How Can a Foreign Company Set Up a Wholly Owned Subsidiary in India?
A foreign company seeking a full operating presence in India will commonly establish an Indian private limited company as its wholly owned subsidiary. The Indian company is a separate legal person and can employ staff, contract with customers, invoice revenue and conduct permitted business.
1. Entry options
Structure | Purpose | Key point |
Wholly owned subsidiary | Full commercial operations | Indian company with foreign ownership subject to sectoral cap/entry route |
Joint venture | Local + foreign ownership | Useful where a local partner is commercially or regulatorily relevant |
LLP | Eligible sectors | 100% FDI automatic route where permitted and no performance conditions apply |
Liaison office | Representation | No normal commercial trading or income-earning activity |
Branch office | Specified activities | Restricted activities and FEMA/approval conditions |
Project office | Specific project | Linked to an identified contract/project and FEMA conditions |
2. Automatic route, Government route and prohibited sectors
FDI eligibility must be checked under the Consolidated FDI Policy and the FEMA (Non-Debt Instruments) Rules, 2019, as amended. Many sectors permit substantial or 100% FDI under the automatic route, but sector-specific caps and performance conditions can apply. Certain sectors require Government approval and specified activities remain prohibited.
2. Dividends
Dividends are distributions to shareholders governed by the Companies Act and the company’s available distributable profits and approvals. Dividend income is generally taxed in the shareholder’s hands under the prevailing income-tax regime, subject to applicable withholding and other provisions.
Dividend is therefore different from salary: it is a distribution, not a normal business expense.
3. 2026 land-border beneficial-ownership update
The 2026 framework changed the earlier blanket approval position. The revised policy introduced a beneficial-ownership test at the investor-entity level and permits non-controlling beneficial ownership from countries sharing a land border with India of up to 10% under the automatic route, subject to applicable sectoral caps, entry routes, attendant conditions and reporting.
Investments outside the automatic-route carve-out can continue to require Government approval. The framework also provides a 60-day decision timeline for specified manufacturing sectors.
For a foreign parent incorporated in Singapore, the UAE, Mauritius, the US or another third country, the ownership chain still matters. The place of incorporation alone does not end the beneficial-ownership analysis.
4. Incorporation of the WOS
- Confirm the business activity, sectoral cap and entry route.
- Obtain foreign-parent incorporation, constitutional, board-authorisation and KYC documents in the required form.
- Obtain DSCs and complete SPICe+ incorporation and linked registrations.
- Appoint at least two directors for a private company, including at least one director satisfying the resident-director requirement.
- Provide and verify the Indian registered office.
- Open the bank account and receive share subscription money through permitted channels.
- Allot shares and complete Companies Act and FEMA reporting within the applicable timelines.
5. Capital and shareholding
A private company has no universal minimum paid-up capital requirement merely because it is foreign-owned. The foreign parent can hold the permitted ownership percentage, with nominee/local shareholders only where legally required for the structure. Member, director and beneficial-ownership requirements must still be satisfied.
6. Key post-incorporation compliance
Compliance | Indicative requirement |
First auditor | Generally within 30 days of incorporation |
Commencement declaration | INC-20A generally within 180 days where applicable |
FC-GPR | Generally within 30 days of issue of relevant equity instruments to a non-resident |
FLA return | Generally by 15 July each year where applicable |
Annual ROC filings | AOC-4, MGT-7/MGT-7A as applicable |
Tax/payroll | Income tax, TDS, GST, EPFO/ESIC and other applicable registrations |
Transfer pricing | Where applicable to international/specified transactions |
7. Foreign-parent documents
Documents executed outside India may require notarisation, apostille or consularisation depending on the country and receiving authority. A transaction-specific document checklist should be prepared before signing.
Planning to Establish Your Business in India?
Assess your proposed ownership structure, FDI eligibility, incorporation requirements and ongoing compliance obligations before committing to your India expansion.
Reach out through www.lgassociates.org | +91-94636 40466 | info@lgassociates.org