India is one of the most attractive destinations for foreign investment, but the path to setting up here rewards businesses that plan the structure before they plan the launch. The choices you make at incorporation — entity type, sector route, ownership pattern — shape your tax position, your repatriation flexibility, and your compliance burden for years. This is the overview we give every overseas client before they commit.
None of this is meant to discourage. The framework is genuinely open and largely automatic for most sectors. But "open" is not the same as "frictionless", and the businesses that arrive with their structure already thought through spend far less time and money than those that incorporate first and ask questions later. Here are the ten things to know.
1. Choose the right vehicle — subsidiary, branch, or liaison office
A foreign company can enter India in broadly three ways, and they are not interchangeable. A wholly-owned subsidiary or joint-venture company (incorporated as a private limited company) is a separate Indian legal entity, can carry on a full range of business activity, and is the default choice for most operating businesses. A branch office is an extension of the foreign parent, permitted only for a defined set of activities and requiring RBI approval. A liaison (representative) office can only act as a communication channel — no commercial revenue at all. For the overwhelming majority of investors who intend to actually trade, manufacture, or build a team in India, the subsidiary is the right and cleanest answer.
2. Understand the FDI route — automatic vs government approval
Foreign investment flows in under one of two routes. Under the automatic route, no prior government approval is needed — you invest, you incorporate, and you report the inflow afterwards. Under the government route, you need approval from the relevant ministry before the investment. Most sectors today fall under the automatic route up to 100% foreign ownership, which is what makes India quicker to enter than its reputation suggests. The work is in confirming which route and which cap applies to your specific activity before you wire any money.
3. Check sector caps and prohibited sectors first
Not every sector is wide open. A handful are entirely prohibited for FDI (for example, lottery, gambling, chit funds, and certain real-estate trading). Others carry caps or conditions — defence, insurance, multi-brand retail, and some media activities each have their own ceilings and entry conditions. Getting this wrong is not a paperwork problem; it can invalidate the entire investment. The very first diligence step, before entity selection, is to confirm your business activity is permitted, at what ownership percentage, and on what terms.
4. You will need at least one resident director
An Indian private limited company must have a minimum of two directors, and at least one of them must be resident in India — meaning they have stayed in India for the requisite number of days in the financial year. Shareholding can be 100% foreign, but you cannot run the board entirely from overseas. Identifying who fills the resident-director role — a trusted local hire, a partner, or a professional nominee arrangement — is a decision to settle early, because the incorporation cannot complete without it.
5. Capital comes with reporting — FC-GPR and the RBI clock
When the foreign parent subscribes to or is allotted shares in the Indian company, the inflow must be reported to the RBI through the FIRMS portal, principally via Form FC-GPR, within the prescribed timelines after allotment. Late or missed filings attract penalties (compounding) and complicate every future transaction, including eventual repatriation. The money arriving is the easy part; reporting it correctly and on time is where unsupported businesses most often slip.
6. Pricing and valuation rules apply to share issues
You cannot simply pick a number for the price at which foreign capital comes in. Shares issued to a non-resident must be priced at or above fair value, determined by a registered valuer or merchant banker under the prescribed methodology. The same discipline applies on exit and on transfers between residents and non-residents. Building a clean valuation trail from the first allotment saves a great deal of friction later — especially when you raise a further round or plan an exit.
7. Budget for the full registration stack, not just incorporation
Incorporating the company with the MCA is the headline step, but a functioning Indian entity needs a stack of registrations around it. Plan for:
- Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) for the directors.
- PAN and TAN — the company’s tax identification and tax-deduction account numbers.
- GST registration, where your turnover or activity requires it.
- A bank account with an Authorised Dealer bank, needed before capital can be received and reported.
- Profession tax, PF, and ESI registrations once you start employing staff.
8. Compliance is ongoing — annual filings, audit, and transfer pricing
An Indian subsidiary lives within a continuous compliance cycle: annual filings with the Registrar of Companies (ROC/MCA), a statutory audit regardless of size, income-tax return filing, and periodic GST and TDS returns. If the Indian entity transacts with its overseas parent or group companies — which almost all foreign subsidiaries do — those dealings are related-party transactions subject to India’s transfer pricing regime, requiring arm’s-length pricing and supporting documentation. This is not a one-time setup cost; it is the running cost of being incorporated, and it should be in the budget from day one.
9. Plan repatriation and the tax on taking money out
Capital can come in freely under the automatic route, and profits can be sent home — but every channel out has a tax and procedural overlay. Dividends are taxable in the shareholder’s hands and attract withholding tax; royalties, technical-service fees, and interest each carry their own withholding rates and documentation. Where India has a Double Taxation Avoidance Agreement (DTAA) with the parent’s home country, the rate may be reduced — but only if the paperwork (tax residency certificate, Form 10F, and beneficial-ownership support) is in order. Think about how money will leave India before you decide how it comes in.
10. Get the structure advised before you incorporate
The single most expensive mistake we see is incorporating first and seeking advice second. The right holding structure, the right entry route, the right valuation and pricing approach, and the right inter-company agreements are far cheaper to design at the start than to unwind after the fact. A short structuring conversation before the first form is filed routinely saves months of remediation later.
India is not hard to enter — it is hard to enter twice. Get the structure right the first time and almost everything that follows is routine compliance rather than crisis management.
Our take
For most overseas businesses, a wholly-owned private limited subsidiary under the automatic route, with 100% foreign ownership and a single resident director, is a clean and well-trodden path into India. The complexity is rarely in the incorporation itself — it sits in the sector checks, the RBI reporting, the valuation discipline, and the ongoing compliance that incorporation switches on. The businesses that succeed here treat the setup as a structured project with the tax, FEMA, and corporate-law pieces sequenced from the start.
- Confirm your activity is permitted, the FDI route, and the ownership cap before committing capital.
- Settle the resident-director and bank-account arrangements early — they gate the whole timeline.
- Map your repatriation and transfer-pricing position at the design stage, not after the first profitable year.
This article reflects the views of the Pixelex LLP Consultancy Desk on developments that were current at the time of writing. Tax and corporate law change frequently, and the application of any rule depends on the facts of your case. Nothing here is legal or financial advice — please speak to a qualified Chartered Accountant or Advocate before acting. Pixelex Consultants LLP, New Delhi.