Comprehensive guide for setting up an Indian subsidiary

Expanding your business into India offers incredible opportunities, from tapping into a vast consumer market to accessing a talented workforce. However, the journey involves navigating legal and regulatory complexities. This guide simplifies the process for global business founders looking to set up an Indian subsidiary and ensures a smooth entry into one of the world’s fastest-growing economies.

The first step is to clearly define your purpose for entering the Indian market. Are you looking to establish a local presence, manufacture products, or engage in R&D? Your goals will help determine the right business structure for your subsidiary. The options include incorporating as a private limited company, forming an LLP, or opening a liaison, branch, or project office. Each structure has its own advantages and limitations, but a Private Limited Company is often the preferred choice for global businesses due to its flexibility and scalability.

Setting up a subsidiary as a private limited company in India is an attractive option, offering limited liability, ease of ownership transfer, and better fundraising opportunities. Let’s break down the process.

Deciding on Sectoral Cap and Directors

Begin by understanding India’s Foreign Direct Investment (FDI) policies. Different sectors have varying FDI limits, so you’ll need to check whether your business requires government approval or falls under the automatic route.

Next, identify your directors. At least two directors are mandatory, one of whom must be an Indian resident. Ensure they have a Director Identification Number (DIN) and a Digital Signature Certificate (DSC) for signing incorporation documents electronically.

The Incorporation Process

The journey to incorporation begins with naming your company. Choose a unique name that aligns with your brand and get it approved by the Ministry of Corporate Affairs (MCA). You’ll then need to draft and submit key documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), which define the company’s purpose and governance.

This stage is critical, so engaging a professional, such as a Chartered Accountant (CA) or Company Secretary (CS), ensures accuracy and compliance with Indian laws.

Licenses and Registration

Once your company is incorporated, the next step is to obtain the necessary licenses and registrations. These include:

• A Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
• GST registration to comply with India’s indirect tax system.
• Any additional permits specific to your industry, such as pollution control or labor licenses.

Opening a Bank Account and Starting Operations

You’ll need to open a corporate bank account in India, which serves as the financial hub for your subsidiary. Transfer the initial subscription money to meet the requirements of your shareholding structure. With your bank account and registrations in place, your subsidiary is ready to commence operations.

Ensuring Compliance After Incorporation

Once operational, compliance becomes an ongoing responsibility. Create a compliance calendar to track filing deadlines for taxes, annual returns, and other regulatory obligations. Partnering with legal and financial professionals is highly recommended to avoid penalties and delays.

Transfer pricing regulations, especially if your subsidiary transacts with the parent company, require careful adherence to Indian tax laws. Similarly, dividend distribution needs proper planning to ensure profits can be remitted back to your home country efficiently and legally.

Staying informed about regulatory changes is crucial. Indian laws evolve frequently, so having a team or advisor monitor updates ensures your subsidiary remains compliant and competitive.

Planning for the Future

From the outset, it’s wise to consider potential exit strategies. Whether you plan to sell the subsidiary, merge it with another entity, or wind it up entirely, understanding your options will help you make informed decisions. Each exit route has specific regulatory and tax implications, so consulting professionals for guidance is essential.

Learn More

With India’s growing economy and dynamic market, establishing a subsidiary here could be the next big step for your business. By understanding the process and partnering with experts, you’ll set a strong foundation for success in this thriving market.

Setting up an Indian subsidiary may seem complex, but with the right guidance, it can be a smooth and rewarding process. For an in-depth explanation of the steps, challenges, and solutions, check out our detailed YouTube video.