6 Things to Know Before Forming a Subsidiary Company in India

Companies from all over the world are looking to set up subsidiaries in India. India has become the most attractive destination for business expansion and subsidiary formation.

India offers a skilled workforce, a consumer market, and a growing digital infrastructure, making it easy for them to decide.

Though it may seem easy to enter the Indian market, there are regulations, taxation, compliance requirements, and operational challenges. These factors will hold you back and become an obstacle to achieving your ultimate goal. 

Many organizations make the mistake of misunderstanding legal and strategic implications, which causes them hefty fines. To avoid these kinds of mistakes, we have listed 6 aspects that you must know before forming a subsidiary company in India. 

In this blog, you will learn,

• • What is a subsidiary company in India?
  • Why do foreign companies choose India for subsidiary formation?
  • 6 key things to know about forming a subsidiary company in India.

What is a Subsidiary Company in India?

Here is a simple and traditional definition. 

“A subsidiary company is a business entity controlled by another company that is known as the parent company.”

According to Indian corporate law, a company will be considered a subsidiary if it holds 50% of the other company’s share capital.

A foreign company can set up a subsidiary company in India by owning 100% of the shares. Also, it depends on the sector and foreign direct investment (FDI) regulations. 

In India, a subsidiary is a separate legal entity from its parent company. It has its own legal identity, Bank accounts, Tax obligations, Compliance responsibilities, and Liabilities. This subsidiary structure offers great flexibility and credibility in the Indian market.

Now that we know what a subsidiary company is, let’s see why foreign countries prefer to form a subsidiary company in India.

Why is India the Favorite Destination for Foreign Companies to Form a Subsidiary?

A subsidiary is the best option to experience operational flexibility. This is why many international companies opt to set up a subsidiary in India. 

Let’s understand some important advantages:

• • The company can directly generate revenue in India
  • The company gets separate legal protection from the parent company 
  • It becomes easier to hire local employees
  • It provides better market credibility
  • Companies get access to Indian government incentives
  • India has simplified customer and vendor relationships
  • Companies experience long-term operational stability

These are the prime benefits a foreign company receives after choosing India. But to get these benefits, companies need to address other aspects.

Let’s understand all of them one by one.

Incorporation of a Foreign Subsidiary Company in India (Process)

To set up a foreign subsidiary in India, follow the Companies Act, 2013, and the Foreign Exchange Management Act (FEMA).

Steps to Incorporation of a Foreign Subsidiary Company in India: 

1. 1. Choose Business Structure: A Private Limited Company is typically ideal for foreign subsidiaries.
   2. Obtain Digital Signature Certificates (DSC): Needed for filing electronic documents.
   3. Apply for Director Identification Numbers (DIN) for all directors at the MCA portal.
   4. Reserve Company Name: Use the RUN service on the MCA portal. Make sure it follows naming rules and isn’t already taken.
   5. Prepare Incorporation Documents:
      • Include the Memorandum of Association (MoA) and Articles of Association (AoA).
      • Gather identity and address proofs for directors and shareholders.
      • Notaries must notarize and authenticate foreign documents.
   6. Submit an Incorporation Application: Use the SPICe+ form. Include the eMoA (INC-33) and eAoA (INC-34). On approval, you’ll receive the Certificate of Incorporation, PAN, and TAN.
   7. Open a Bank Account: Manage financial transactions in the company’s name.
   8. Post-Incorporation Steps:
      • File Form 20A (Declaration for Commencement of Business).
      • Get GST registration if required.
      • Meet any other regulatory needs.

Talking to legal and financial experts who understand Indian corporate laws helps a lot.

6 Key Things To Know Before Forming A Subsidiary Company In India

India is attracting global businesses across technology, manufacturing, healthcare, fintech, and e-commerce sectors.

Now that you’re planning to expand your operations in India, let me share 6 key things to keep in mind. 

Understand the Type of Subsidiary Structure

Ways for foreign companies to establish business in India include a Wholly Owned Subsidiary (WOS), a Public Limited Company (PLC), or a Private Limited Company (Pvt Ltd). 

Wholly owned means the foreign company holds 100% of the shares. 100% FDI is allowed under the automatic route for most of the sectors, but some sectors require government approval.

It is very important to choose the right structure because it impacts liability, taxation, compliance requirements, and fund repartition. Given its limited liability and operational flexibility, many foreign companies prefer a private limited company as a wholly owned subsidiary.

Check FDI Rules & Sectoral Restrictions

The Foreign Exchange Management Act (FEMA) and FDI policy guidelines govern foreign investments. You must have a checklist before forming a subsidiary.

• • Does your industry allow 100% FDI?
  • Is the approval from the RBI or the Government of India required?
  • Is there any minimum capital requirement?
  • Are there any compliance reporting obligations?

In India, sectors such as defense, telecom, and insurance face certain restrictions. Industries such as IT, consulting, and manufacturing allow full foreign ownership. During this, the company should not forget to consider FDI rules, as they can delay or even reject the entire process.

Incorporation process and legal requirements 

Here is the incorporation process and the legal requirements for forming a subsidiary company in India.

• • Minimum 2 Directors are required
  • One of those directors must be an Indian resident. 
  • Minimum 2 shareholders are required

Documents: 

• • Passport copies
  • Address proof
  • Board resolution from the parent company
  • MOA & AOA drafting
  • Registered office address in India

If you’re planning to form the subsidiary in Delhi or Gurgaon, then you must consider arranging a local registered office address.

Taxation & Compliance Obligations

It is mandatory for the subsidiary companies to comply with Indian rules and regulations, such as:

• • Corporate Income Tax 
  • GST registration
  • TDS compliance
  • Annual ROC filings
  • Audit requirements 

India has Double Taxation Avoidance Agreements (DTAAs) with various countries. It reduces the tax burden on profit repatriation.

If the subsidiary company in India is found to be non-compliant, it will attract legal actions and penalties. It is very important to manage proper accounting and compliance management since day one.

Employment law, repatriation of profits, and ongoing compliance 

Before forming a subsidiary company in India, plan your actions for employment law, profit repatriation, and ongoing compliance obligations. 

Aspects of Indian employment regulations are,

• • Employee Benefits
  • Working Conditions
  • Payroll Compliance
  • Provident Find (PF)
  • Employee State Insurance (ESI)
  • Gratuity
  • Termination Policy

Foreign businesses should ensure their employment contracts and HR practices comply with local labor laws. Businesses must know how the profits are supposed to be transferred to the parent company. The profit division must follow the Indian tax laws, FEMA regulations, and transfer pricing guidelines.

Most importantly, a subsidiary company in India must manage 

• • ROC Filings 
  • GST Returns 
  • Tax Filings 
  • Statutory Audits
  • Payroll Compliance
  • Annual Reporting

If the company fails to meet these regulatory requirements, it faces hefty fines and legal complications.

Timeline & Cost of Incorporation

Let’s see what the process of forming a subsidiary company in India contains: 

• • Name approval(RUN/SPICe+process)
  • Digital Signature Certificates (DSC)
  • Director Identification Number (DIN)
  • Incorporation filing with MCA
  • PAN & TAN issuance
  • Bank account opening
  • RBI reporting (for foreign investment)
  • Timeline: 10–15 working days (subject to documentation)

The cost depends entirely on the authorized capital, professional fees, and compliance services. 

Working with an experienced company formation consultant in India ensures smooth documentation and faster approvals.

How Will Remunance Help In Forming A Subsidiary Company In India?

Remunance provides full end-to-end support for multinational corporations looking to establish a subsidiary in India. By handling legal, administrative, and compliance-related duties, the organization streamlines the entire setup procedure.

As a result, companies may concentrate on growth and expansion rather than operational challenges.

Remunance helps companies in:

• • Choosing an appropriate business structure
  • Overseeing the incorporation and registration of businesses
  • Getting ready and submitting the necessary legal paperwork
  • Getting statutory registrations, PAN, TAN, and GST
  • Making sure Indian corporate laws are followed

In addition to entity creation, Remunance offers continuous HR and operational assistance to help businesses manage their Indian subsidiaries efficiently. Their group ensures that companies remain in compliance with local payroll rules, labor laws, and tax obligations.

Additional assistance that Remunance offers consists of:

• • Managing salaries and processing payroll
  • HR administration and employee onboarding
  • Support for employment law and labor compliance
  • Support for statutory and tax filings
  • Advice on regional business laws and practices

It might be difficult for businesses entering the Indian market for the first time to comprehend the regulatory environment.

Remunance serves as a reliable local partner, providing operational direction and market-entry expertise. They reduce administrative workload and regulatory concerns while helping companies create and manage teams effectively.

Remunance enables companies to set up and run their subsidiary in India in a compliant, effective, and hassle-free way, with comprehensive assistance and local expertise.

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