India is an attractive destination for foreign businesses looking at access to a massive consumer base, skilled manpower,a talented technology, manufacturing power and opportunities for global supply chains. Among the most favored forms of business set up by foreign investors in India is Wholly Owned Subsidiary (WOS).
Wholly owned subsidiary is a company in which foreign parent company having total control over the company and is governed by the foreign investment laws in India.
Indian subsidiary is a separate legal entity incorporated in India, whereas a branch office or liaison office is not. This enables the foreign parent to setup a separate Indian company and retain the ownership and control.
The Indian subsidiary is incorporated and governed by the Companies Act, 2013, Foreign Exchange Management Act (FEMA), foreign direct investment (FDI) policies, income tax regulations and sectoral regulations largely.
The Ministry of Corporate Affairs provides the statutory frame for incorporation and compliance to Indian corporate laws, the Department for Promotion of Industry and Internal Trade (DPIIT) is responsible for applying FDI policy in India and the Reserve Bank of India (RBI) is responsible for monitoring foreign exchange programs and FDI reporting obligations.
What Is a Wholly Owned Subsidiary in India?
A Wholly Owned Subsidiary (WOS) in India is an Indian company in which 100% of the equity share capital is held by a foreign parent company and/or other eligible non-resident shareholder(s), subject to applicable Indian laws, regulations, and foreign investment rules.
The Indian subsidiary is a separate legal entity from its foreign parent company, even though the foreign parent owns and controls 100% of its equity share capital.
The Indian subsidiary generally has its own:
- Certificate of Incorporation
- Permanent Account Number (PAN)
- Applicable tax registrations
- Bank account
- Board of Directors
- Books of account and accounting records
- Contracts and commercial arrangements
- Assets and liabilities
- Employees, where applicable
- Statutory and regulatory obligations
The Indian subsidiary is, therefore, a separate legal entity and shall have to comply with its corporate, tax, accounting, employment and other regulatory requirements in accordance with the applicable laws and regulations.
Why Should Foreign Companies Set Up a Wholly Owned Subsidiary in India?
Foreign companies can enter India market in a number of ways. But in cases where a long-term commercial presence in India is desired and a significant degree of control is desired over the Indian operations, a WOS may be appropriate.
Key benefits include:
1. 100% Foreign Ownership
If the relevant sector allows 100% foreign investment and all conditions are fulfilled, a foreign investor may set up an Indian subsidiary in absence of an Indian equity partner.
DPIIT has indicated that FDI is permitted through automatic route in majority of sectors with a few sectors having sectoral caps, conditions or government approval.
2. Limited Liability
Private limited subsidiary is a separate legal person. Under the general rules, there is only limited liability for the shareholders, namely for the unpaid share price, in compliance with the applicable law and circumstances.
3. Complete Operational Control
The foreign parent can retain significant control over:
- Business strategy
- Management
- Intellectual property
- Technology
- Hiring
- Investment
- Marketing
- Financial planning
- Indian expansion
4. Ability to Conduct Commercial Activities
Under the applicable registrations and sector specific permissions, generally, an Indian subsidiary may engage in commercial activities as permitted in its constitution and laws.
5. Separate Indian Corporate Identity
Indian subsidiary may make contracts, employ personnel, lease property, and have bank accounts and do business in its own name.
6. Better Market Presence
Foreign businesses can enjoy a more robust operational footprint with Indian customers, vendors, employees, financial institutions and commercial partners through a locally incorporated company.
7. Expansion Opportunities
The Indian subsidiary will have the potential to expand its scope of products/services, locations and business activities, subject to the applicable regulatory requirements, once established.
Wholly Owned Subsidiary vs Branch Office vs Liaison Office
The first step in a foreign company’s presence in India is to decide on the structure.
| Feature | Wholly Owned Subsidiary | Branch Office | Liaison Office |
| Separate legal entity | Yes | No | No |
| Foreign ownership | Up to 100%, where permitted | Foreign parent | Foreign parent |
| Commercial activities | Generally permitted, subject to law | Restricted to permitted activities | Generally cannot undertake commercial activities |
| Limited liability | Generally yes | No separate corporate personality | No separate corporate personality |
| Indian company status | Yes | No | No |
| Suitable for long-term operations | Yes | In appropriate cases | Primarily representative activities |
| Local management | Yes | Yes | Limited |
| Ability to earn business income in India | Yes, subject to applicable law | Subject to permitted activities | Generally no |
| Corporate compliance | Indian company compliance | Applicable foreign-company compliance | Applicable foreign-company compliance |
A wholly owned subsidiary is a structure that foreign businesses may wish to consider if they are planning to establish a significant business in India.
Eligibility to Set Up a Wholly Owned Subsidiary in India
A foreign corporation may operate in India through a wholly owned subsidiary in India, provided that the business activities comply with the foreign direct investment policy of India and relevant rules and regulations governing the sector.
The investor should check before incorporating:
- Whether the proposed sector permits foreign investment.
- The applicable FDI cap.
- Whether investment is permitted under the automatic route.
- Whether government approval is required.
- Whether sector-specific licensing applies.
- Whether there are FDI-linked performance conditions.
- Whether any additional restrictions apply based on the investor’s ownership or jurisdiction.
- Whether the proposed activities require approval from another regulator.
This is essential as company incorporation does not imply for incorporation all proposed business activities are allowed.
DPIIT is responsible for keeping the FDI policy framework in India and the foreign investment limits and conditions applicable for the various sectors are governed by the respective policies.
Requirements for a Wholly Owned Subsidiary in India
Typically, a foreign investor should have the following needs to consider.
1. Indian Registered Office
The subsidiary company should have its registered office in India.
The registered office is the address to which all official notices and official records are sent.
2. Minimum Directors
There is normally a minimum of 2 directors in an Indian Private Company.
Further, under the provisions of the Companies Act, a company must have one or more directors in India for a prescribed period during the financial year.
Specific needs should be confirmed for the specific financial year and company situation.
3. Shareholders
Wholly Owned Subsidiary is a type of foreign investment that is intended to be completely foreign owned and subject to the FDI framework.
The foreign parent can be the principal shareholder.
4. Authorized and Paid-Up Capital
The company needs to define its authorised share capital, and needs to issue share capital in accordance with its business needs.
The minimum paid-up capital requirement of an ordinary private limited company is not specified under the Companies Act, 2013, but the subsidiary must be adequately financed for the proposed operations and must abide by provisions related to foreign direct investment and issuance of capital.
5. Digital Signature Certificate
The signing of incorporation documents online is usually dependent on having valid Digital Signatures Certificates (DSCs).
6. Director Identification Number
Directors must have a Director Identification Number (DIN), in accordance with rules and incorporation procedures.
Documents Required for Foreign Company Subsidiary Registration in India
The specific document list will vary according to the foreign shareholder, foreign shareholders’ directors, country of residence and structure proposed.
Typical documents include:
1. Foreign Parent Company
- Certificate of Incorporation
- Charter documents
- Memorandum and Articles or equivalent constitutional documents
- Board resolution approving the establishment of the Indian subsidiary
- Details of authorized representative
- Registered office details
- Ownership information, where required
If the foreign company is a subscriber, MCA’s SPICe+ guidelines specifically mention the document as Foreign Body’s certificate of incorporation and relevant resolution.
2. Foreign Directors
Depending on circumstances:
- Passport
- Address proof
- Photograph
- Identification documents
- Digital Signature Certificate
- Other declarations required for incorporation
Notarization or Apostille/consular authentication may be required for foreign documents based on the country and applicable requirements. The guidance provided by MCA clarifies the various attestation conditions applicable to the relevant subscriber/director according to the country of residence.
3. Registered Office
Typically, the following documents are required:
- Proof of registered office address
- Ownership document or lease/rent agreement
- Utility bill
- No-objection documentation, where applicable
For more information, check the specific documentation before submitting as requirements and filing practices may change.
Step-by-Step Process to Set Up a Wholly Owned Subsidiary in India
1: Determine the Business Activity
The first step is to identify the exact activities that the Indian subsidiary will conduct.
For example:
- IT services
- Software development
- Consulting
- Manufacturing
- Trading
- E-commerce
- Research and development
- Engineering
- Digital services
- Professional services
- Logistics
- Healthcare
- Education
The business activity should then be correlated with the FDI policy of India and regulations in the various sectors.
2: Check the FDI Route
The foreign investor needs to establish whether the investment plans are:
- Under the automatic route; or
- Subject to government approval.
India has a very liberal stance on foreign investment in various sectors, with 100% FDI being permissible through the automatic route in numerous activities, with limitations and restrictions in certain sectors.
3: Choose the Company Structure
The majority of foreign owned operating subsidiaries are incorporated as a Private Limited Company.
The name of the company must be chosen in accordance with the naming requirements of MCA and must not be in conflict with the rights of the company or trademark.
4: Obtain Digital Signatures
The proposed directors and authorized signatories may need Digital Signature Certificates for electronic filings.
5: Apply for Name Approval
The name of the proposed company is submitted via the relevant MCA incorporation procedures.
A suitable name should:
- Reflect the intended business;
- Comply with naming rules;
- Avoid conflicts with existing companies;
- Avoid trademark infringement; and
- Be acceptable to the Registrar of Companies.
6: Prepare the Constitutional Documents
The company generally requires:
These documents set out the firm’s objects and internal governance and operating structure.
There may be additional execution and authentication requirements if you are a foreign subscriber.
7: File the Incorporation Application
The process of incorporation is carried out via MCA’s e incorporation platform (SPICe+ and associated forms as applicable).
The application, in general, collects data on the following:
- Company name
- Registered office
- Directors
- Subscribers
- Share capital
- Business activities
- PAN
- TAN
- Other linked registrations
8: Receive the Certificate of Incorporation
After approval by the Registrar of Companies, the company receives its Certificate of Incorporation.
The subsidiary is then entitled with its own Indian corporate identity.
9: Open the Indian Bank Account
The company can proceed with opening its corporate bank account.
The foreign parent in turn finances the subsidiary based on the foreign exchange and FDI regulations.
10: Receive Foreign Investment
Foreign investment must be received via permissible avenues and adhering to the provisions of FEMA/FDI guidelines.
The company should maintain proper documentation for:
- Remittance
- Investor details
- Share subscription
- Valuation
- Share issuance
- Banking records
11: Issue Shares to the Foreign Parent
On receipt of the required investment, the Indian company finishes the process of share issuance in accordance with the Companies Act and applicable FEMA/FDI requirements.
This may involve:
- Board approval
- Shareholder approval where applicable
- Share certificates
- Statutory registers
- Allotment filings
- RBI reporting
12: Complete RBI Reporting
Foreign investment reporting is an integral component in establishment of a foreign owned Indian subsidiary.
RBI’s reporting framework mandates an Indian company to file the issue either through Form FC-GPR within 30 days from the date of issue, where the issue was issued as FDI.
There may be further reporting requirements if the transaction falls under any of the following categories:
RBI and FEMA Compliance for a Wholly Owned Subsidiary
MCA incorporation is just the beginning of establishing a foreign owned company in India.
The subsidiary should also abide by the foreign exchange laws in India.
Important areas include:
- FDI eligibility
- Sectoral caps
- Entry routes
- Pricing guidelines
- Mode of payment
- Share issuance
- Reporting
- Transfer of shares
- Downstream investment, where applicable
- Annual reporting
- Repatriation
The RBI framework has detailed regulatory reporting requirements for foreign transactions. The FC-GPR reporting applies to equity instruments that are qualified for reporting by people who are not residents.
Annual Compliance for a Wholly Owned Subsidiary in India
Incorporation is only the beginning.
Continuous corporate, tax, accounting and foreign investment compliance of a wholly owned subsidiary.
Common compliance zones are:
Corporate Compliance
- Board meetings
- Annual general meeting, where applicable
- Annual return
- Financial statements
- Statutory registers
- Board resolutions
- Share-related filings
- Maintenance of books and records
As per Section 173 of the Companies Act, the first board meeting has to be held within 30 days of incorporation and the annual meeting is to be held as required by the Companies Act with applicable exemptions and conditions.
Tax Compliance
Depending on the business:
- Income-tax return
- Advance tax
- Tax audit, where applicable
- Transfer pricing compliance
- Withholding tax
- GST compliance
- TDS
- Other applicable indirect taxes
FEMA/FDI Compliance
Foreign-owned companies may also need to consider:
- FLA return
- FC-GPR
- FC-TRS, where applicable
- Other RBI reporting
- Foreign exchange documentation
The RBI’s reporting structure allows an annual FLA return for Indian companies receiving FDI, as required.
Taxation of a Wholly Owned Subsidiary in India
A company that meets the Indian residency requirements is generally considered to be an Indian tax-resident company.
The tax position depends on factors such as:
- Nature of income
- Applicable corporate tax regime
- Turnover
- Business activity
- Tax incentives
- Withholding requirements
- Transfer pricing
- International transactions
- GST applicability
Foreign parent companies should not be under the impression that profits can be shifted from parent company to subsidiary without tax consequences.
Indian subsidiary and foreign parent may be deemed as international transactions, and thus be subject to transfer-pricing provisions in India.
Transfer Pricing for Foreign-Owned Indian Subsidiaries
Wholly-owned subsidiaries are of special interest because the Indian company often deals with the foreign parent, and the transfer pricing of these transactions is of great importance.
Common related-party transactions include:
- Management fees
- Technical service fees
- Royalty
- Software licenses
- Marketing support
- Cost reimbursements
- Loans
- Guarantees
- Import of goods
- Export of goods
- Shared services
The Indian company should keep proper documentation showing that transactions with associated enterprises are in line with the Indian transfer pricing requirements.
GST Registration for a Wholly Owned Subsidiary
Depending on the nature and scale of the subsidiary’s activities, possibly the registration may be required under the GST.
GST considerations may arise for:
- Sale of goods
- Provision of services
- Imports
- Exports
- Inter-state supplies
- Cross-border services
- Related-party transactions
Application of the provisions of the Goods and Services Tax may make it obligatory to register or not register for GST, depending on the nature of the business.
Can a Foreign Parent Send Money to Its Indian Subsidiary?
Yes, a foreign parent can make an investment in its Indian subsidiary, but the way of funding is important.
Possible funding structures can include:
- Equity investment
- Permitted debt
- Loans under applicable regulations
- Other permitted instruments
The right structure will depend on the FDI framework, FEMA rules, tax aspects and the financing requirements of the company.
It is important for foreign companies to seek professional advice before deciding if a transfer is equity or debt because the impact of the transfer on regulatory and tax matters may vary greatly.
Can a Wholly Owned Subsidiary Remit Profits to Its Foreign Parent?
In general, an Indian subsidiary can pay its foreign shareholder profit through legal methods as per the relevant tax, corporate law and foreign exchange laws.
A frequent way is dividend distribution.
Other transactions, including payments of legitimate royalties, payment of technical services, management fees, or reimbursement of expenses, may be permissible if they are commercially reasonable and meet appropriate tax, transfer pricing, FEMA and other requirements.
Therefore, a profit remittance structure should be planned in advance of transactions, rather than after the money has been remitted.
Cost of Setting Up a Wholly Owned Subsidiary in India
There are a number of factors that determine the cost of incorporating a wholly owned subsidiary.
Typical cost components include:
- Government incorporation fees
- Stamp duty
- DSC fees
- Professional fees
- Document notarization
- Apostille/consularization
- Translation, where required
- Registered office expenses
- Accounting setup
- Tax registrations
- Bank account setup
- Share issuance and related compliance
- Ongoing professional compliance
According to MCA’s published SPICe+ guidance notes, the incorporation fees are dependent on the authorized share capital and stamp duty may differ from state to state.
Therefore, there is no single universal “WOS registration cost in India.”
A good professional service provider would be best suited to offer a tailored quote, consisting of:
- Foreign parent country
- Number of directors
- State of incorporation
- Business activity
- Authorized capital
- FDI route
- Regulatory approvals
- Expected transactions
- Ongoing compliance requirements
How Long Does It Take to Set Up a Wholly Owned Subsidiary in India?
The incorporation timeline varies depending on the extent of documentation, name approval, government processing, foreign document authentication and the need for regulatory approval.
For a straightforward case where:
- The activity is under the automatic FDI route;
- Documents are complete;
- Foreign documents are properly authenticated;
- There are no filing objections; and
- No sector-specific license is required,
Generally the incorporation process can be completed in a much shorter time frame than in cases with regulatory and documentation concerns.
However, businesses should distinguish between:
Company incorporation timeline
And
Complete operational setup timeline.
Other activities may include bank account activation, capital remittance, share issuance, RBI reporting, GST registration, licensing, hiring and other issues related to operations.
Common Mistakes Foreign Companies Should Avoid
- Starting Incorporation Before Checking FDI Rules
This can be a problem if the proposed business activity has foreign investment restrictions.
- Incorrect Foreign Document Authentication
Depending on the country, documents from abroad might need notarisation, apostille and/or consular signature.
- Ignoring the Resident Director Requirement
The director structure is one that should be designed prior to incorporation.
- Treating the Subsidiary as an Extension of the Parent
The Indian subsidiary is a distinct legal entity and has to keep its own corporate and accounting records.
- Missing RBI Reporting
It is crucial to pay attention to foreign investment reporting deadlines.
- Ignoring Transfer Pricing
Intercompany transactions should be appropriately structured and documented.
- Mixing Parent and Subsidiary Expenses
Separate accounting and banking records should be maintained.
- Failing to Obtain Sector-Specific Licenses
Regulated activities cannot be carried out without being authorized by incorporation.
- Underestimating Ongoing Compliance
When the Certificate of Incorporation is issued, the cost and responsibility don’t stop there.
Why Professional Assistance Matters When Setting Up a Foreign-Owned Subsidiary
There are multiple regulatory frameworks for the establishment of a fully owned subsidiary in India.
A foreign investor must consider coordinating:
MCA + FDI + FEMA + RBI + Income Tax + GST + Transfer Pricing + Sector-Specific Regulations
These complications can arise further down the line if there’s a fault in the incorporation process, especially in relation to:
- Foreign shareholder documents
- FDI eligibility
- Share issuance
- Valuation
- RBI reporting
- Intercompany transactions
- Tax planning
- Transfer pricing
- Regulatory licenses
With the help of professional assistance, the incorporation and post incorporation process can be well coordinated such that the Indian subsidiary is set up properly at inception.
Conclusion: Setting Up a Wholly Owned Subsidiary in India
For foreign companies wanting to have more control over their Indian operations and to operate in India for the longer term, a Wholly Owned Subsidiary in India could be an effective structure.
This involves more than just forming a company. Foreign investors should find out if they are eligible for FDI and under what regulations or rules, prepare and certify foreign documents, incorporate Indian company as per MCA provisions, fund the subsidiary as per FEMA guidelines, issue shares properly and finalize the reporting to the RBI and set up an ongoing corporate and tax compliance regime.
The best way for many foreign businesses is to design the entire project as a single integrated venture, from evaluating eligibility for FDI and incorporating a business to opening a bank account, raising capital, filing taxes, performing transfer pricing and annual compliance.
However, foreign investors should check the current FDI policy, FEMA rules, MCA requirements and the industry-specific guidelines that would apply to their specific business activity as regulations may change from time to time.
Ready to Set Up Your Wholly Owned Subsidiary in India?
Get professional assistance for setting up and managing your foreign-owned Indian subsidiary.
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FAQs | Wholly Owned Subsidiaries in India
1. What is a wholly owned subsidiary in India?
Under the definition of wholly owned subsidiary, a foreign parent company or eligible non-resident shareholders under FDI and corporate laws of India that owns 100% of the shares of an Indian subsidiary qualifies as the wholly owned subsidiary of that foreign parent company.
2. Can a foreign company own 100% of an Indian company?
Yes, 100% foreign ownership is allowed in many sectors in India, mainly those activities that are kept in the automatic route. However, caps and conditions and approvals for particular sectors should be examined.
3. Is a wholly owned subsidiary better than a branch office?
This will depend on the objectives of the foreign company. A subsidiary can be a separate legal entity in India and often is appropriate for long-term commercial operations. For some of the allowed activities, a branch office may be suitable. The appropriate structure has to be chosen, taking into account the requirements of FDI, tax, liability, repatriation etc.
4. Does a wholly owned subsidiary need an Indian director?
The Companies Act has a resident-director requirement which needs to be satisfied by an Indian company. This is why it is important to consider the director structure before incorporation.
5. Does the foreign parent need to come to India for incorporation?
Not necessarily. The process for incorporation may be made electronically, but depending on the situation, foreign documents may need to be properly executed, notarized, apostilled or authenticated.
6. What documents are required from the foreign parent?
Typical documents include the foreign company’s certificate of incorporation, the constitutional documents and the board resolution approving the Indian subsidiary along with the required identity and address documents. MCA’s SPICe+ instructions apply only to foreign corporate subscribers.
7. Is government approval required to establish a wholly owned subsidiary?
Not always. The requirement is mostly based on the sector, FDI cap, entry route and other conditions.
8. How is foreign investment reported?
When equity instruments are issued to a non-resident, it is covered under the reporting requirements of the RBI including FC-GPR reporting within the allotted time.
9. Does a wholly owned subsidiary have to pay Indian taxes?
Yes. The Indian subsidiary is normally subjected to Indian tax laws on its activities, income and circumstances.
10. Can the Indian subsidiary hire employees?
Yes. An Indian subsidiary is generally allowed to hire staff, in compliance with applicable employment, payroll, tax, social-security and labour laws.
11. Can a wholly owned subsidiary import and export?
It can, depending on the nature of its business and import/export regulations, Register and License,
12. Can the subsidiary pay fees to its foreign parent?
Yes, if the transaction is legally allowed, commercially justified, meets applicable transfer pricing, tax, FEMA and other requirements.
13. Is annual compliance mandatory?
Yes. The benefits of incorporation carry on-going corporate, tax, accounting and regulatory requirements.
