Introduction
Many US companies expanding into India start with a distributor or a contractor agreement. It feels low-risk. But once revenue grows, that arrangement often creates more headaches than it solves — limited control, no local hiring ability, and murky liability.
A subsidiary changes that. It lets a US business sign contracts directly, hire Indian employees, and keep its balance sheet clean and separate from the parent.
The catch: getting there means navigating FDI eligibility, Companies Act requirements, document authentication, capital remittance, and dual-country reporting.
Decision-makers commonly struggle with choosing the right structure, authenticating US paperwork for Indian authorities, and figuring out what compliance continues after incorporation.
This guide walks through entity selection, pre-incorporation checks, the MCA incorporation sequence, RBI/FEMA obligations, and post-incorporation tax and compliance. Requirements vary by sector, so verify current rules for your specific business activity before filing anything.
Key Takeaways
- An Indian subsidiary is a separate legal entity; FDI sector rules set ownership limits and approval routes.
- US parent documents need authentication (often via apostille) before MCA incorporation can begin.
- Incorporation is only step one: capital remittance, RBI reporting, tax registration, and annual filings still follow.
- A structured entry plan prevents document delays and the gap between incorporation and going live.
Should a US Company Set Up an Indian Subsidiary?
Companies choose a subsidiary when they need to contract locally, hire Indian staff, build customer or vendor relationships directly, and keep liability separate from the US parent. A registered Indian company also tends to look more credible to Indian partners signing contracts or leases.
Comparing Your Entry Options
| Structure | Can Earn Revenue? | Can Hire Employees? | Liability |
|---|---|---|---|
| Wholly owned subsidiary | Yes | Yes | Limited to shareholding |
| Joint venture | Yes | Yes | Limited to shareholding |
| LLP | Yes (where 100% automatic FDI applies) | Yes | Limited |
| Branch office | Only from RBI-permitted activities | Limited | Unlimited (parent assets exposed) |
| Liaison office | No | Restricted to liaison functions | N/A — cannot trade |
| Distributor/EOR | N/A (third-party arrangement) | No direct hiring | N/A |
A branch office can generate income, but only from activities RBI has pre-approved, such as consultancy or IT services. A liaison office cannot earn Indian income at all. It exists purely to gather market information and represent the parent. Always verify current RBI and FEMA restrictions before assuming any of these routes fits your activity.
Quick decision framework:
- Testing the market with no local revenue plan? A liaison office may suffice.
- Need to earn income from a narrow list of permitted services? Consider a branch office.
- Planning full commercial operations, local hiring, and long-term presence? A wholly owned subsidiary or JV is usually the right call.
- Sector has FDI restrictions? A JV or Government-route approval may be unavoidable.
What a US Parent Must Confirm Before Incorporation
Before filing anything, confirm three things: whether your business activity is FDI-eligible, what corporate structure you need, and which parent documents you need—and how those documents must be authenticated.
FDI Eligibility and Sector Restrictions
India's FDI policy splits investments into automatic route (no prior approval) and government route (requires approval). Certain sectors are fully prohibited for FDI, including lottery, gambling, chit funds, and tobacco manufacturing. Others carry caps or pricing conditions.
Investments involving entities from countries sharing a land border with India face additional restrictions and generally require government-route approval, regardless of sector. Check current DPIIT and RBI guidance for your specific activity, and identify any state-level or sector-specific licenses needed before operations begin.
Structure Requirements
A private limited subsidiary typically needs:
- At least two shareholders (can be foreign)
- At least two directors, with one resident in India for at least 182 days in the financial year
- A registered office address in India
- Appropriate authorized and paid-up capital
There is no prescribed minimum paid-up capital under the Companies Act (the old INR 100,000 rule has been removed). Verify current provisions rather than older guidance, since requirements shift.
Documents Needed from the US Parent
Indian authorities typically request:
- Certificate of incorporation and constitutional documents
- Board resolution approving the Indian investment
- Details of the authorized representative
- Proposed business activities and ownership information
- Power of attorney, where applicable
For proposed directors, shareholders, and beneficial owners, you'll also need passports, address proof, photographs, and tax identification details.
Authenticating US Documents
The US Embassy in India advises obtaining an apostille from the state that issued the document. Each state authenticates its own paperwork. Once apostilled, the document generally doesn't need further State Department or consular legalization for use in India.
Watch for small inconsistencies. Mismatched company names, addresses, signature styles, or dates across documents are a common cause of resubmission requests from the Registrar of Companies.
How to Set Up a Subsidiary Company in India from the US
Step 1: Finalize Your India-Entry Plan
Before filing anything, get board sign-off on:
- Entity type and proposed company name
- Business objects and shareholding structure
- Directors (including the India-resident director)
- Registered office location and state of operation
- FDI route applicable to your activity
Step 2: Arrange Digital Signatures and Director IDs
Directors and subscribers need Digital Signature Certificates (DSCs) to sign electronic forms. Proposed directors without a Director Identification Number (DIN) apply for one through SPICe+. MCA requires signers to register as Business Users on the portal first.
Step 3: Reserve the Name and File SPICe+
SPICe+ Part A reserves your company name. Part B handles incorporation itself, along with linked forms covering:
- Memorandum and Articles of Association (e-MOA, e-AOA)
- PAN and TAN applications
- GST registration (where applicable)
- Employee registrations
- Bank account opening request (AGILE-PRO-S)
Fees, attachments, and name-reservation validity periods change periodically. Verify current details on the MCA portal rather than relying on older published figures.
Step 4: Respond to Registrar Queries
The Registrar of Companies (ROC) may raise clarifications on your filing. Address these promptly — inconsistent details are the usual culprit. Once cleared, you'll receive the Certificate of Incorporation, Corporate Identification Number, PAN, and TAN.
Step 5: Complete Post-Incorporation Activation
- Open the corporate bank account using the Certificate of Incorporation and related documents.
- Remit subscribed capital through permitted banking channels. Retain the bank advice or FIRC for your records.
- Allot shares to the US parent and complete any required valuation.
- File FC-GPR through RBI's FIRMS portal, generally due within 30 days of share issuance.
Your authorized dealer bank plays a role in this process, so loop them in early. Keep every remittance and reporting record; both Indian regulators and your US tax adviser will want evidence later.
What Happens After Incorporation? Funding, Tax and Compliance
Incorporation fees are a fraction of your total setup cost. Budget for:
- Professional fees for entity formation
- Document apostille and authentication
- Registered-office costs
- State-level registrations
- Banking and capital remittance costs
- Accounting, audit, and secretarial compliance
Treat published cost figures as indicative ranges, not fixed quotes. They shift by state, sector, and service provider.
Indian Tax Obligations
Domestic companies face corporate tax that varies by turnover and the tax regime chosen. Some rates run near 25% for companies under certain turnover thresholds, with different rates under sections like 115BAA or 115BAB depending on eligibility.
Plan also for GST registration where turnover thresholds are met, withholding tax on payments to the US parent, and mandatory statutory audit.
Transfer pricing applies to cross-border transactions with the parent. Related-party dealings need arm's-length pricing and documentation, plus an accountant's report (Form 3CEB) generally due by October 31.
The India-US tax treaty limits India's right to tax business profits to those attributable to a permanent establishment, and common ownership alone doesn't create one. That said, treaty benefits require careful documentation; this isn't automatic.
US-Side Tax Coordination
Your subsidiary's existence creates US reporting obligations too. Talk to a cross-border tax adviser about:
- Form 5471 filing requirements for US persons controlling a foreign corporation
- GILTI calculations for controlled foreign corporations (Form 8992)
- Treatment of dividends and intercompany payments
- Foreign tax credit planning
These are separate from your Indian subsidiary's own filings. Don't assume one covers the other.
Recurring Indian Compliance
Once operational, your subsidiary faces regular obligations:
- Board meetings and statutory register maintenance
- Annual financial statements and audit
- AOC-4 filing (financial statements) within 30 days of the AGM
- MGT-7 filing (annual return) within 60 days of the AGM
- Annual FLA return to RBI, generally due by July 15 if you have outstanding foreign investment
- Commencement-of-business declaration
Verify current deadlines and exemption thresholds before your first filing cycle. These details are updated periodically.
Operational Registrations
Beyond core compliance, some registrations apply only if certain conditions kick in:
- Always needed: GST (if turnover threshold met), PAN/TAN, registered office compliance
- Needed if hiring: EPF, ESI, professional tax, Shops & Establishment registration
- Needed if trading internationally: Import-export code
- Needed in regulated sectors: Industry-specific licenses
Conclusion: Move from US Planning to India Operations
The path from plan to operations is clear:
- Pick the right structure
- Confirm FDI eligibility for your activity
- Authenticate your US documents
- Complete MCA incorporation
- Fund and report the investment
- Build a recurring compliance calendar
Before your first consultation, be ready to discuss:
- Your intended business activity
- Ownership plan and expected shareholding
- Proposed directors (including who will meet the resident-director requirement)
- Expected hiring in year one
- Preferred state of incorporation
- Funding and capital needs
- Target launch date
- Whether your US tax adviser is already involved
With those answers ready, you can move from US-side planning into India incorporation, funding, and day-one compliance with fewer delays.
How VJM Global Can Support a US Company Entering India
VJM Global has helped 500+ American business owners and other foreign companies enter India over 30+ years, combining chartered accountancy expertise with hands-on entity-formation experience. Support covers India entry from first structuring decisions through ongoing compliance:
- Entity and business-model recommendation, including FDI policy analysis and capital structuring
- Digital signatures, DIN applications, and RoC filings through incorporation
- Bank account assistance and commencement-of-business filing
- Ongoing accounting, bookkeeping, and financial statement preparation
- GST, withholding tax, and transfer pricing advisory
- Payroll management and employment-law compliance
- ROC annual filings, statutory register maintenance, and secretarial compliance
The team includes CPAs and Chartered Accountants who understand both US reporting expectations and Indian regulatory requirements. That dual fluency matters when your books need to satisfy two tax authorities at once.
If you're planning an India subsidiary and want a structured assessment of your entry route, documentation needs, and compliance calendar, reach out to VJM Global at [email protected].
Frequently Asked Questions
How do I form a subsidiary company in India?
Select an eligible structure, confirm FDI eligibility for your business activity, prepare and authenticate US parent documents, then file through MCA's SPICe+ process. After incorporation, remit capital and complete RBI/FEMA reporting.
Can a US company own 100% of an Indian subsidiary?
It depends on the sector. Many sectors allow 100% FDI through the automatic route, but some carry caps, conditions, or require government approval. Check current DPIIT sector rules for your specific activity.
Does a US company need an Indian resident director to set up a subsidiary?
Yes — Indian private companies need at least one director who resides in India for a minimum period during the financial year. Verify the current Companies Act definition and appointment rules before finalizing your director list.
What documents does a US parent company need to establish an Indian subsidiary?
You'll need the parent's certificate of incorporation, constitutional documents, a board resolution approving the investment, authorized representative details, and properly authenticated identity and address documents for directors and shareholders.
How long does it take and how much does it cost to set up an Indian subsidiary from the US?
Timelines and costs vary based on document authentication, name approval, banking setup, and sector-specific approvals. Rather than a fixed number, budget for incorporation fees, apostille costs, professional fees, and ongoing compliance.
What compliance is required after an Indian subsidiary is incorporated?
Expect statutory audit, MCA annual filings (AOC-4, MGT-7), GST and income tax compliance where applicable, RBI/FEMA reporting like FLA returns, transfer pricing documentation, and payroll compliance if you hire locally.
