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Introduction
India remains one of the top three countries in the world with the highest economic growth rate; thus, foreign enterprises, which are looking for new markets for their products, are the main investors in India. In the case of direct entry into India by your company, the establishment of a wholly owned subsidiary (WOS) would be one of the most effective ways to gain independence in your operations, keep full control, and take advantage of the local market, while also securing your global assets. A wholly owned subsidiary is a separate Indian legal entity that is 100% owned by your foreign parent company. This arrangement, unlike the case of a partnership or joint venture, permits you to function in India freely, subject to the Indian corporate laws.
The provided guide gives a comprehensive roadmap to foreign companies, from pre-incorporation planning to post-setup compliance, thus, ensuring smooth market entry and full regulatory adherence.
Why Foreign Companies Choose Wholly Owned Subsidiaries in India
Even before getting into the nitty-gritty of the technical setup, one should know and comprehend the reasons that made this structure the top choice of multinational companies.
Complete Operational Control: The parent company, as the only one holding the shares, has the full authority in making decisions. You dictate the direction of business, product selection, pricing, and where to go next without needing to have agreements with local partners or the outside stakeholders.
Asset Protection and Liability Containment: The subsidiary is granted the status of a separate legal entity and has its own liabilities. Thus, the whole bounty of the global company is protected from any monetary or legal responsibilities acquired in India.
Tax Efficiency: Indian corporate tax is fixed at 25% (plus applicable surcharge and cess) – the wholly owned subsidiaries reimburse that amount easily, as it is much lower than the 30-40% rate of taxation applicable to foreign branch offices or representative offices.
Market Access and Local Credibility: Being an Indian company, rather than a foreign one operating through a branch, increases your market presence and creates local trust.
Profit Repatriation: A subsidiary can repatriate profit, dividends, and capital back to the parent company without major limitations under compliance with the Foreign Exchange Management Act (FEMA), thus allowing effective management of capital through your global operations.
Eligibility Criteria: What Your Company Needs
The criteria for eligibility that are mentioned above align Indian corporate and foreign investment standards with the following guidelines:
Director Requirements
Your subsidiary shall have a minimum of 2 directors. Although one can be a foreign citizen, one of them must be an Indian citizen and national who must be physically present in India for at least 182 days during a financial year.
Shareholder Structure
An absolute minimum of two shareholders is required. In contrast to a few other places, both shareholders can be non-residents, your parent company and another foreign entity, or your parent company and a designated family member or colleague.
Capital Requirements
One of the most helpful to investors aspects of setting up a subsidiary in India is that there is no minimum paid-up capital requirement according to the Companies Act, 2013. Your subsidiary can be formed with very little capital.
Registered Office in India
The incorporation and compliance procedures require a registered office address in India. Your office can be either owned or rented or a virtual one (with a landlord NOC and utility bills as proof), and will be your legal address for regulatory filings, board meetings, and the receipt of legal notices.
Business Structure
Foreign companies usually opt for their subsidiary as a Private Limited Company Registration rather than a Public Limited Company Registration, which grants limited liability protection to shareholders, full ownership control without public shareholders.
Understanding India's FDI Framework and Approval Routes
The Indian government has prescribed two routes,i.e Automatic Route and the Government Route, for regulating foreign direct investments. The sector-wise permissibility, caps and applicable route are prescribed under the Consolidated FDI Policy issued by the Government of India.
The Automatic Route: Simple and Fast
The automatic route is the most advantageous for foreign investors. In this route, foreign companies do not need prior permission from the RBI or the Government of India to set up a subsidiary. Your company can directly proceed to incorporation.
The sectors allowing 100% FDI through this route are:
- IT & ITeS
- Manufacturing (most sub-sectors)
- Telecom
- Power generation from renewable sources
- Airlines (domestic carriers)
- E-commerce (marketplace model)
- Drugs and medical devices
- Insurance
- Most services
The automatic route greatly shrinks the time needed for incorporation and reduces the number of bureaucratic hurdles, thus giving a faster and more predictable market entry.
The Government Approval Route: For Restricted Sectors
Some sectors are subject to the government approval route, which requires obtaining a prior approval from the Department for Promotion of Industry and Internal Trade (DPIIT) before setting up the business.
The sectors that are restricted include:
- Defence (the automatic route allows 74% FDI; for any investment beyond 74% approval is needed)
- Insurance (full 100% FDI is permitted with the automatic route as per Union Budget 2025)
- Multi-brand retail (maximum of 51% investment allowed; government approval is needed)
- Aviation (foreign airlines can invest 49% in Indian carriers only)
- Natural resources and strategic sectors
Step-by-Step Incorporation Process of Subsidiary Company
The procedure for setting up a wholly owned subsidiary in India is a well-organized one that takes place in steps. Although the duration of each phase may vary depending on the time taken to prepare documents, most of the incorporations are accomplished within a period of 10-15 working days.
Step 1: Parent Company Authorization and Document Legalization (Days 1-3)
The incorporation process of your subsidiary starts in your home nation. The Board of Directors of your parent company has to pass a resolution that will authorize the establishment of the Indian subsidiary, appoint an authorized signatory for overseeing the whole process, and give approval for the shareholding structure.
Step 2: Obtaining Digital Signature Certificates (Days 1-2)
The entire registration process of the company in India is in a digital form, which requires all directors to digitize their signatures in the incorporation documents. Each of the proposed directors is to get a Digital Signature Certificate (DSC), especially a Class 3 DSC, from a certification agency that is authorized to do so.
Step 3: Name Approval from the Registrar of Companies (Days 2-3)
The approval of the name is an outcome of the Filing of Part A of the SPICe+ form (Simplified Proforma for Incorporating Company Electronically). Normally, the Registrar of Companies (ROC) approves the name in 5-7 working days.
Step 4: Drafting and Attestation of Charter Documents (Days 3-7)
After the approval of the name, the Memorandum of Association (MOA) and Articles of Association (AOA) have to be done and fixed up. These papers are legally framed in such a manner that the governance practices and operational requirements of your parent company are explicitly mentioned in the content. The draft MOA & AOA, Subscriber sheet, along with the KYC documents of all foreign shareholders, must be apostilled and notarized from the relevant authority in the foreign country.
Step 5: Filing the SPICe+ Form with MCA (Days 4-10)
The SPICe+ form is one complete and unified document that combines approval of the name, incorporation, and simultaneous registration for PAN, TAN, EPF, and ESIC into a single filing. After the application has been digitally signed by all directors and shareholders using their DSCs, it is then submitted to the MCA portal.
Step 6: Receiving the Certificate of Incorporation (Days 7-12)
Once all the documents have been successfully verified, the Registrar of Companies issues a Certificate of Incorporation (COI). This certificate is like the birth certificate of your company; it guarantees the separate legal entity of your subsidiary and, at the same time, assigns a unique Corporate Identification Number (CIN). If business is not started within 180 days, the company can be removed from the ROC register due to non-activity.
Common Challenges and How to Overcome Them
Challenge 1: Director Residency Requirements
For foreign subsidiaries just starting out without any local teams, getting an Indian resident director might be quite difficult.
Solution: Get professional director services from well-known directors’ supplying firms which have Indian directors who are qualified and experienced. The cost (₹10,000-₹20,000 per year) is very low compared to the value of compliance they offer.
Challenge 2: RBI FIRMS Portal Complexity
The FIRMS portal is a very necessary one, but it is very hard to learn as it is full of fields, supporting documents, and validation rules.
Solution: Cooperate your authorized dealer bank or a specialized FEMA consultancy. Most banks provide free FIRMS portal help to their clients.
Challenge 3: Transfer Pricing Documentation
The process of building up the defence and proper transfer pricing documents is very time-consuming, and it needs a skilled team to do the economic analysis and benchmarking studies.
Solution: Hire transfer pricing specialists during your first year. The investment in the consulting fees is well worth it, as you will not have to pay potential tax disputes with 50-200% penalties.
Challenge 4: Timely GST and Tax Compliance
Filing GST returns or undergoing tax audits after the due dates might result in penalties and extra work in different departments.
Solution: Hire a bookkeeper or an accounting services firm right from the beginning. With the use of automated compliance calendars and reminder systems, there will be no missed deadlines.
Challenge 5: Repatriation of Profits
Multinational companies wanting to repatriate their profits often face the same problem, namely, a lack of clear instructions regarding the timing and method of withdrawal of profits, dividends, or the repayment of loans.
Solution: Partner with your tax professional to craft dividend schemes and loan contracts that are both compliant with FEMA and tax-efficient. Keep supporting documents (such as board resolutions and profit declarations) up to date for every transaction involving repatriation.
Conclusion
JustStart offers not only complete subsidiary incorporation services but also resident director services, RBI FDI advice, taxation support, transfer pricing compliance and continuance of regulatory support for those foreign firms looking to smoothen the process of establishing a foothold in India with the highest compliance standards. By JustStart, you can successfully go through the complex Indian regulations and build a market presence that has the quality of compliance.
Want to set up your subsidiary in India? Get in touch with JustStart’s Experts now to get a free consultation regarding your setup needs and schedule!
Frequently Asked Questions (FAQs)
1. Is it necessary to have a local Indian partner for a subsidiary establishment in India?
No, a local partner is not required at all. You are allowed to form a completely owned subsidiary with total foreign ownership in most industries through the automatic FDI route, which means you will have absolute operational control with no external stakeholders.
2. What is the required minimum paid-up capital for a subsidiary in India?
For a subsidiary in India, no minimum paid-up capital amount is stipulated by law. Still, it is advisable to keep sufficient working capital to support the costs of setting up, regular compliance, and showing business viability to the banks and tax authorities.
3. What is the duration of the orderly process of incorporating a subsidiary?
If all the documents are in place, the certificate of incorporation will be issued within 10-15 working days. The completion of post-incorporation formalities (bank account, RBI FC-GPR filing, GST registration) will add 3-5 weeks, and thus the total time for the whole process will be around 4-6 weeks.
4. Is it necessary to have a resident Indian director?
One of the directors should definitely be a resident Indian who has been staying in India for a minimum of 182 days in the last financial year. This director will be your subsidiary's local representative for all compliance and accountability matters.
5. Is it allowed to register the address of the virtual office as the official one?
It is permitted to have a virtual office or a co-working space as your registered office if there is an actual physical address, reception of official documents is allowed, and proper documentation is provided (No Objection Certificate, utility bill, lease agreement).
6. What specific documents of the parent company are required during incorporation?
The following documents are necessary: Certificate of Incorporation, Memorandum & Articles of Association (MOA & AOA), Board Resolution authorizing the establishment of the subsidiary and Power of Attorney. All documents from foreign sources must be either apostilled or notarized.
7. Is it a must to have foreign documents apostilled?
It is a must: all foreign documents, such as the Certificate of Incorporation, MOA/AOA, and Board Resolution, are required to be apostilled (international certification) or notarized. The process usually takes around 2 to 5 business days when done through your government's authorized service.
8. What are the main differences between automatic route and government approval route FDI?
The automatic route facilitates direct incorporation without government clearance (IT, manufacturing, telecom sectors). In contrast, the government approval route demands prior approval from DPIIT before incorporation (multi-brand retail, aerospace, border country investments).
