Foreign Subsidiary Incorporation in India

Form FC-GPR (Foreign Currency — Gross Provisional Return) is the RBI report that every Indian company receiving FDI must file after allotting shares to a foreign investor. It is filed through the FIRMS (Foreign Investment Reporting and Management System) portal via the company's AD (Authorised Dealer) bank. The deadline is 30 days from the date of share allotment — not from the date of fund receipt. Missing this deadline constitutes a violation of FEMA Section 6(3)(b), which is a contravention regulariasable only through the RBI's compounding process. The penalty under compounding is typically 0.5% of the outstanding amount per year, subject to a minimum and a cap, plus a compounding fee. There is no concept of a 'grace period'.

No. FC-GPR is a transaction-level report filed once per share allotment within 30 days. The FLA (Annual Return on Foreign Liabilities and Assets) is a separate annual RBI survey report filed by 15 July for any Indian company that has received FDI or made Overseas Direct Investment. The FLA is filed directly on the RBI survey portal (flair.rbi.org.in) — not through the AD bank. It captures the outstanding FDI position as of 31 March and any changes during the year. Both FC-GPR and FLA are required — they serve different purposes.

FDI is not universally permitted. The Consolidated FDI Policy (updated by DPIIT) classifies sectors into three categories: (1) Automatic Route — FDI permissible without prior government approval up to the specified cap (100% in most technology, manufacturing, trading, and service sectors); (2) Government Approval Route — prior approval of the relevant ministry or Foreign Investment Facilitation Portal (FIFP) required for sectors such as multi-brand retail, defence above 74%, print media, satellite, and others; and (3) Prohibited — FDI not permitted under any route, including lottery, gambling, Nidhi companies, atomic energy, and tobacco manufacturing. Sector classification can be activity-specific — a company doing both permitted and restricted activities needs separate analysis for each.

Yes. Press Note 3 of 2020 (incorporated into the FEMA NDI Rules) requires prior government approval for FDI from any entity in a country that shares a land border with India — specifically China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan. This applies to any amount and any percentage stake. The rule covers direct investment and indirect investment where the beneficial owner is from a land-bordering country. A Chinese investor holding a 1% stake in your Indian company requires government approval from the Ministry of Industry and Commerce / FIPB replacement mechanism before the investment.

Shares issued to a foreign investor must be priced at not less than the fair market value as determined by a SEBI-registered Category I Merchant Banker or a CA using a recognised valuation methodology — typically DCF (Discounted Cash Flow) for operating businesses or NAV (Net Asset Value) for holding companies or early-stage entities. For a newly incorporated company with no revenues, the face value (₹10/share) is typically supportable by a simple valuation certificate based on NAV. However, the valuation certificate must be obtained before allotment, not after. For a later-stage company, the FMV is the floor — issuing shares below FMV to a foreign investor is a FEMA violation.

Yes. If your US-resident co-founder subscribes for shares in the Indian company at incorporation, that subscription constitutes FDI under FEMA, regardless of the amount. The FEMA NDI Rules apply to any non-resident acquiring shares of an Indian company. You must: (1) confirm the activity is in a permitted FDI sector; (2) receive the share subscription amount in the Indian company's bank account as a SWIFT inward remittance; (3) allot shares within 60 days; and (4) file FC-GPR within 30 days of allotment. The fact that the company is newly incorporated does not exempt the transaction.

Section 149(3) of the Companies Act 2013 requires every Indian company to have at least one director who has been physically present in India for not less than 182 days during the previous calendar year. 'Previous calendar year' means the calendar year preceding the year in which the director is being appointed — for a newly incorporated company, the requirement applies from the first year. A foreign national or NRI who has not met the 182-day test cannot serve as the sole director. The foreign parent's nominee director is almost always non-resident — PNPC helps clients identify a trusted resident individual to serve as the statutory resident director. This person does not need to be a shareholder or have any economic interest.

Dividends paid by an Indian company to a foreign shareholder are freely repatriable after deduction of withholding tax under Section 115-O read with Section 195 of the Income Tax Act 1961. The withholding tax rate on dividends is typically 20% under domestic law, reduced to 5–15% under most India DTAA treaties (for example, 10% under the India-US treaty, 5% under the India-Mauritius treaty for certain holdings, 10% under the India-UAE DTAA). Before remitting the dividend to the foreign parent, the Indian company must file Form 15CA and obtain a Form 15CB certificate from a Chartered Accountant confirming the applicable tax rate. The AD bank will not process the remittance without these.

Yes — loans from a foreign parent to an Indian subsidiary constitute External Commercial Borrowings (ECB) governed by the ECB Master Direction of RBI. ECBs must comply with: eligible borrower and lender definitions; minimum average maturity (generally 3 years for Track I, with exceptions); end-use restrictions (cannot be used for real estate, equity investments in India, working capital in certain cases); all-in-cost ceiling (benchmark rate + maximum spread); and mandatory reporting in Form ECB to RBI through the AD bank. Loans that do not meet ECB conditions are FEMA violations. Shareholder loans dressed up as 'inter-company advances' without ECB compliance are a common and significant FEMA risk.

Downstream investment refers to investment made by an Indian company that is itself foreign-owned (i.e., has FDI in it) into another Indian company. FEMA treats such downstream investment as indirect FDI — it must comply with FDI sectoral caps and conditions as if the investment were direct from the foreign parent. The Indian subsidiary of a foreign company cannot invest in another Indian company in a prohibited or restricted sector. Additionally, downstream investment must be reported to DPIIT and RBI within 30 days. This is relevant when the foreign subsidiary plans to hold shares in other Indian entities — a holding company structure, for example.

All transactions between the Indian subsidiary and its foreign parent — management fees, royalties, software licences, shared service charges, loans, and trading transactions — are 'international transactions' under Section 92B of the Income Tax Act 1961 and must be at arm's length price under the transfer pricing rules (Sections 92 to 92F). A Transfer Pricing study must be conducted annually by a CA, and Form 3CEB (Accountant's Report) must be filed with the tax return when the aggregate value of international transactions exceeds ₹1 crore. The APA (Advance Pricing Agreement) programme is available for certainty on recurring transactions.

Yes — a foreign subsidiary incorporated as an Indian Pvt Ltd has exactly the same Companies Act annual filing obligations as any other Indian private company: AOC-4 (financial statements) by approximately 29 October; MGT-7 (annual return) by approximately 28 November; ITR-6 by 31 October; 4 Board meetings per year with maximum 120-day gap; AGM within 6 months of FY end; DIR-3 KYC by 30 September; statutory audit mandatory regardless of turnover. Additionally, it has FEMA-specific reporting: FC-GPR within 30 days of each allotment, FLA annual return by 15 July, and FC-TRS within 60 days of each share transfer.

PNPC charges a fixed fee agreed in writing before any work begins. The fee covers the full scope: FDI route advisory, incorporation under Companies Act, FC-GPR coordination, post-incorporation setup, and first-year FEMA compliance calendar. It does not include government approval fees, valuation certification fees (which vary by the complexity of the valuation), or stamp duties. We are not positioned as the lowest-cost option — FEMA errors are significantly more expensive to regularise than to avoid. We provide a written scope and fee letter before engagement; we do not begin work without one.