How to Set Up a Foreign Subsidiary Company in India 2026: FDI Routes, FEMA, RBI & MCA Requirements

India is one of the fastest-growing major economies in the world, and foreign companies are increasingly looking to establish a formal presence here. The most popular and legally robust structure for foreign investors is a Wholly Owned Subsidiary (WOS) - an Indian Private Limited Company in which a foreign parent company holds 100% of the equity shares.

Setting up a foreign subsidiary in India involves three regulatory layers: the Ministry of Corporate Affairs (MCA) for company registration, the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA) for foreign investment compliance, and the Department for Promotion of Industry and Internal Trade (DPIIT) for sector-specific approvals.

This guide covers the complete 2026 process - from choosing the right FDI route to post-incorporation ongoing compliance.

Source: Invest India - investindia.gov.in | RBI - rbi.org.in | DPIIT - dpiit.gov.in

Step 1: Choose Your Entry Structure

Before registering, foreign companies must decide which entry structure best fits their objectives:

Most foreign investors opt for a Wholly Owned Subsidiary (Private Limited Company) because it is a separate legal entity, offers full operational flexibility, can employ people, generate revenue, and repatriate profits - with the parent's liability limited to its shareholding.

Step 2: Understand FDI Routes - Automatic vs Government

Under India's FDI Policy 2026, governed by FEMA and administered by RBI and DPIIT, foreign investment can enter India through two routes:

Automatic Route: 

No prior approval from the Government of India or RBI is required. The foreign investor simply brings the investment and files the required reports post-investment. Sectors allowed under the automatic route include IT/software, manufacturing, e-commerce, infrastructure, FMCG, and most service industries.

Government Route: 

Prior approval from the Ministry of Commerce (via DPIIT) through the Foreign Investment Facilitation Portal (FIFP) is required. This applies to sectors with FDI caps - defence (above 74%), print media, retail (multi-brand), telecom, insurance (above 74%), and broadcasting.

Important for 2026: Budget 2026 opened the Portfolio Investment Scheme (PIS) to Persons Resident Outside India, allowing NRIs and foreign entities to invest in listed Indian equities directly through PIS - a significant change in capital markets access that was not previously available.

Step 3: Register the Company with MCA

The Indian subsidiary is registered as a Private Limited Company under the Companies Act, 2013 through the MCA SPICe+ portal. Requirements:

• Minimum 2 directors - at least one must be an Indian resident (stayed 120+ days in India in the previous financial year)
• Minimum 2 shareholders - can be the foreign parent company and one other (individual or entity)
• A registered office address in India
• Documents for foreign directors/shareholders must be apostilled or notarised from their home country and notarised at the Indian Embassy - allow 3 to 7 days for this process
• DSC (Digital Signature Certificate) required for all directors who will sign forms
• Memorandum of Association (MOA) and Articles of Association (AOA) must be drafted

Timeline: Company registration typically takes 7 to 20 working days, with additional time if foreign documents need apostille. The April 2026 updates to PAN and TAN integration under the Income Tax Act 2025 require all director details to exactly match the Income Tax database before COI can be issued.

File via: MCA V3 Portal - mca.gov.in

Step 4: Receive Foreign Investment & File FC-GPR with RBI

Once incorporated, the foreign parent company transfers its share subscription amount to the Indian subsidiary's bank account. After the funds are received and shares are allotted, the company must file Form FC-GPR (Foreign Currency - Gross Provisional Return) with RBI through the FIRMS portal within 30 days of allotment of shares.

• FC-GPR is filed by the Indian company - not the foreign investor
• The filing must be done through an Authorised Dealer (AD) Bank - your Indian bank handles this
• Required documents: Share allotment board resolution, valuation certificate from a SEBI-registered CA or Merchant Banker, KYC of the foreign investor, and details of the foreign investment
• Failure to file FC-GPR within 30 days is a FEMA violation - compounding fines apply

Step 5: Annual FEMA Compliance - FLA Return

Every Indian company that has received FDI must file the Annual Return on Foreign Liabilities and Assets (FLA Return) directly with the RBI by 15 July each year. This is a direct submission to RBI (not through your bank) and covers all outstanding foreign equity, loans, and assets held abroad.

• FLA for FY 2025-26 must be filed by 15 July 2026
• Filing is done through the RBI's FLAIR (Foreign Liabilities and Assets Information Reporting) system
• Non-filing or incorrect filing attracts penalties under FEMA

Step 6: Transfer Pricing Compliance

Once the subsidiary begins business operations with its foreign parent - whether through management fees, royalties, intercompany loans, services, or shared resources - Transfer Pricing regulations under the Income Tax Act apply. All cross-border transactions between the Indian subsidiary and its foreign parent must be:

• Priced at arm's length (as if they were between unrelated parties)
• Documented in a Transfer Pricing Study Report
• Reported in Form 3CEB (filed by a Chartered Accountant) along with the Income Tax Return by 30 November each year for transactions above Rs 1 crore

Budget 2026 increased the Safe Harbour threshold for IT and services companies from Rs 300 crore to Rs 2,000 crore - significantly reducing the number of mid-sized companies that need detailed transfer pricing benchmarking studies.

Post-Incorporation Compliance Checklist

• File Form INC-20A (Commencement of Business) within 180 days of incorporation
• Apply for GST registration if providing services in India or manufacturing goods
• Register for EPFO and ESIC when the employee count crosses applicable thresholds
• File annual returns (MGT-7), financial statements (AOC-4), and conduct statutory audit with MCA
• Appoint a Statutory Auditor within 30 days of incorporation
• File FC-GPR for each subsequent foreign investment received
• File FLA return annually by 15 July
• File Form 3CEB for transfer pricing if intercompany transactions exist
• File Income Tax Return by 31 October (or 30 November for transfer pricing cases)

How Targolegal Can Help

Setting up a foreign subsidiary in India involves coordinating across MCA, RBI, FEMA, and the Income Tax Department simultaneously. Targolegal's Targo Registration and RBI Compliances services manage the complete setup - from document apostille and SPICe+ filing to FC-GPR submission, FLA return, and transfer pricing documentation.

We work with foreign companies and NRI founders across the UK, USA, UAE, Singapore, and other jurisdictions. Contact Targolegal to begin your India entry process today.