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How to Set Up a Wholly Owned Subsidiary in India as a Foreign Company

  • Writer: Kaustav Chowdhury
    Kaustav Chowdhury
  • 11 minutes ago
  • 4 min read

Establishing a wholly owned subsidiary (WOS) in India is the most common route for foreign companies seeking a permanent operational presence in the country. Unlike a branch office or liaison office, a WOS is a separate legal entity incorporated under the Companies Act, 2013, with the foreign parent holding 100% of its share capital. The process combines two regulatory frameworks: company incorporation under MCA procedures (primarily through SPICe+), and foreign exchange compliance under FEMA and the Non-Debt Instruments (NDI) Rules, 2019. With India's FDI policy undergoing significant updates in 2026, including amendments to Press Note 3 and the proposed FEMA Foreign Investment Rules 2026, understanding the current regulatory landscape is essential before committing capital.


FDI Route: Automatic vs. Government Approval

The first decision a foreign company must make is determining the applicable FDI route. Under the Consolidated FDI Policy (last updated in 2020, with subsequent amendments), most sectors permit 100% FDI under the automatic route, meaning no prior government approval is required. This includes sectors such as information technology, e-commerce (marketplace model), manufacturing, and, following the May 2026 amendment to the FEMA NDI Rules, the insurance sector (now open to 100% FDI under the automatic route, with a 20% cap retained for LIC). Sectors that still require government approval for FDI include defence (above 74%), media and broadcasting, multi-brand retail trading, and certain segments of telecommunications. The Department for Promotion of Industry and Internal Trade (DPIIT) maintains the definitive list of sectoral caps and route requirements.


Press Note 3 (2020) and Press Note 2 (2026): Land Border Country Restrictions

Press Note 3 of 2020 (PN3), issued on 17 April 2020, imposed a blanket requirement of prior government approval for all FDI from entities of countries sharing a land border with India, or where the beneficial owner of the investment is a citizen or entity of such a country. The covered countries are China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan. This restriction applies not only to fresh investments but also to any transfer of ownership resulting in beneficial ownership falling within these jurisdictions. In March 2026, the Union Cabinet approved Press Note 2 of 2026 (PN2), which introduced a safe-harbour framework for minority, passive investments. Under PN2, investments of up to 10% by land-border country entities can now proceed through the automatic route, provided the investor does not acquire control or beneficial ownership above 10%. For investments above that threshold, government approval continues to be required. This represents a significant relaxation, particularly for Chinese investors making portfolio-type investments in Indian listed and unlisted companies.


Step-by-Step Incorporation via SPICe+

Incorporation of the Indian subsidiary follows the standard Companies Act, 2013 procedure using the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form. The process unfolds in defined stages. First, all proposed directors must obtain a Director Identification Number (DIN) and a Digital Signature Certificate (DSC). For foreign directors, apostilled identity and address proof documents are mandatory. Second, Part A of SPICe+ is filed to reserve the proposed company name; name approval typically takes two to three working days. Third, Part B of SPICe+ is filed for incorporation, accompanied by the Memorandum of Association (MOA), Articles of Association (AOA), identity and address proof of all subscribers and directors, and proof of the registered office address. SPICe+ integrates applications for PAN, TAN, EPFO, and ESIC registration into a single filing. Fourth, the Certificate of Incorporation is issued by the Registrar. The entire process, from DSC procurement to certificate issuance, typically takes 15 to 30 working days, depending on whether all foreign documents are properly apostilled.

A critical requirement is the appointment of at least one resident director under Section 149(3). A resident director is a person who has stayed in India for at least 182 days during the financial year (1 April to 31 March). The days need not be consecutive. Both Indian citizens and foreign nationals can serve as resident directors, provided they meet the residency threshold.


Post-Incorporation Compliance: FC-GPR Filing and RBI Reporting

Once the foreign parent subscribes to shares in the newly incorporated subsidiary, the company must file Form FC-GPR (Foreign Currency Gross Provisional Return) through the RBI's FIRMS (Foreign Investment Reporting and Management System) portal within 30 days of the allotment of capital instruments. This is the primary reporting obligation for all foreign direct investments in India. The filing must be made through the company's authorised dealer (AD) bank. Required documents include the board resolution for allotment, share certificates, KYC of the foreign investor, a valuation certificate from a SEBI-registered merchant banker or chartered accountant, and the FIRC (Foreign Inward Remittance Certificate) from the AD bank. Missing the 30-day window treats the filing as delayed, and compounding of the contravention under Section 15 of FEMA becomes necessary, which involves filing an application with the RBI and paying a compounding fee.

Additional post-incorporation compliance includes: filing the Annual Return on Foreign Liabilities and Assets (FLA Return) with the RBI by 15 July each year, filing annual returns and financial statements with the ROC, maintaining transfer pricing documentation if transactions with the parent exceed prescribed thresholds, and obtaining sector-specific licences or registrations as applicable (for example, IRDAI registration for insurance, TRAI licence for telecom).


Key Takeaways

  • Most sectors permit 100% FDI under the automatic route; confirm the applicable sectoral cap and route before proceeding.

  • Press Note 2 of 2026 permits up to 10% automatic-route investment from land-border country entities; above 10%, government approval is still mandatory.

  • SPICe+ integrates name reservation, incorporation, and PAN/TAN/EPFO/ESIC registrations into one filing.

  • FC-GPR must be filed within 30 days of allotment of capital instruments; delays require compounding under Section 15 of FEMA.

  • At least one resident director (182 days' presence in India during the financial year) is mandatory for every company.


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