Setting up an Indian Subsidiary for founders in India (Corporate route)

Expanding your business into India is a big step, and choosing the right path to set up your Indian subsidiary is crucial. One approach many founders consider is the Corporate Route, which offers a more formal, integrated structure between your international headquarters and your new Indian subsidiary. If you’re aiming for long-term growth and stability, this could be a great option, but it's important to understand the ins and outs before diving in.

How the Corporate Route Works

The Corporate Route typically involves creating an Indian subsidiary that is fully integrated into the corporate structure of your parent company, which is usually based in a different country like the US. Unlike the Parallel Route, where the companies operate independently, this route focuses on building a subsidiary that fits seamlessly into your overall business plan and corporate governance.

Once the subsidiary is set up, the Indian company operates under the same formal agreements as the parent company, ensuring the relationship is clear and compliant with Indian laws. The structure emphasizes centralized control, meaning the parent company maintains significant oversight and alignment with the subsidiary’s operations.

Key Features of the Corporate Route:

• Centralized Control: Your Indian subsidiary operates in line with the corporate governance of the parent company, ensuring consistent management.
• Formal Agreements: There are legal agreements in place that define how the two companies will interact, ensuring transparency and compliance.
• Compliance and Governance: This route ensures that your subsidiary adheres to Indian business regulations, including FEMA and RBI guidelines.

What to Consider Before Choosing the Corporate Route

While the Corporate Route offers structure and stability, it’s not without its challenges. Here are some things to think about before you commit to this path.

1. Tax Compliance and Transfer Pricing

One of the biggest considerations when choosing the Corporate Route is tax compliance. The Indian subsidiary will need to follow transfer pricing regulations, which require that any transactions between the parent company and the subsidiary are priced at fair market value. This ensures compliance with Indian tax laws, but it doesn’t provide any immediate tax benefits. Essentially, while the structure helps you stay compliant, it doesn’t offer significant financial perks.

2. No Immediate Cost Savings

The Corporate Route doesn’t offer immediate cost-saving advantages. While it ensures that your business operates in a compliant and stable way, you won’t see reductions in operational costs or taxes. Plus, founders may not be able to retain excess cash within the subsidiary, as Indian corporate governance requires funds to be properly managed and reinvested or distributed according to regulations. So, you won’t be able to keep cash in the company without careful planning and approval.

3. Long-Term Stability and Governance

The Corporate Route is a time-tested model, and it’s well-suited for businesses focused on long-term growth and stability. However, it comes with a commitment to corporate governance. This means ensuring the Indian subsidiary is run according to both the parent company’s business strategy and local regulations. If you’re looking for rapid expansion with minimal bureaucracy, this structure might feel restrictive. But if you want to establish a solid presence in India, it offers a more stable and compliant option.

4. Do You Really Need an Indian Entity?

Before jumping into the Corporate Route, it’s worth asking whether you truly need an independent Indian entity. If your main goal is to hire talent or test the market, there are other ways to achieve this without setting up a full subsidiary. Outsourcing or partnering with local firms can give you access to the Indian workforce without the added complexity of establishing a formal entity.

Conclusion

The Corporate Route offers a formal, stable way to set up your Indian subsidiary, ensuring that everything is compliant and aligned with your parent company’s goals. It’s ideal for businesses focused on long-term growth, governance, and legal compliance. However, it doesn’t provide immediate tax breaks or cost savings, and it requires a commitment to corporate governance.

If you’re planning for long-term stability and scalability, the Corporate Route is a strong option. But, if you’re looking for quick expansion or want to hire talent without setting up a full company, you might want to consider other alternatives.

For more insights into the various options for setting up your Indian subsidiary, check out our YouTube video. In it, we walk through different routes, highlight their pros and cons, and help you figure out the best strategy for your business.