#foreignsubsidiary

Introduction

A wholly owned subsidiary in India allows a foreign parent to hold 100% equity in an Indian company where FDI is permitted, combining full control with local market presence under the Companies Act, 2013 and applicable FEMA/FDI rules. This guide explains eligibility, incorporation steps, documents, directors/shareholders, sector routes, costs, timelines, tax, and post‑incorporation compliance for a wholly owned subsidiary of foreign company in India.

What is a wholly owned subsidiary?

A wholly owned subsidiary is an Indian company whose entire share capital is held by a single parent company, which can be Indian or foreign, making it distinct from a general subsidiary that has majority but not complete ownership. As a separate legal person, the Indian subsidiary holds its own liabilities, contracts, assets, and compliance responsibilities, while strategic control rests with the parent.

Why choose a WOS for India entry?

Full control and brand continuity: The foreign parent drives strategy, hiring, pricing, IP use, and supply chain, while leveraging Indian market proximity and talent.

Limited liability and risk ring‑fencing: The Indian entity’s obligations are separated from the parent’s balance sheet, aiding governance and risk management.

Local contracts and scaling: A WOS can open bank accounts, sign local contracts, hire directly, invoice in INR, and serve domestic and export markets efficiently.

FDI routes and sector eligibility

Automatic route: Many sectors permit up to 100% FDI without prior approval; filings and post‑facto reporting under FEMA/RBI still apply.

Approval route: Sensitive or capped sectors may require prior government approval or have foreign shareholding limits; verify sectoral caps and conditions before drafting charter documents.

Practical tip: Map the exact business activity to the closest NIC/sector description and confirm whether 100% foreign ownership is allowed before name reservation or drafting the MoA.

Directors and shareholders

Directors: Typically at least two directors are appointed for a private company; at least one must be an Indian resident to ensure continuity and compliance.

Shareholders: Record at least two shareholders for statutory formality while maintaining 100% beneficial ownership with the foreign parent through structuring (e.g., nominee share for a second shareholder, if applicable to the chosen structure).

Identification: Foreign directors/shareholders provide notarized/apostilled KYC; obtain DSCs and DINs for e‑filings.

Capital, bank accounts, and funding

Paid‑up capital: No statutory minimum for most private companies; plan capitalization to cover 6–12 months of runway based on operating plan.

Bank setup: Open a capital account to receive foreign remittances and complete FDI reporting and share allotment within stipulated FEMA timelines.

Ongoing funding: Subsequent capital infusions, ECBs, or intercompany loans must comply with FEMA/ECB guidelines and transfer pricing.

Documents and prerequisites

Parent company: Certificate of incorporation, constitutional documents, board resolution authorizing investment, authorized signatory details.

Indian company: Draft MoA/AoA reflecting objects aligned with sectoral FDI policy and 100% foreign ownership, registered office proof, and subscriber sheets.

Promoters/signatories: Apostilled/notarized IDs, address proofs, photographs; PAN for resident director; DSCs and DINs.

Step‑by‑step incorporation process

Name clearance: Reserve a compliant name reflecting brand and business objects to avoid conflicts with existing trademarks or company names.

Digital credentials: Procure DSCs for subscribers and obtain DINs for proposed directors to enable e‑filings.

Charter and subscriptions: Draft MoA/AoA with objects aligned to permitted FDI activities; structure share subscription to preserve wholly owned status.

Filing and incorporation: Submit incorporation forms to the Registrar of Companies; upon approval, receive the Certificate of Incorporation and PAN/TAN as applicable.

Post‑incorporation: Open bank accounts, issue share certificates, appoint statutory auditor, register for GST/IEC/professional tax as needed, and complete FEMA/FDI reporting for capital inflow and allotment.

Timeline and costs

Typical timeline: With complete documentation and straightforward sectors, incorporation can conclude in a few weeks; approvals, apostille cycles, and sectoral checks may extend timelines.

Cost heads: Government fees, name reservation, notarization/apostille, professional fees, banking and translation costs, and initial compliance tooling.

Tax snapshot and repatriation

Corporate tax: Indian subsidiaries are taxed as domestic companies; effective tax depends on regime selected, surcharges, and cess.

Withholding/treaties: Cross‑border payments (dividends, royalties, fees for technical services) may attract withholding tax subject to treaty relief; ensure TRC/Form 10F and documentation.

Transfer pricing: Intercompany transactions must be at arm’s length with robust benchmarking, documentation, and annual reporting.

Repatriation: Dividends, royalties, and service fees can be remitted per FEMA rules; plan cash management to balance local needs and parent returns.

Compliance calendar after incorporation

Corporate secretarial: First board meeting within 30 days, periodic board/AGM, statutory registers, timely director/KMP changes, and annual filings.

FEMA/FDI: Adhere to reporting for capital inflows, share allotment, and subsequent changes; maintain proof of remittances and filings.

Tax and audit: Statutory audit, tax return filing, transfer pricing documentation, TDS/GST returns, and maintenance of books and vouchers per Indian standards.

Common pitfalls to avoid

Starting without sector verification: Misalignment with FDI caps can force restructuring; always confirm sector status pre‑filing.

Under‑documented intercompany arrangements: Missing SLAs or pricing policies invites transfer pricing adjustments and disputes.

Ignoring resident director continuity: Gaps can delay filings, banking, and compliance tasks.

Late FEMA filings: Delays can trigger penalties; calendar all event‑based filings with buffers.

How this service helps

End‑to‑end incorporation: Sector eligibility check, name reservation, DSC/DIN, charter drafting, filings, and certificate procurement.

FEMA/FDI reporting: Capital account opening, remittance documentation, and post‑allotment filings on time.

Compliance and tax setup: Auditor appointment, accounting stack, GST/TDS registrations, transfer pricing policies, and annual calendar.