Indian Subsidiary Company Registration in Kerala

Indian Subsidiary Company Registration in India – Process, FDI Rules, FEMA Compliance & Fees

At Vakilkaro we provide end-to-end assistance for Indian subsidiary company registration — from apostilled parent company documentation and MCA filing through valuation, FDI reporting and FEMA compliance to ongoing annual filings — ensuring a seamless and fully compliant incorporation for global businesses.

Introduction

What is the Registration of a Subsidiary Company?

Registration of a subsidiary company in India is the process of incorporating an Indian company in which a foreign parent company holds a controlling interest. Under Section 2(87) of the Companies Act, 2013, a subsidiary is a company in which the holding company controls the composition of the Board of Directors or exercises or controls more than one-half of the total voting power, either on its own or together with other subsidiaries.

The test takes into account the accuracy as per voting rights and not merely the proportion of share capital held. The fact that even if the parent company holds a minor stake in the share capital of the company but is able to control the appointment of directors through the Memorandum or Shareholder’s Agreement will still be considered as a holding company.

If the company has a wholly-owned subsidiary, then the parent company owns the entire share capital. This type of arrangement ensures that there is total control of the subsidiary by the parent company, which is a distinct legal entity in India.

Why this structure rather than any other. An Indian subsidiary is treated as a domestic company for Indian tax purposes irrespective of who owns it, which means it is taxed on the same footing as any Indian business and can access the concessional corporate tax regimes. It can employ people, own property, hold intellectual property, enter contracts, bid for tenders, borrow domestically and take in Indian co-investors. A branch or liaison office can do none of those things freely, and the parent’s own liability is not ring-fenced.

A structural limit worth knowing. The Companies Act restricts the number of layers of subsidiaries a company may have, subject to prescribed exceptions. Where a foreign group intends to hold its Indian operations through an intermediate Indian holding company with its own subsidiaries, the layering position should be checked before the structure is fixed.

Types

Types of Indian Subsidiary Companies

Wholly owned subsidiary. The foreign parent holds 100% of the share capital, subject to the nominee shareholder point discussed below. The most common structure where the parent wants complete control.

Majority-owned subsidiary. The parent holds more than 50% but less than 100%, with Indian or other investors holding the balance. Used where a local partner brings market access, licences or distribution.

Private limited subsidiary. By far the most common form for foreign subsidiary company registration in India, because it carries a lighter compliance load than a public company while giving full corporate status.

Public limited subsidiary. Used where the Indian entity is expected to raise public capital or where a sectoral regulator requires the form.

Step-down subsidiary. An Indian company held by another Indian company which is itself foreign-owned. Its investments are treated as indirect foreign investment and attract downstream investment compliance.

In case the business firm has a wholly-owned subsidiary, the share capital is wholly owned by the parent company. This kind of set-up allows for complete control of the subsidiary by the parent company, a separate legal entity in India.

Subsidiary vs Branch Office vs Liaison Office vs Project Office

This is the first decision a foreign company actually makes, and the alternatives are frequently presented as equivalent when they are not.

The practical conclusion. A liaison office is a market research office and does not earn. The branch office is allowed to operate within a limited scope of activities but involves its parent company and attracts taxes under the rules for a foreign company. A project office operates only for one contract. The subsidiary is the only form of activity which allows establishing a complete Indian business, isolates its parent, pays taxes according to the domestic company taxation system and accepts Indian investments.

Eligibility

Eligibility Criteria for Indian Subsidiary Company Registration

The resident director requirement is the one that most often needs solving. At least one director must have stayed in India for not less than 182 days during the financial year. Where the parent has no Indian personnel at incorporation, this is typically addressed by appointing a professional resident director, an Indian employee, or a trusted local advisor — and the appointment should be documented properly, with clear delineation of authority, because that director carries the same statutory liability as any other.

Can a Wholly Owned Subsidiary Have Only One Shareholder?

This question causes more confusion at incorporation than any other, and the source of the confusion is a genuine tension in the law.

A private limited company requires a minimum of two shareholders. A wholly owned subsidiary, by definition, is one where the parent owns the entire share capital. Both cannot literally be true at once.

How it is actually done. The foreign parent subscribes to substantially all of the shares, and a second shareholder — typically an individual, another group company, or a nominee — holds a single share as nominee of and in trust for the parent. The company remains, in substance and in law, a wholly owned subsidiary.

What must be filed, and is very frequently missed. Where the registered holder of shares is not the beneficial owner, declarations of beneficial interest under Section 89 are required:

The registered holder (the nominee) files a declaration with the company in Form MGT-4

The beneficial owner (the parent) files a declaration in Form MGT-5

The company files Form MGT-6 with the Registrar within thirty days of receiving those declarations

The company also maintains a register of beneficial interest

Failure to file these is extremely common and surfaces during due diligence, in bank account opening, and in any subsequent transaction — at which point it must be regularised with additional fees and an explanation.

FDI Rules — Sectoral Caps, Prohibited Sectors and Press Note 3

Incorporation is a Companies Act process. Whether the foreign investment is permitted at all is a separate question governed by the FDI policy and FEMA, and it must be answered before, not after.

Routes. The foreign investments may be allowed either under the automatic route which does not require any prior government approvals and just post facto notifications or under the government route which needs prior approvals from the concerned administrative department via the portal. All sectors are available for automatic route investments with 100% FDI permitted.

Prohibited sectors. Foreign investment is not permitted at all in lottery and gambling businesses, chit funds, Nidhi companies, trading in transferable development rights, real estate business or construction of farm houses, manufacture of tobacco products, and sectors reserved for the public sector such as atomic energy. Note that “real estate business” excludes the development of townships, construction of buildings and infrastructure projects, and the earning of rent from an owned asset — a distinction that matters greatly to property-linked businesses.

Sectoral caps and conditions. Several sectors carry caps below 100% or conditions attached — defence, insurance, broadcasting, print media, multi-brand retail, banking and others. The applicable cap, route and conditions should be identified at the planning stage, because they determine the shareholding structure, not the other way round.

Press Note 3 — the requirement most guidance omits entirely. An entity of a country which shares a land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of such a country, may invest only under the Government route — irrespective of the sector or the amount. This applies to investors from China, Bangladesh, Pakistan, Nepal, Myanmar, Bhutan and Afghanistan, and it applies to beneficial ownership, so an investment routed through a third country by an ultimate beneficial owner in a bordering country is caught.

This is the direct result for incorporation of a subsidiary – where the provisions of Press Note 3 apply, government clearance has to be sought prior to the making of the investment, and incorporation in the absence of such clearance constitutes a FEMA violation and will have to be compounded.

Documents

Documents Required for Indian Subsidiary Registration

From the foreign parent company — all apostilled or consularised

Certificate of Incorporation of the parent

Memorandum and Articles of Association, or equivalent constitutional documents

Board resolution authorising incorporation of the Indian subsidiary, the subscription to shares, and the appointment of the authorised representative

Power of attorney or authorisation in favour of the person signing on the parent’s behalf

Latest audited financial statements

Proof of registered address of the parent

Identity and address proof of the authorised signatory

From directors and shareholders

For the registered office

Utility bill for the premises, not older than two months

Rent agreement or lease deed, where rented

No-objection certificate from the property owner

Ownership proof, where owned

Prepared at filing

Memorandum and Articles of Association of the Indian company

Declaration by subscribers and first directors in Form INC-9

Consent to act as director in Form DIR-2

Professional certification

On apostille — plan this first. Where the parent’s country is a party to the Hague Apostille Convention, documents must be apostilled. Where it is not, they must be notarised and consularised at the Indian embassy or consulate. Documents not in English require a certified translation. This process is outside your control and outside India, routinely takes two to four weeks, and is the single most common reason a subsidiary incorporation timetable slips. It should be started before anything else.

Step-by-step Process

Step-by-Step Registration Process

Step 1: Confirm the FDI position.Before anything else. Knowing the sector, applicable cap, route and applicability of Press Note 3 for the ultimate beneficial owner. Where it requires government approval, that application comes first.

Step 2: Obtain apostilled parent documents.Two to four weeks, in parallel. Certificate of incorporation, constitutional documents, board resolution, authorisation and signatory identity, apostilled or consularised as applicable.

Step 3: Obtain Digital Signature Certificates.Two to three working days. Class 3 DSCs for every proposed director and for the authorised signatory of the parent, with video verification. Foreign applicants require apostilled documents for DSC issue as well.

Step 4: Director Identification Numbers.Allotted with incorporation. DINs for first directors are allotted through the SPICe+ application. Directors beyond the number SPICe+ allots must apply separately in advance.

Step 5: Name reservation through SPICe+ Part A.One to three working days. Names are reserved through SPICe+ Part A — the RUN facility now applies only to the change of name of an existing company. Where the Indian company is to use the parent’s name, a no-objection or authorisation from the parent should be furnished, and the name should be checked against the Indian trademark register as well as the MCA database.

Step 6: Draft the Memorandum and Articles.Two to three working days. Objects framed for the Indian business, and Articles reflecting the group’s governance requirements — reserved matters, board composition, quorum, transfer restrictions and the parent’s control mechanism.

Step 7: File SPICe+ Part B.One to two working days. Details of the company, registered office, capital structure, details of subscribers and directors, apostille of parent documents, electronic memorandum and articles, INC-9, and DIR-2, certified by a practicing professional. The form attached, AGILE-PRO-S covers PAN, TAN, EPFO, ESIC, professional tax, bank account, and GST where applicable.

Step 8: Certificate of Incorporation.Five to seven working days. Issued with the Corporate Identity Number, together with PAN and TAN.

Step 9: Open the bank account and obtain the Foreign Inward Remittance Certificate when the subscription money arrives from the parent.

Step 10: Obtain the valuation certificate and allot shares within sixty days of receipt of the remittance.

Step 11: FEMA reporting — Entity Master Form on the FIRMS portal, followed by Form FC-GPR within thirty days of allotment.

Step 12: Appoint the statutory auditor within thirty days of incorporation.

Step 13: File Form INC-20A within one hundred and eighty days.

Step 14: Dematerialise securities, appoint a registrar and transfer agent, and obtain an ISIN.

Step 15: File beneficial interest and significant beneficial ownership declarations — Forms MGT-6 and BEN-2.

Valuation Requirement before Issuing Shares to a Non-Resident

This is a mandatory FEMA requirement that is absent from most published guidance on subsidiary registration, and getting it wrong invalidates the investment.

Shares issued to a person resident outside India must be priced at not less than the fair value determined by a SEBI-registered merchant banker or a practising Chartered Accountant, using an internationally accepted pricing methodology on an arm’s length basis. For an unlisted company this is typically the discounted cash flow or net asset value method as appropriate.

Points that follow from it:

At incorporation, subscription at face value by the parent is generally accepted, since the company has no operations and no value beyond its capital

For every subsequent issue to the foreign parent or any other non-resident, a fresh valuation certificate is required and must be dated close to the allotment

The valuation report is a required attachment to Form FC-GPR, and the form will not be processed without it

On a transfer of shares from a resident to a non-resident, the price must not be less than fair value; on a transfer from a non-resident to a resident, it must not exceed fair value

Issuing shares below fair value to a non-resident is a FEMA contravention requiring compounding, and can also attract income tax consequences

FEMA and RBI Reporting — FC-GPR, FC-TRS, Form DI and FLA

All foreign investment reporting is done through the Single Master Form on the RBI’s FIRMS portal, via the authorised dealer bank.

Entity Master Form. Before any transaction reporting, the Indian company must register itself on the FIRMS portal by filing the Entity Master Form. No FC-GPR can be filed until this is done.

Form FC-GPR. Filed on allotment of shares to a non-resident, within thirty days of the date of allotment. Note the trigger carefully — it is thirty days from allotment, not from receipt of funds. Separately, shares must be allotted within sixty days of receipt of the remittance, failing which the money must be refunded to the investor within fifteen days. Attachments include the FIRC, the KYC report from the remitter’s bank, the valuation certificate, the board and shareholder resolutions, and a company secretary’s certificate.

Form FC-TRS. Filed on the transfer of shares between a resident and a non-resident, within sixty days of the transfer or of receipt of consideration, whichever is earlier. The onus is on the resident party to the transfer.

Form DI. Where the Indian subsidiary is foreign-owned or controlled and itself invests in another Indian company, that investment is indirect foreign investment and must comply with the sectoral cap, route, pricing and conditions applicable to the downstream investee. Form DI must be filed within thirty days of the downstream investment. This is a live issue for any group establishing an Indian holding structure.

FLA Return. The Foreign Liabilities and Assets annual return must be filed with the RBI by 15 July each year, based on the previous year’s audited or unaudited figures, by every Indian company that has received FDI or made overseas investment. It is filed on the RBI’s FLAIR portal and is required every year for as long as the foreign investment remains on the books, even where there has been no fresh investment during the year — a point very commonly missed.

Consequences of delay. The Late Submission Fee is levied for late filings, and compoundable infractions call for compounding from the Reserve Bank of India, which is a process of formal application along with financial penalty. Both are not serious problems, but can be easily avoided.

Laws Governing Indian Subsidiary Registration

Taxation of an Indian Subsidiary Company

An Indian subsidiary is treated as a domestic company for Indian tax purposes irrespective of foreign ownership. This is the single largest tax advantage of the subsidiary route over a branch office.

Corporate tax rate. The normal tax rate is 30%, but in cases where the income is below the limit prescribed, the rate is 25%. The tax rate under the concessional scheme would be 22%, which would include a flat surcharge rate of 10% and 4% cess, making the effective tax rate around 25.17% after foregoings of certain tax benefits. However, the tax rate for a branch office of a foreign company will be that for foreign companies.

Minimum Alternate Tax — an important correction. MAT at 15% of book profits applies only under the ordinary regime. A company that opts into the concessional 22% regime is exempt from MAT altogether, and cannot carry forward or set off MAT credit. Guidance that lists both the 22% rate and MAT as simultaneously applicable is describing two mutually exclusive positions.

The concessional manufacturing rate. The further concessional rate available to new manufacturing companies was subject to a statutory deadline for commencement of manufacturing which has now passed. Its availability should be verified for the relevant assessment year rather than assumed from older material.

Withholding tax on dividends. Dividends paid to the foreign parent are taxable in the parent’s hands, and the Indian company must withhold tax under Section 195 at the rate in force, subject to the lower rate under the applicable Double Taxation Avoidance Agreement. To apply the treaty rate the parent must furnish a Tax Residency Certificate, Form 10F and a no permanent establishment declaration, and the beneficial ownership and treaty entitlement conditions must be satisfied.

Withholding on other payments. Royalty, technical service fees, interest and management charges paid to the parent attract withholding at the applicable rate or the treaty rate, and must additionally satisfy transfer pricing arm’s length requirements.

GST. Registration is required once the applicable threshold is crossed, or where a compulsory registration category applies. Cross-border services to and from the parent require careful treatment — the place of supply and the export or import of services position determine whether the transaction is zero-rated, taxable, or liable under reverse charge.

Permanent establishment risk. Where the parent’s employees work in India, or the subsidiary habitually concludes contracts on the parent’s behalf, the parent may be held to have a permanent establishment in India, bringing its own profits into the Indian tax net. Structuring the subsidiary’s role, its contracts and its personnel arrangements to avoid this is one of the more valuable pieces of advice available at set-up.

Tax incentives. Available for units in special economic zones, for eligible startups holding DPIIT recognition, and for certain sectors and locations.

Real-Case Scenario: A subsidiary opted into the concessional 22% regime and simultaneously provided for MAT in its accounts on its auditor’s original advice. The two are mutually exclusive; the provision was reversed, and the company also lost the ability to use accumulated MAT credit from earlier years — a trade-off that should have been modelled before the election was made, since the election is irrevocable.

Repatriating Profits to the Parent Company

A subsidiary is only useful to a parent if value can be returned. The permitted routes are:

Dividend. Freely repatriable after payment of applicable taxes, subject to withholding under Section 195 at the treaty rate. Requires distributable profits and compliance with the dividend rules.

Royalty and technical service fees. Payable under a written agreement, freely remittable under the automatic route, subject to withholding and to transfer pricing arm’s length pricing.

Management and shared services charges. Permissible where genuine services are rendered and documented, and priced at arm’s length. This is a heavily scrutinised area in transfer pricing assessments.

Interest on external commercial borrowings, within the ECB framework.

Buy-back or capital reduction, subject to the Companies Act procedure, pricing rules and tax consequences.

Sale of shares, at a price not exceeding fair value where the buyer is resident, with FC-TRS reporting.

Documentation is what makes repatriation work. Agreements must exist before the services are rendered, the pricing must be supported, and the withholding and reporting must be contemporaneous. Retroactive documentation is what invites assessment.

Transfer Pricing Compliance

Every transaction between the Indian subsidiary and its foreign parent or any associated enterprise is an international transaction subject to transfer pricing regulation, and must be at arm’s length. This covers the sale and purchase of goods, provision of services, royalty, interest on loans, cost allocations, guarantees and the use of intangibles.

Compliance obligations

Maintain contemporaneous transfer pricing documentation where the value of international transactions exceeds the prescribed threshold

Obtain and file an accountant’s report in Form 3CEB, due one month before the income tax return due date — that is, by 31 October where the return is due 30 November. Filing both on the same date is a common and penalisable error

File the income tax return in ITR-6 by 30 November where transfer pricing applies

Master File in Form 3CEAA and Country-by-Country Report obligations where the group crosses the prescribed consolidated revenue thresholds

Consider an Advance Pricing Agreement or the safe harbour rules for recurring high-value transactions

Penalties for failure to maintain documentation or to furnish Form 3CEB are substantial and are levied per default.

Authentication, Apostille and Fee Structure

Authentication

Digital Signature Certificate. All directors and the parent’s authorised signatory must sign the incorporation forms with a Class 3 DSC, obtained with video verification. Foreign applicants require apostilled identity documents for issue of the DSC itself.

Apostille or consularisation. All foreign documents must be apostilled where the country is a Hague Convention party, or notarised and consularised at the Indian mission where it is not. Documents in another language require certified translation.

Director KYC. Annual DIR-3 KYC is mandatory for every director to keep the DIN active. A deactivated DIN blocks all filings.

Fee structure

Cost and Time

Cost and Timeline for Registration

The realistic message on timing. The MCA stage is quick and predictable. The apostille cycle, the bank account and the FEMA reporting are not, and they are what determine when the business can actually begin trading. A parent that starts the apostille process on day one will be operational materially sooner than one that begins it after name approval.

Post-Incorporation Obligations

Appoint the statutory auditor within thirty days of incorporation

Open the bank account and receive the subscription money, obtaining the FIRC

Obtain the valuation certificate where applicable and allot shares within sixty days of the remittance

File the Entity Master Form and Form FC-GPR within thirty days of allotment

Issue share certificates within sixty days, in dematerialised form, with stamp duty paid

File Form INC-20A within one hundred and eighty days

Dematerialise securities, appoint an RTA and obtain an ISIN

File Forms MGT-6 and BEN-2 for beneficial interest and significant beneficial ownership

Register for GST, EPFO, ESIC, professional tax and shops and establishment as applicable

Adopt the group’s policies and put the transfer pricing documentation framework in place from the first transaction

Mandatory Dematerialisation of Securities

This obligation applies to every Indian subsidiary and is almost universally omitted from published guidance.

Under the Companies Act, a “small company” expressly excludes a holding company and a subsidiary company. An Indian subsidiary of a foreign parent can therefore never qualify as a small company, however low its capital and turnover. And a private company other than a small company is required to issue securities only in dematerialised form and to facilitate dematerialisation of its existing securities.

What it requires:

Appointing a SEBI-registered Registrar and Transfer Agent

Establishing connectivity with the depositories and obtaining an ISIN

Ensuring every shareholder — including the foreign parent and the nominee — holds a demat account

Dematerialising the entire existing holding before any further allotment or transfer

Filing the prescribed half-yearly reconciliation of share capital audit report

Paying the recurring depository and RTA charges

The practical consequence is direct: a subsidiary that has not dematerialised cannot lawfully allot further shares or process a transfer. Since every subsequent capital infusion from the parent is an allotment, this blocks the group’s own funding.

Significant Beneficial Ownership and Beneficial Interest Declarations

Two distinct sets of declarations apply to a foreign-owned subsidiary, and they are frequently conflated or missed altogether.

Beneficial interest — Section 89. Where the registered shareholder is not the beneficial owner — as with the nominee holding one share in a wholly owned subsidiary — Forms MGT-4 and MGT-5 are filed with the company and Form MGT-6 with the Registrar within thirty days.

Significant beneficial ownership — Section 90. Every individual who, directly or indirectly, holds a significant beneficial interest in the company — broadly, the prescribed proportion of shares, voting rights or distributable dividend, or who exercises significant influence or control — must declare that interest to the company in Form BEN-1, and the company must file Form BEN-2 with the Registrar within thirty days.

For a subsidiary held through a chain of foreign entities, identifying the significant beneficial owner requires tracing the ownership up to the ultimate individual. This is not optional, and it has become a standard due diligence question — banks, investors and acquirers all ask for the BEN-2 filing.

Compliance

Annual Compliance for an Indian Subsidiary

Event-based filings include PAS-3 on allotment, DIR-12 on change of directors, INC-22 on change of registered office, SH-7 on increase of authorised capital, CHG-1 on creation of charges, MGT-14 for prescribed resolutions, and FC-GPR, FC-TRS or Form DI as the foreign investment position changes.

Two dates that are routinely missed. The FLA return by 15 July is required every year for as long as foreign investment remains on the books, whether or not there was any transaction during the year. And Form 3CEB is due one month before the income tax return, not on the same date.

Common Mistakes to Avoid

Not checking the FDI route and Press Note 3 position before incorporating. Where government approval is required, it must precede the investment.

Allotting shares to the parent without a valuation certificate. Mandatory for every issue to a non-resident after incorporation, and FC-GPR will not be processed without it.

Missing the sixty-day allotment window after the remittance is received, which requires the funds to be refunded.

Filing FC-GPR from the wrong trigger date — it is thirty days from allotment, not from receipt of funds.

Not filing the Entity Master Form before attempting transaction reporting.

Not filing the FLA return annually, in every year the foreign investment remains on the books.

Not filing MGT-6 and BEN-2 for the nominee shareholder and the ultimate beneficial owner.

Not dematerialising securities, which blocks every future allotment from the parent.

Assuming MAT applies alongside the 22% concessional regime — the two are mutually exclusive, and the election is irrevocable.

Filing Form 3CEB on the income tax return date rather than a month earlier.

Beginning apostille after name approval rather than before everything else.

Appointing a resident director as a formality without proper documentation of authority and responsibility.

Charging the parent for services without contemporaneous transfer pricing documentation.

Creating permanent establishment exposure for the parent through the subsidiary’s contracting arrangements or seconded personnel.

Why Choose Vakilkaro?

Why Choose Vakilkaro for Indian Subsidiary Registration?

Vakilkaro has assisted foreign businesses, multinational groups, overseas startups and NRI investors in establishing their Indian subsidiaries with full regulatory compliance. Our team of Chartered Accountants, Company Secretaries and legal professionals handles every element of the process.

FDI structuring first — sector, cap, route and Press Note 3 assessment before incorporation, not after

Apostille coordination — a document checklist for the parent’s jurisdiction, issued on day one, so the critical path is managed

End-to-end incorporation — DSC, DIN planning, name approval with trademark check, Memorandum and Articles drafted for the group’s governance requirements, SPICe+ filing, Certificate of Incorporation, PAN and TAN

FEMA and RBI compliance — Entity Master Form, FC-GPR, FC-TRS, Form DI and the annual FLA return, coordinated with the authorised dealer bank

Valuation coordination with a merchant banker or Chartered Accountant for every issue to the parent

Nominee and beneficial ownership documentation — MGT-4, MGT-5, MGT-6, BEN-1 and BEN-2, done at incorporation rather than remediated at diligence

Dematerialisation setup — RTA appointment, ISIN and demat account opening including for the foreign parent

Tax structuring — regime election, withholding and treaty documentation, permanent establishment risk and repatriation planning

Transfer pricing — documentation framework, benchmarking and Form 3CEB

Full annual compliance — AOC-4, MGT-7, ADT-1, ITR-6, DIR-3 KYC, FLA and event-based filings

Transparent all-inclusive pricing, real-time status updates and a dedicated relationship manager

Pan-India service

Contact Vakilkaro today and establish your Indian subsidiary on a structure that will hold when a regulator, a bank or an acquirer examines it.

Contact Vakilkaro today and take the first step towards establishing your business in India.