Investment into India is far more open than it was, and the paperwork is now almost entirely online. What has not changed is that every step has a deadline and a form, and that the tax cost of taking profits out depends on decisions made when the money comes in. This note is for a foreign company — typically one of our clients' own UAE, Hong Kong or Singapore entities — or an NRI investing in an Indian business.
Quick answer
- Subsidiary is the standard vehicle: A wholly owned private limited subsidiary is the standard choice, giving full operational freedom, limited liability and eligibility for all FDI-permitted sectors.
- Automatic route for most sectors: Most sectors permit 100% FDI under the automatic route with only post-facto reporting, but Press Note 3 of 2020 requires government approval for land-border-country investors.
- FC-GPR within 30 days: FC-GPR is filed on the RBI FIRMS portal within 30 days of allotment, and shares must be allotted within 60 days of receiving the funds.
- 10% dividend cost for UAE: Dividend withholding is reduced to 10% under the India–UAE treaty with a TRC, Form 10F and beneficial-ownership declaration, provided the treaty's principal-purpose test does not deny the benefit; a UAE parent meeting the participation-exemption conditions usually pays no UAE tax on it.
1. The vehicle
A wholly owned subsidiary (private limited company) is the standard choice: full operational freedom, limited liability, and eligibility for all FDI-permitted sectors. An LLP may receive FDI only in sectors with 100% automatic-route FDI and no performance conditions. A branch office may carry on the parent's business in India but needs RBI approval through an AD bank, is taxed at the higher foreign-company rate and must remit profits net of that tax; a liaison office may only represent and cannot earn; a project office is for executing a specific contract. For anything beyond market research, the subsidiary is almost always right.
2. The route
Most sectors — IT, manufacturing, trading (with conditions for retail), services, infrastructure — permit 100% FDI under the automatic route: no prior approval, only post-facto reporting. A short list (defence, telecom above caps, multi-brand retail, print media, and others) requires government approval through the Foreign Investment Facilitation Portal. Separately, under Press Note 3 of 2020, any investment by an entity from, or whose beneficial owner is in, a country sharing a land border with India requires government approval regardless of sector — relevant where a Hong Kong or UAE investor has a Chinese or other land-border-country beneficial owner up the chain.
3. Pricing and instruments
Shares issued to a non-resident must be priced at not less than fair value determined by a chartered accountant or SEBI-registered merchant banker under an internationally accepted method; shares transferred from a non-resident to a resident at not more than fair value. Permitted instruments are equity shares, fully and compulsorily convertible preference shares and debentures, and share warrants; optionally convertible or redeemable instruments are treated as debt and fall under the ECB rules instead. Investment must be received through banking channels from the investor's own account.
4. The filings
| Event | Form | Deadline |
|---|---|---|
| Receipt of funds | Bank reports inward remittance; company obtains FIRC and KYC of the investor | On receipt |
| Allotment of shares | FC-GPR on the RBI FIRMS portal with valuation certificate, CS certificate and FIRC | Within 30 days of allotment (shares must be allotted within 60 days of receipt) |
| Transfer of shares between resident and non-resident | FC-TRS | Within 60 days of transfer or receipt of consideration |
| FDI in an LLP | FDI-LLP(I) / (II) | (I) within 30 days of receipt; (II) within 60 days of receipt of funds |
| Every year | FLA return (Foreign Liabilities and Assets) | 15 July |
Late filings attract a Late Submission Fee; non-filing surfaces at the next fund-raise, at exit, or when the bank refuses to process a dividend.
5. Tax in the Indian company
The subsidiary pays corporate tax at 25.17% (22% plus surcharge and cess under section 200 (115BAA of the 1961 Act)) if it forgoes specified incentives, which most do. Transactions with the foreign parent — management fees, royalties, purchases, loans — are transfer pricing transactions requiring arm's-length documentation and Form 3CEB. Payments to the parent attract withholding under section 195 at the domestic or treaty rate; royalties and fees for technical services are taxed at 20% domestically, often reduced by treaty. GST applies on imports of services under reverse charge.
6. Getting profits out
Dividends to a foreign shareholder attract withholding at 20% plus surcharge and cess, reduced to 10% under the India–UAE treaty (and comparable rates under others) where the recipient provides a Tax Residency Certificate, Form 10F and a beneficial-ownership declaration, and satisfies the principal-purpose test. A UAE parent that meets the participation-exemption conditions (broadly, at least 5% held for 12 months) pays no UAE tax on the receipt, so 10% is usually the total cost — one of the reasons UAE holding structures are common. Buy-backs are, from 1 April 2026, taxed as capital gains in the shareholder's hands, with a higher effective rate for promoters. Royalties and service fees paid to the parent are deductible in India, withheld at treaty rates, and must survive transfer pricing. Repatriation itself is free of exchange control once tax is withheld and Form 15CA/15CB is filed for the remittance.
7. Directors and presence
The company needs at least one director who stays in India for at least 182 days during the financial year (proportionately in the first year), a registered office, and — for the parent's directors — a DIN obtained with apostilled identity documents. Foreign directors' board attendance by video is permitted; a board that never meets in India does not affect the Indian company's residence, which follows incorporation.
Questions we are asked
Can an LLP in India receive foreign direct investment? Yes, but only in sectors with 100% automatic-route FDI and no performance conditions. A capital contribution is reported in Form FDI-LLP(I) within 30 days of receipt, and a transfer or disinvestment in Form FDI-LLP(II) within 60 days.
What corporate tax rate does an Indian subsidiary of a foreign company pay? 25.17%, being 22% plus surcharge and cess under section 200 (115BAA), where the subsidiary forgoes specified incentives, which most do.
When is the FLA return due for an Indian company with foreign investment? 15 July. The FLA (Foreign Liabilities and Assets) return is filed every year, and late filings attract a Late Submission Fee.
Does an Indian company owned by a foreign parent need a resident director? Yes. Every Indian company needs at least one director who stays in India for at least 182 days during the financial year (proportionately in the first year), plus a registered office; the parent's directors need a DIN obtained with apostilled identity documents.
End-to-end
Incorporation, FIRC and FC-GPR, the FLA return, transfer pricing and the dividend withholding with treaty documentation — for investors from the UAE, Hong Kong, Singapore and beyond. Business setup in India for foreign investors or contact us.
Disclaimer
This note is for general information and knowledge purposes only. It describes the position as at 28 October 2026 and is not legal, tax or professional advice. Tax law changes frequently; please confirm the current position with us before acting.
Tax, GST and business setup advisors — Mumbai and Thane. Contact us to discuss your situation.
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