation steps on the MCA portal, the FEMA filings that follow, and the income tax obligations that catch new subsidiaries out.<\/p>\n

The short version: <\/strong>To set up a wholly owned subsidiary in India, the foreign parent (1) confirms the sector is open under the FDI Automatic Route, (2) incorporates a private limited company through SPICe+ on the MCA portal with at least two directors, one of whom is resident in India, and at least two shareholders, (3) legalises its documents by apostille or consularisation, (4) remits the share capital through a bank, and (5) reports it to the RBI on Form FC-GPR within 30 days of allotment. The subsidiary then files an income tax return and ROC annual filings every year, even if it earns nothing.<\/p>\n

Subsidiary, branch office or liaison office: which should you choose?<\/h2>\n

Branch and liaison offices are not separate companies. They are extensions of the foreign parent, governed by the FEMA regulations on establishing offices in India (Notification No. FEMA 22(R)\/2016-RB) and Sections 379 to 393 of the Companies Act, 2013. A subsidiary is a separate Indian company under the Companies Act, 2013, and foreign investment into it is governed by the FEMA (Non-debt Instruments) Rules, 2019.<\/p>\n\n\n\n\n\n\n\n\n\n\n
<\/td>\nWholly owned subsidiary (private limited)<\/strong><\/td>\nBranch office (BO)<\/strong><\/td>\nLiaison office (LO)<\/strong><\/td>\n<\/tr>\n<\/thead>\n
Legal status<\/strong><\/td>\nSeparate Indian company. Parent’s liability is generally limited to its share capital.<\/td>\nExtension of the foreign company. Parent is directly liable for Indian obligations.<\/td>\nExtension of the foreign company. Parent is directly liable.<\/td>\n<\/tr>\n
Approval<\/strong><\/td>\nNone under the Automatic Route (covers most sectors). Government approval in restricted sectors.<\/td>\nPrior approval of an AD Category-I bank or the RBI.<\/td>\nPrior approval of an AD Category-I bank or the RBI.<\/td>\n<\/tr>\n
Parent eligibility<\/strong><\/td>\nNone. A recently formed US LLC or Delaware C-corp can invest.<\/td>\nProfit-making track record for the last 5 financial years and net worth of at least USD 100,000.<\/td>\nProfit-making track record for the last 3 financial years and net worth of at least USD 50,000.<\/td>\n<\/tr>\n
What it can do<\/strong><\/td>\nAny lawful business: software, services, manufacturing, domestic sales, R&D, hiring at scale.<\/td>\nExport\/import, professional or consultancy services, R&D, IT and software services, technical support. No retail trading or manufacturing outside an SEZ.<\/td>\nOnly liaison work: representing the parent and communicating. No contracts, invoicing or income in India.<\/td>\n<\/tr>\n
Income tax<\/strong><\/td>\nDomestic company. 22% under Section 115BAA (about 25.17% with surcharge and cess), if the option is exercised on time.<\/td>\nTaxed as a foreign company at 35% plus surcharge and cess: about 36.4% to 38.22% depending on income.<\/td>\nNot taxed if it truly does liaison work, but it must file Form 49C every year. Any commercial activity risks a permanent establishment assessment.<\/td>\n<\/tr>\n
Getting money out<\/strong><\/td>\nDividends, with tax and bank formalities. Royalties and fees under transfer pricing rules.<\/td>\nPost-tax profits, on submission of audited accounts and a CA certificate.<\/td>\nNo profits. Only unused inward remittances on closure.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

There is no rule that says you must start with a subsidiary. A liaison office is a reasonable way to test a market for a year or two if you genuinely only need market research and relationship building. But we see the same pattern repeatedly: the moment a team starts negotiating prices, taking orders or supporting customers, the liaison office has outgrown its permission, and restructuring into a subsidiary under pressure is slower and costlier than starting with one. For companies that intend to bill anyone in India, or to run an Indian delivery centre or Global Capability Centre (GCC) for the parent, the subsidiary is almost always the cleaner structure. See our work on consultancy services to foreign companies in Delhi<\/a> for how we usually frame that decision. If you already run a BO, LO or PO, our guide to its annual RBI and ROC compliance explains what you are carrying.<\/p>\n

A note on rates: the foreign-company rate of 35% has applied since the 2024 Budget. The effective rate is 36.4% up to \u20b91 crore of income, 37.128% between \u20b91 crore and \u20b910 crore, and 38.22% above \u20b910 crore, after surcharge and 4% cess.<\/p>\n

Before you file: the FDI route and the 2026 change to Press Note 3<\/h2>\n

Automatic Route and Government Route<\/h4>\n

Foreign investment in Indian companies is governed by the Consolidated FDI Policy (issued by DPIIT) and the FEMA Non-debt Instruments Rules, 2019. Under the Automatic Route<\/strong>, you need no government or RBI approval before incorporating and remitting capital. Most sectors, including IT and software, management consulting, manufacturing, B2B and marketplace e-commerce, renewable energy and engineering services, are open to 100% FDI this way. A smaller group of sectors need prior approval under the Government Route<\/strong>, applied for through the Foreign Investment Facilitation Portal. Sectoral caps and conditions change often, so check the current policy for your specific activity, not an old summary.<\/p>\n

Investors from land-border countries: what changed in 2026<\/h4>\n

Under Press Note 3 of 2020, any investment from an entity situated in, or beneficially owned by a citizen or entity of, a country sharing a land border with India (China, Bangladesh, Pakistan, Nepal, Bhutan, Myanmar and Afghanistan) needed prior government approval, whatever the sector or percentage. That created real uncertainty for global funds and multinational parents with small indirect holders from those countries.<\/p>\n

The position was relaxed in 2026. The Cabinet approved changes on 10 March 2026, DPIIT issued Press Note 2 (2026 Series) on 15 March 2026, and the FEMA Non-debt Instruments Rules were amended with effect from 2 May 2026. In broad terms:<\/p>\n