Expanding your business into India? Setting up a foreign company in India—especially as a Private Limited Company (Pvt Ltd)—comes with specific legal, tax, and regulatory obligations. Here’s a comprehensive list of the most important points to keep in mind when incorporating a foreign subsidiary in India.

1. Mandatory Requirement: Appoint a Resident Director

As per the Companies Act, 2013, every Indian Private Limited Company must have at least one resident director. A resident director is someone who has stayed in India for 182 days or more in the previous financial year. This is a mandatory requirement for company incorporation.

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2. File Form FLA to RBI Annually

If your Indian subsidiary has received foreign direct investment (FDI) or share capital from its overseas holding company, it's mandatory to file Form FLA (Foreign Liabilities and Assets) with the Reserve Bank of India (RBI) by 15th July each year. This filing discloses foreign assets and liabilities.

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3. Conduct Board Meetings via Video Conference

Indian companies must hold a minimum of four board meetings annually, with at least one meeting every 120 days. If foreign directors are part of the board, these meetings can be held via video conferencing. Ensure that the recordings are archived for audit or regulatory use.

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4. File Form 61A (SFT) if Raising Capital Above ₹10 Lakhs

If your company raises share capital exceeding ₹10 lakhs during a financial year, you must file Form 61A (Statement of Financial Transactions - SFT) by 30th May of the following year.

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5. Obtain Foreign Inward Remittance Certificate (FIRC)

Upon receiving foreign funds as share capital, the Indian subsidiary must obtain a Foreign Inward Remittance Certificate (FIRC) from the bank. The purpose code for share capital should be correctly mentioned in the certificate.

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6. Draft a Detailed Agreement Between Holding and Subsidiary Company

Ensure a clear contract or inter-company agreement is signed between the foreign holding company and the Indian subsidiary. The agreement should outline products/services exchanged, commercial terms, and payment structure to comply with Indian tax laws and avoid disputes.

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7. Analyse Permanent Establishment (PE) Risk in India

Foreign companies must evaluate whether their operations in India could constitute a Permanent Establishment (PE). PE can arise from:

• A physical presence (office, branch, etc.)
• A digital presence (e.g., servers or platforms)
• A dependent agent

If a PE is established, the foreign company may be taxed in India at 35%. It is essential to conduct a PE risk analysis before starting operations.

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8. Tax Implications on Share Issuance: Section 56(2)(x)

When issuing shares to the foreign holding company, always conduct a valuation and issue shares at or above Fair Market Value (FMV). If shares are issued below FMV, the difference is taxable under Section 56(2)(x) as "Income from Other Sources" at a rate of 30% in India.

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9. Prepare a Transfer Pricing Report & File Form 3CEB

All international transactions between the holding company and the Indian subsidiary must comply with Transfer Pricing regulations. A Transfer Pricing Study Report should be prepared using the most appropriate method to determine the Arm’s Length Price.

Additionally, Form 3CEB must be filed by 30th November of the assessment year.

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Final Thoughts

Setting up a foreign-owned private limited company in India can be a strategic move, but it demands strict adherence to Indian regulatory frameworks. From appointing a resident director to managing PE risks and filing RBI forms, each step must be handled with precision. It’s highly recommended to consult a corporate legal or tax advisor with cross-border experience to ensure complete compliance.