Setting up a subsidiary abroad from India: the cross-border process

Authored by - Adv. Pranay Sawant, Senior Executive at Outsource360

The Delaware corporation was formed on a Tuesday, through an online formation service. The Indian parent, a software company already earning most of its revenue from American customers, took all the shares, and the formation template suggested authorising ten million of them, so the founders did. The capital would follow once the US bank account opened.

Setting up a subsidiary abroad from India had looked like an American problem. Five things over the following months showed that most of it was an Indian one.

When the finance team asked the company's authorised dealer bank to send the first USD 50,000, the bank asked for a unique identification number. Under the Foreign Exchange Management (Overseas Investment) Rules, 2022, acquiring shares in an unlisted foreign company is overseas direct investment, and Form FC has to be filed and that number obtained on or before the investment. The investment had been made on the Tuesday, when the shares were issued. It had to be regularised with a late submission fee, and until it was, nothing further could go.

The first Delaware franchise tax notice used the authorised shares method, which is the state's default. On ten million authorised shares, a full year on that method is USD 85,165. On the assumed par value capital method, using the company's real gross assets and issued shares, the same company sat at the USD 400 minimum.

The US company paid the Indian parent for the engineering behind the product, with no intercompany agreement, because both companies belonged to the same founders. Under the Income-tax Act, 2025 that payment is an international transaction between associated enterprises. It has to be priced at arm's length, and the accountant's report on it has no monetary threshold.

The US return needed Form 5472, which a US corporation files when it is at least 25 per cent foreign-owned and has reportable transactions with a related party. The fees paid to India were exactly that, and the penalty for not filing is USD 25,000 whether or not the company made any money.

Every decision the Delaware board took, it took on a video call from Bengaluru, with the same founders who ran the parent. Under section 6(10) of the Income-tax Act, 2025, a company whose place of effective management is in India is resident in India, and its worldwide income is taxable here.

Behind all of it sat an Annual Performance Report due every 31 December for as long as the company existed, dormant years included.

None of that is unusual. It is the gap between treating a foreign subsidiary as a foreign formality and treating it as what Indian law says it is: a regulated capital account transaction that stays reportable until the day it is sold or closed.

Setting up a subsidiary abroad from India is overseas direct investment under the Foreign Exchange Management (Overseas Investment) Rules, 2022. The Indian company files Form FC through its authorised dealer bank and obtains a unique identification number before investing, stays within 400 per cent of its net worth on the automatic route, submits share certificates within six months, and files an Annual Performance Report every 31 December. The subsidiary is incorporated and taxed under the destination's law, and every transaction with it is priced at arm's length in India.

What follows runs in the order the work happens: the routes abroad, the India-side permission and filings, the four most common destinations, transfer pricing, residence risk, the tax on money coming home, hiring, the calendar, the costs and the sequence.

On this page

1. What "a subsidiary abroad" means in Indian law, and the four ways to go

   
   

   • ODI or OPI: the ten per cent test, and why control matters more than cash

   • Wholly owned subsidiary, joint venture, branch office

   • The option that is not an entity at all: Employer of Record and distributor

     
     

2. The India-side permission: automatic route, and the ceiling that actually binds

   
   

   • Financial commitment, and the 400 per cent of net worth test

   • What pushes a transaction into the approval route

   • The prohibited list, the two-layer cap, and round-tripping

     
     

3. Form FC, the UIN, and the order the filings actually run in

   
   

   • The filing that has to come before the money

   • Valuation, and when a certificate is required

   • Share certificates, and the six-month clock

   • The Annual Performance Report, every 31 December

   • The FLA return, every 15 July

   • Late Submission Fee: the formula, the window, and what happens after it closes

     
     

4. Choosing the jurisdiction for a subsidiary abroad: what actually drives the decision

   
   

5. United States: the Delaware default, and the franchise tax nobody budgets

   
   

   • C-Corp or LLC, and why a foreign parent almost never wants the LLC

   • Getting an EIN without an SSN

   • Franchise tax: two calculation methods, and a bill that moves by a factor of a hundred

   • Form 5472, and the penalty that applies whether or not the company made money

   • Beneficial ownership reporting after the 2025 rule change

     
     

6. United Kingdom: cheap to form, and the identity check that changed in November 2025

   
   

   • Incorporation, the appropriate-address rule and the registered office

   • Identity verification for a director resident in India

   • Corporation tax, and the associated-companies rule that removes the small profits rate

     
     

7. Singapore: the resident director problem, and an exemption you probably cannot use

   
   

   • The resident-director requirement, and the three ways to satisfy it

   • The start-up tax exemption a corporate-owned subsidiary is shut out of

   • ECI, Form C-S and the filing calendar

     
     

8. UAE: free zone or mainland, and what the nine per cent actually applies to

   
   

   • Mainland, free zone, and what changed for foreign ownership

   • Qualifying Free Zone Person: the conditions, and what breaks the zero rate

   • Registration deadlines, and the penalty for missing one

     
     

9. Transfer pricing: the intercompany agreement you need on day one

   
   

   • Associated enterprise and arm's length price under the Income-tax Act, 2025

   • The cost-plus services model, and what it has to be benchmarked against

   • Form 3CEB, Master File and Country-by-Country reporting thresholds

     
     

10. Place of effective management, and the risk of running a foreign company from India

    
    

    • When a foreign subsidiary becomes an Indian tax resident

    • Permanent establishment, the same problem in the other direction

    • What good substance actually looks like

      
      

11. Getting the money back: dividends, royalties, interest and treaty rates

    
    

    • Withholding at source, and what the treaty does to the rate

    • Foreign tax credit, and Form 67

    • What a foreign dividend is taxed at in India now

      
      

12. Hiring the first people, and when an EOR beats a subsidiary

    
    

13. The running compliance calendar, in both countries

    
    

14. What it actually costs, year one and year two

    
    

15. Setting up a subsidiary abroad from India: the order to do this in

    
    

16. Frequently asked questions

    
    

This is the outbound direction. Money coming into India is covered in FDI in India: rules, routes and compliance for startups, and foreign founders setting up here in company registration in India for foreign founders. Selling or flipping the overseas company once it exists is a transaction in its own right, and the legal process for mergers and acquisitions in India is where that sits.

What "a subsidiary abroad" means in Indian law, and the four ways to go

Indian exchange control law has no category called a foreign subsidiary. It has capital account transactions and current account transactions, and almost the whole compliance burden turns on which side a structure sits. Acquire equity in a foreign entity and the overseas investment framework applies until the investment is sold or wound up. Pay a foreign company for services, and it does not.

The framework is the Foreign Exchange Management (Overseas Investment) Rules, 2022, made by the Central Government, with the Overseas Investment Regulations, 2022 and Overseas Investment Directions, 2022 issued by the Reserve Bank of India. All three took effect on 22 August 2022, and the Reserve Bank consolidated them in its Master Direction of 24 July 2024. The Rules contain twenty-one rules. Some widely read summaries reproduce a nineteen-rule list that shifts later numbers down by two, so check citations: the prohibitions are in Rule 19, not Rule 17.

ODI or OPI: the ten per cent test, and why control matters more than cash

Under Rule 2, overseas direct investment is any acquisition of the unlisted equity capital of a foreign entity, any subscription to its memorandum of association, ten per cent or more of a listed foreign entity, or less than ten per cent of a listed entity with control. Other investment in foreign securities is overseas portfolio investment.

Two consequences catch founders. Size is irrelevant for an unlisted company: two per cent of a private Delaware corporation is overseas direct investment exactly as a hundred per cent is. And control is defined broadly, as the right to appoint a majority of the directors or to control management or policy decisions, including through shareholders agreements or voting agreements that entitle the holder to ten per cent or more of the voting rights.

Cash is not the trigger. The investment is made when the equity is acquired, which in a new company is the day the shares are issued. A resident individual can also invest, under Schedule III to the Rules and within the Liberalised Remittance Scheme limit of USD 250,000 a financial year. But a founder holding the foreign company personally has built a different structure from the one this article describes.

Wholly owned subsidiary, joint venture, branch office

A wholly owned subsidiary is a foreign entity in which the Indian company holds all the equity, and a joint venture is one in which it invests alongside others. For an unlisted foreign company both are overseas direct investment, run through the same filings, and count against the same ceiling.

An Indian company can also open an office or branch abroad without incorporating anything. That is not overseas direct investment, because no foreign security is acquired. The branch is funded through a foreign currency account under the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015.

Remittances in an accounting year are capped, for initial expenses, at the higher of 15 per cent of average annual sales, income or turnover over the last two financial years and 25 per cent of net worth, and for recurring expenses at 10 per cent of the average annual sales, income or turnover during the last financial year. The familiar terms liaison office, branch office and project office mostly describe the reverse case, a foreign company setting up in India.

The branch is simpler in India and harder everywhere else. There is no separate company to hold contracts or limit liability, the Indian parent has a permanent establishment in the host country's tax system, and in the United States a branch triggers a federal beneficial ownership filing that a US-formed subsidiary does not.

The option that is not an entity at all: Employer of Record and distributor

An Employer of Record, a business already employing people in the destination, hires the staff and invoices the Indian company for their cost plus a fee. That invoice is a payment for services, a current account transaction, so there is no Form FC, no Annual Performance Report and nothing counted against the ceiling. A distributor or reseller contract is the same on the Indian side.

The risk moves to tax. Someone abroad who habitually concludes contracts on the Indian company's behalf can create a permanent establishment under the dependent agent rule in Article 5 of the OECD Model Tax Convention, which India's treaties broadly follow, so keep contract-signing authority in India. In our view an Employer of Record is the right way to test a market with one or two people, and the wrong way to run a business that needs contracts, a bank account and invoices in its own name.

Route	Indian exchange control treatment	India-side filings	Separate entity abroad	Where it fits
Wholly owned subsidiary	Overseas direct investment	Form FC before investing; evidence of investment within six months; Annual Performance Report; FLA return	Yes	A business that contracts, banks, invoices and hires in its own name
Joint venture	Overseas direct investment	As for a wholly owned subsidiary	Yes	Entering a market with a local or strategic partner
Overseas branch or office	Not overseas direct investment; foreign currency account under the 2015 regulations	Remittances within the caps for initial and recurring expenses	No	A sales or project presence with no need for its own balance sheet
Employer of Record or distributor	Current account transaction	None under the overseas investment framework	No	Testing a market with one or two people or through a reseller

The India-side permission: automatic route, and the ceiling that actually binds

Most overseas direct investment needs no prior approval. It runs on the automatic route, through the company's authorised dealer bank, within the limits in the Rules. It is also a corporate act: the Indian board approves it under section 186 of the Companies Act, 2013, so check that section's thresholds and its proviso for investment in a wholly owned subsidiary before deciding whether shareholders must approve too.

Financial commitment, and the 400 per cent of net worth test

Paragraph 3 of Schedule I to the Rules caps an Indian entity's total financial commitment in all foreign entities at 400 per cent of its net worth on its last audited balance sheet. The cap is cumulative across every foreign entity. Only capitalisation of retained earnings is left out of it, and money from an exchange earners' foreign currency account or from ADR or GDR proceeds still counts.

Financial commitment includes debt and non-fund-based commitments as well as equity. A corporate guarantee for the subsidiary counts at its full amount and a performance guarantee at half, although no money leaves India, and an invoked guarantee becomes debt. A guarantee roll-over is not fresh commitment, but it is still reported on Form FC.

For a young company this is often the binding constraint. Four hundred per cent of a small net worth is a small number, and a company whose losses have taken its net worth to zero or below has no automatic-route headroom at all. Open the last audited balance sheet before the business plan.

What pushes a transaction into the approval route

The triggers are specific. A commitment above 400 per cent needs Central Government permission through the Reserve Bank, which may be given in strategic sectors or geographies. A commitment above USD 1 billion in a financial year needs the Reserve Bank's prior approval even within the ceiling. Investment in a foreign entity dealing in rupee-linked financial products needs specific approval.

Rule 10 requires a resident with a non-performing account, a wilful defaulter, or a person under investigation by a financial sector regulator, the Central Bureau of Investigation, the Directorate of Enforcement or the Serious Fraud Investigation Office to obtain a no objection certificate from the lender, regulator or agency first. If none replies within 60 days, no objection is presumed.

One condition catches startups without requiring any approval. Start-ups sit inside the Rules' definition of a strategic sector, which reads like a relaxation. Rule 19 then requires overseas direct investment in a start-up to come only from the internal accruals of the Indian entity or its Indian group or associate companies. Check whether the new subsidiary is a start-up under the Rules' definition before planning to fund it with a loan.

The prohibited list, the two-layer cap, and round-tripping

Rule 9(1) requires investment in a foreign entity engaged in a bona fide business activity, meaning one that is lawful in both India and the host country. Rule 19(1) prohibits overseas direct investment in real estate activity, in gambling in any form, and in rupee-linked financial products without Reserve Bank approval. Real estate activity excludes developing townships and building residential or commercial premises, roads or bridges for sale or lease, so an overseas development business is permitted and a portfolio of rental buildings is not.

Rule 19(3) is the round-tripping provision. No resident may make a financial commitment in a foreign entity that has invested, or invests, into India, "at the time of making such financial commitment or at any time thereafter", where the result is a structure with more than two layers of subsidiaries. Banking companies, systemically important non-banking financial companies, insurance companies and Government companies are exempt.

Before 2022, an Indian company owning a foreign company that owned an Indian company needed case-by-case approval under a Reserve Bank FAQ. Within two layers it is now permitted on the automatic route. The words "at any time thereafter" are the danger: a later reorganisation abroad can breach the limit for an investment that complied on the day it was made.

Form FC, the UIN, and the order the filings actually run in

The overseas investment filings are few, but each has its own clock, and the clocks run from different events. Missing any of them has the same consequence under Regulation 12 of the Overseas Investment Regulations, covered below. They sit on top of the Indian company's ordinary obligations in the statutory compliances checklist for a first-year company.

The filing that has to come before the money

Designate one authorised dealer Category-I bank. Every transaction with the foreign entity runs through it under one unique identification number, and where several residents invest in the same foreign entity they must all use the same bank.

File Form FC with that bank, and obtain the number, on or before the initial investment. The form has five sections, A to E, the last being the certificate of the Indian entity's statutory auditor. Guides that describe "Parts I, II and III" are describing Form ODI from the 2004 regime.

Form FC is filed again for every further financial commitment, guarantee roll-over, conversion of a loan into equity, restructuring and disinvestment. There is no annual Form FC. The annual filings are the Annual Performance Report and the FLA return.

Valuation, and when a certificate is required

Rule 16 requires the equity of a foreign entity to be issued or transferred at an arm's length price, which the bank checks against a valuation under any internationally accepted pricing methodology. No method or class of valuer is prescribed. A subscription on incorporation is priced at incorporation, so the question usually arises at a later capital increase, an acquisition or a transfer. A restructuring under Rule 18 needs a registered valuer's certificate dated within six months of the transaction.

Keep two tests apart. The exchange control price under Rule 16 and the income-tax arm's length price under section 165 of the Income-tax Act, 2025 are separate tests, and a price that satisfies the bank does not by that fact satisfy the transfer pricing officer.

Share certificates, and the six-month clock

Regulation 9(1) requires evidence of the investment, normally the share certificate, within six months of the remittance or capitalisation. Missing it means the remitted funds have to be repatriated. Where the destination uses uncertificated shares, agree with the bank at the outset which document it will accept, and count the six months from the remittance date rather than the incorporation date.

The Annual Performance Report, every 31 December

Regulation 10(4) requires an Annual Performance Report for each foreign entity by 31 December every year, based on its audited financial statements. If the entity's accounting year ends on 31 December, the report is due by 31 December of the following year. Where the Indian entity lacks control and the host country requires no audit, unaudited statements certified by the Indian entity's statutory auditor or a chartered accountant may be used. The only exemptions are a holding below ten per cent with no control and no other financial commitment, and an entity in liquidation.

A dormant year is not an exemption, which is why this is the report most often missed. Under Regulation 12, any reporting delay must be regularised before any further financial commitment or transfer is made. An Annual Performance Report left unfiled three years ago blocks the next round of funding into the subsidiary until it is fixed.

The FLA return, every 15 July

The Annual Return on Foreign Liabilities and Assets is a separate Reserve Bank return, filed on the FLAIR portal, reporting foreign assets and liabilities as at 31 March, including overseas direct investment made. The standard due date is 15 July, although for 2025-26 the portal extended it to 31 July 2026. It is filed even in a year with no transactions, on provisional figures where the accounts are not yet audited, with audited figures by 30 September.

Late Submission Fee: the formula, the window, and what happens after it closes

Regulation 11 lets a late filing be regularised with a late submission fee. Under A.P. (DIR Series) Circular No. 16 of 30 September 2022, a return that reports a flow of money, including Form FC, costs Rs 7,500 plus 0.025 per cent of the amount involved for each year of delay, with the delay rounded up to the nearest month. A return that reports no flow, including the Annual Performance Report and the FLA return, costs a flat Rs 7,500. The fee is capped at the amount involved.

Take Rs 5 crore remitted with Form FC filed fourteen months late. The delay is 1.17 years, and 0.025 per cent of Rs 5 crore is Rs 12,500, which multiplied by 1.17 is Rs 14,625. With the fixed Rs 7,500, the fee is Rs 22,125.

The fee is cheap, which is the trap. It is available only within three years of the due date. After that the route is compounding under section 15 of the Foreign Exchange Management Act, 1999, which is slower and puts the whole investment under scrutiny rather than one filing.

Choosing the jurisdiction for a subsidiary abroad: what actually drives the decision

Most comparisons rank destinations by headline tax. For an Indian parent's first operating subsidiary, the factors that decide the choice usually run in this order.

1. Customers: where they are, and whom they are willing to contract with. Ask the first three before choosing.

2. Investors: if a US funding round is likely, the entity those investors expect is a Delaware corporation.

3. The recurring cost of a compliant presence: a resident director in Singapore, a genuine registered office in the UK, real substance in a UAE free zone.

4. Tax on money coming home: only one of these four destinations withholds tax on a dividend paid to an Indian parent.

5. Tax on profit, which matters once there is profit and which transfer pricing largely decides.

6. The consequence in India: a subsidiary in a jurisdiction whose top rate is below 15 per cent takes India's transfer pricing safe harbour off the table.

Do this diligence before incorporating. Once shares are issued the Indian filings have begun, and reversing the choice means a disinvestment and a fresh investment.

Destination	Tax on the subsidiary's profit	Government incorporation fee	Local presence the law requires	Withholding on a dividend to the Indian parent
United States (Delaware corporation)	21 per cent federal, plus state tax where it operates	From USD 109, rising with authorised shares	A registered agent with a Delaware street address	15 per cent under the treaty, with at least 10 per cent of the voting stock
United Kingdom (private limited company)	25 per cent main rate; the 19 per cent rate is often lost to a group subsidiary	GBP 100 online	An appropriate registered office address in the UK	None
Singapore (private limited company)	17 per cent, with partial exemption on the first S$200,000	S$315	A locally resident director, a company secretary and a registered office	None
UAE (free zone company)	9 per cent above AED 375,000; 0 per cent only on qualifying income, which excludes software and IT services	Set by each free zone	The licence, office and substance its conditions require	None

United States: the Delaware default, and the franchise tax nobody budgets

Delaware is chosen for its corporate law and because American investors know it, not for tax. Its 8.7 per cent corporate income tax applies only to income apportioned to Delaware, so a subsidiary whose people and customers are elsewhere pays income tax where it operates and Delaware franchise tax for being incorporated there. Delaware law imposes no residency requirement on directors, so the board can sit in India, which is a different question from where it should meet. A company with an office or staff in another state generally registers there as a foreign corporation too, with its own registered agent and returns, and one that fails to can lose its standing to sue in that state's courts.

C-Corp or LLC, and why a foreign parent almost never wants the LLC

A limited liability company is transparent for US tax, and that is the problem. A single-member LLC owned by an Indian company is disregarded, so the Indian company is treated as carrying on the US business itself. It has effectively connected income, files Form 1120-F, and can owe branch profits tax under section 884 of the Internal Revenue Code at 30 per cent, or a lower treaty rate, on top of corporate tax.

A multi-member LLC adds withholding under section 1446 on a foreign partner's share, at 21 per cent for a corporate partner, paid quarterly. Even a foreign-owned single-member LLC with no income has a filing, because its formation contribution is itself reportable on a pro forma Form 1120 with Form 5472.

A corporation blocks all of that. It pays federal tax at 21 per cent under section 11 on its own profits and files Form 1120, and the Indian parent's US exposure is limited to withholding on dividends. An LLC still works one level down, owned by the corporation, but almost never as the entity the Indian company owns directly.

Getting an EIN without an SSN

The corporation needs an Employer Identification Number, applied for on Form SS-4. The responsible party must be a natural person, so a named director or officer of the parent goes on the form, and one without a Social Security Number or Individual Taxpayer Identification Number enters "Foreign", which rules out the online application. International applicants can call +1 267-941-1099, Monday to Friday, 6:00 a.m. to 11:00 p.m. Eastern time. A fax to 304-707-9471 from outside the United States takes about four business days if a return fax number is given, and post takes about four weeks.

The bank account is usually the real bottleneck. Under the customer due diligence rule at 31 CFR 1010.230, a bank must identify and verify every individual owning 25 per cent or more of an entity customer, directly or indirectly, plus one controlling individual, to the standard it applies to individual customers. With a chain running from the Delaware corporation through the Indian parent to its promoters, that means verifying people with no US documents, address or presence. Nothing prohibits the account, but the difficulty is real and varies bank by bank.

Franchise tax: two calculation methods, and a bill that moves by a factor of a hundred

Every Delaware corporation files an annual report, with a USD 50 fee, and pays franchise tax for the previous year by 1 March, on the lower of two methods. On the authorised shares method, 5,000 shares or fewer cost USD 175, up to 10,000 cost USD 250, and each further 10,000 shares or part adds USD 85. On the assumed par value capital method, the tax is USD 400 for each USD 1 million, or part, of assumed par value capital, which is gross assets divided by issued shares and multiplied by authorised shares, with a USD 400 minimum. The maximum is USD 200,000, or USD 250,000 for a large corporate filer, and filing late costs USD 200 plus interest at 1.5 per cent a month.

The trap is the default. The state computes on authorised shares because it cannot work out the other method without the company's gross assets and issued shares.

Take ten million authorised shares: USD 250 for the first 10,000, plus 999 further blocks at USD 85, is USD 85,165, or USD 85,215 with the report fee. With USD 1 million of gross assets and 8 million shares issued, assumed par value is USD 0.125 and assumed par value capital is USD 1.25 million, which counts as two millions, so the tax is USD 800, or USD 850 in total. Same company, same year: USD 85,215 or USD 850, depending on whether someone reports the numbers.

Form 5472, and the penalty that applies whether or not the company made money

Form 1120 is due on the fifteenth day of the fourth month after the year end, which is 15 April for a calendar year, and can be extended on Form 7004. A corporation with a direct or indirect 25 per cent foreign shareholder at any time in the year, and reportable transactions with a foreign related party, attaches Form 5472. Service fees paid to the Indian parent, loans between the two and royalties for the parent's software are the typical transactions it captures.

The penalty for not filing the form, or for not keeping the required records, is USD 25,000, plus a further USD 25,000 for each thirty days the failure continues more than ninety days after IRS notice. None of it depends on income. It also means the IRS sees every related-party flow from the first year, so the intercompany agreement matters in the United States as much as in India.

Beneficial ownership reporting after the 2025 rule change

Much current writing on the Corporate Transparency Act describes a regime that has gone. FinCEN's interim final rule of 26 March 2025 narrowed the definition of a reporting company, and a final rule announced on 11 August 2026 made the narrowing permanent. A reporting company is now only an entity formed under a foreign country's law that has registered to do business in a US state or tribal jurisdiction. Every entity created in the United States is exempt, whoever owns it.

So a Delaware subsidiary of an Indian company files no beneficial ownership report. If the Indian company instead registers itself in a state and operates as a branch, it is a reporting company and must file within 30 calendar days of the registration taking effect, which is a rarely mentioned point in the subsidiary's favour. Some older FinCEN pages still carry the pre-2025 wording, so work from the rule itself.

United Kingdom: cheap to form, and the identity check that changed in November 2025

The United Kingdom is the quickest of the four destinations to incorporate in and, since 2024, the one whose company law has changed fastest. Two of the changes land on an Indian parent: where the company's post goes, and how a director living in India proves who they are.

Incorporation, the appropriate-address rule and the registered office

Since 1 February 2026, Companies House has charged GBP 100 to incorporate online, GBP 124 on paper and GBP 156 for same-day incorporation through software. That is double the GBP 50 set in May 2024, which many guides still quote. An online application is usually dealt with within 24 hours.

Since 4 March 2024 the registered office has had to be an appropriate address: documents sent there would be expected to come to the attention of someone acting for the company, and their delivery can be recorded. A PO box no longer qualifies, and every company must also give Companies House an unpublished email address. A mail-forwarding address will not do, so the subsidiary needs a real office or a registered office service.

The register of people with significant control covers anyone with more than 25 per cent of the shares or votes, or the right to appoint or remove a majority of the board, and an Indian parent normally appears on it as a relevant legal entity. The Register of Overseas Entities, by contrast, is a land register. It is engaged only if the Indian company holds UK property in its own name, not when the UK subsidiary does.

Identity verification for a director resident in India

Identity verification became a legal requirement at Companies House on 18 November 2025, under the Economic Crime and Corporate Transparency Act 2023, with a twelve-month transition for people already on the register. A new director has to verify before the company is incorporated or before the appointment, and an existing director by the company's next confirmation statement.

There are two routes. GOV.UK One Login is free and, for someone outside the United Kingdom, generally needs a biometric passport. An Authorised Corporate Service Provider, registered with Companies House and supervised for anti-money laundering in the UK, can verify a director living anywhere.

Companies House recorded 117,639 people on the register, nationals of 112 countries living overseas, who were outside One Login's document coverage in May 2025. Plan on the service provider route and treat One Login as a bonus.

Corporation tax, and the associated-companies rule that removes the small profits rate

UK corporation tax is 25 per cent on profits above GBP 250,000 and 19 per cent below GBP 50,000, with marginal relief between, and the subsidiary registers for it within three months of starting business. Both limits are divided by the number of associated companies plus one, and HMRC's Company Taxation Manual at CTM03940 states that "A company may be an associated company regardless of where it is tax resident." An Indian parent with three other trading subsidiaries leaves the UK company dividing by five: the lower limit falls to GBP 10,000, the upper limit to GBP 50,000, and GBP 60,000 of profit is taxed at the full 25 per cent. Companies that carry on no trade or business in the period are left out of the count.

The calendar has a trap of its own. First accounts are due 21 months after incorporation, and later accounts nine months after each year end. Corporation tax is payable nine months and one day after the period ends, but the return is due at twelve months, so the tax falls due before the return.

Late accounts cost from GBP 150 to GBP 1,500 depending on how late they are, doubled for two successive years. For returns due on or after 1 April 2026, HMRC's late-filing penalties doubled to GBP 200, and GBP 400 at three months late, payable even where no tax is owed. VAT registration is required once taxable turnover over the previous twelve months exceeds GBP 90,000.

Singapore: the resident director problem, and an exemption you probably cannot use

Singapore is quick and cheap to incorporate in. Through ACRA's BizFile portal a name application costs S$15 and registration S$300, straightforward applications often complete the same day, and a single issued share is enough. A foreigner must engage a registered Corporate Service Provider to file. The hard parts come afterwards: finding a director the law accepts, and an exemption the subsidiary probably cannot use.

The resident-director requirement, and the three ways to satisfy it

Every Singapore company needs at least one director who is ordinarily resident in Singapore: a citizen, a permanent resident, or the holder of an Employment Pass, Personalised Employment Pass or Overseas Networks and Expertise Pass. An Employment Pass holder needs a letter of consent from the Ministry of Manpower before taking the role.

There are three routes. The first is a nominee director, which since the Corporate Service Providers Act 2024 took effect on 9 June 2025 must be arranged by a registered provider that has assessed the nominee as fit and proper, with the company recording the arrangement in a register that is not open to the public. The second, the EntrePass, is usually a poor fit, because the pass holder must personally hold at least 30 per cent of a company that is venture-backed or owns innovative technology, which a wholly owned subsidiary cannot offer.

The third is an Employment Pass for a relocated employee, which currently needs a monthly salary of at least S$5,600 outside financial services, rising with age to S$10,700, and from 1 January 2027 at least S$6,000, rising to S$11,500. The application must also score 40 points under COMPASS, where a firm with fewer than 25 PMET employees scores 10 diversity points by default. Because the company must exist to sponsor the pass, the usual sequence is a nominee director at incorporation, replaced once the pass is issued.

A company secretary, who must be a locally resident individual and not the sole director, is appointed within six months, and an auditor, unless the company is exempt, within three. The registered office must be open to the public for at least three hours on each working day.

The start-up tax exemption a corporate-owned subsidiary is shut out of

Singapore taxes company profit at 17 per cent. The Start-up Tax Exemption exempts 75 per cent of the first S$100,000 of chargeable income and 50 per cent of the next S$100,000 in a new company's first three years. But IRAS requires the shares to be held by no more than 20 shareholders where "All the shareholders are individuals; or At least 1 shareholder is an individual holding at least 10% of the issued ordinary shares of the company". A subsidiary owned entirely by an Indian company has no individual shareholder, fails both limbs, and cannot claim it.

It gets the Partial Tax Exemption instead: 75 per cent of the first S$10,000 and 50 per cent of the next S$190,000. The difference is S$22,500 of exempt income, which is at most S$3,825 of tax a year before rebates. That belongs in the budget. In our view it is nowhere near a reason to put a founder on the share register, which would make that founder an overseas investor in their own right.

For the year of assessment 2026 the corporate tax rebate is 50 per cent of tax payable, capped at S$40,000 including a S$2,000 cash grant. The grant needs CPF contributions for at least one local employee, and CPF is payable only for citizens and permanent residents, so a subsidiary staffed only by pass holders gets the rebate but not the grant.

ECI, Form C-S and the filing calendar

Estimated chargeable income is filed within three months of the financial year end, unless revenue is S$5 million or less and the estimate is nil. The tax return is due by 30 November, even where there is no income, with penalties of up to S$5,000, and IRAS holds directors responsible even when an agent files. Form C-S (Lite) covers revenue up to S$200,000 and Form C-S up to S$5 million, but only for a company with no income taxed other than at 17 per cent and no claim to foreign tax credit, so a subsidiary claiming credit for Indian tax withheld on its receipts files the full Form C.

A non-listed company holds its annual general meeting within six months of the year end, or declares that it has dispensed with it, and files its annual return within seven months, dormant or not. It is exempt from audit as a small company if it meets two of three tests, revenue of S$10 million or less, assets of S$10 million or less and 50 employees or fewer, for the past two consecutive financial years, and a corporate shareholder does not disqualify it. GST registration applies above S$1 million of taxable turnover at a rate of 9 per cent, but international services are zero-rated, so billing overseas customers attracts no GST while input tax remains recoverable.

UAE: free zone or mainland, and what the nine per cent actually applies to

The UAE is the destination where the headline rate says least about the tax actually paid. A free zone company pays 0 or 9 per cent depending on conditions it must meet throughout every tax period, and for most Indian technology subsidiaries the zero rate is not available on their main revenue at all.

Mainland, free zone, and what changed for foreign ownership

Since amendments to the Commercial Companies Law took effect in 2021, a foreign company can own all of a mainland company in most activities, although a short list of strategic-impact activities, including defence, banking, insurance and communications, remains subject to ownership limits. A mainland company trades freely across the UAE and pays 9 per cent above AED 375,000. A free zone company is wholly foreign-owned, licensed by its zone, and can reach 0 per cent, but only on qualifying income.

Qualifying income is income from transactions with other free zone persons, subject to some excluded activities, and, from anyone else, only income from a qualifying activity. Ministerial Decision No. 229 of 2025, issued on 28 August 2025 with effect from 1 June 2023, lists those activities: manufacturing and processing, trading qualifying commodities, holding shares, shipping, reinsurance, fund and wealth management, headquarter and treasury services to related parties, aircraft financing and leasing, distribution in or from a designated zone, logistics, and activities ancillary to them. Software development and IT services are not on the list. A free zone subsidiary that builds software for its Indian parent, or sells IT services to customers outside the zones, earns non-qualifying income on its main revenue.

Qualifying Free Zone Person: the conditions, and what breaks the zero rate

Article 3 of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses sets 0 per cent on taxable income up to AED 375,000, the threshold fixed by Cabinet Resolution No. 116 of 2022, and 9 per cent above it, for financial years beginning on or after 1 June 2023. A Qualifying Free Zone Person pays 0 per cent on qualifying income and 9 per cent on the rest, provided it meets the five conditions in Article 18(1). It must maintain an actual and sufficient existence in the State, derive qualifying income, not have elected into the ordinary regime, comply with the arm's length principle in Article 34 and the documentation rules in Article 55, and meet any other conditions the Minister prescribes. Cabinet Resolution No. 100 of 2023 adds that its core income-generating activities must be carried on in the zone with adequate assets, qualified full-time employees and operating expenditure.

The conditions are brittle. Non-qualifying revenue must not exceed 5 per cent of total revenue or AED 5 million, whichever is lower, and under Article 5(2) of Ministerial Decision No. 229 of 2025 failing any condition removes the status from the beginning of that tax period and for the following four. For the IT subsidiary described above, non-qualifying revenue is most of its revenue, so it fails the test and is taxed as an ordinary company, at 9 per cent above AED 375,000, for five tax periods. Administration and support services to related parties can fall within headquarter services, but that is a narrow opening, not a general one.

Three further points follow. Ministerial Decision No. 84 of 2025 requires every Qualifying Free Zone Person to keep audited financial statements, whatever its revenue. Small Business Relief, which treats a resident company with revenue up to AED 3 million as having no taxable income, and which the Ministry of Finance announced on 7 August 2026 has been extended to tax periods ending on or before 31 December 2029, cannot be elected by a Qualifying Free Zone Person.

Article 45(1) sets withholding tax on payments to non-residents at 0 per cent, so a dividend reaches India without deduction. The 15 per cent domestic minimum top-up tax applies only to groups with consolidated revenue of EUR 750 million or more.

Registration deadlines, and the penalty for missing one

Under Federal Tax Authority Decision No. 3 of 2024, a company incorporated on or after 1 March 2024, including a free zone company, registers for corporate tax within three months of incorporation. Late registration costs AED 10,000 whether or not any tax is due. The penalty is waived automatically if the company files its first tax return within seven months of the end of its first tax period instead of nine. Otherwise the return and payment are due nine months after each tax period ends, which is 30 September for a 31 December year end.

VAT at 5 per cent requires registration above AED 375,000 of taxable supplies and imports, and is available voluntarily above AED 187,500. Beneficial owners with 25 per cent or more are recorded with the licensing authority within fifteen days of incorporation or of any change. Economic substance regulations no longer apply to financial years ending after 31 December 2022, but they were not abolished for 2019 to 2022, which matters if the Indian parent is buying an existing UAE company rather than forming a new one.

Transfer pricing: the intercompany agreement you need on day one

Transfer pricing applies from the first invoice between the two companies, in both countries at once, and each country is checking that the other has not been given too much of the profit. Under the Income-tax Act, 2025, sections 92 to 92F of the 1961 Act became sections 161 to 173 with their substance intact, and the wider renumbering is covered in the business compliance guide to the new Income-tax Act. The 2025 Act applies from tax year 2026-27, so the filings for the year to 31 March 2026 are still made under the 1961 Act, on the old forms.

Associated enterprise and arm's length price under the Income-tax Act, 2025

Section 162 treats two enterprises as associated where, among other tests, one holds directly or indirectly shares carrying at least 26 per cent of the voting power in the other, so a wholly owned subsidiary is always one. Section 161 requires income from an international transaction to be computed at the arm's length price, determined under the methods in section 165. Services, software and brand royalties, loans, guarantees and recharges of shared costs between parent and subsidiary are all international transactions.

The destinations apply their own versions of the test. The United States can reallocate income between commonly controlled taxpayers under section 482 of the Internal Revenue Code, which includes a cost of services plus method at Treasury Regulation 1.482-9(d). The United Kingdom exempts small and medium-sized enterprises, but HMRC's International Manual at INTM412080 says "these limits apply to the whole group and not the specific entity", so a four-person subsidiary of a large Indian group is inside the rules, while a genuinely small group keeps the exemption because India is on HMRC's list of qualifying treaty territories.

Singapore requires documentation where gross revenue exceeds S$10 million, adds a 5 per cent surcharge on any adjustment whether or not extra tax results, and says a subsidiary cannot simply rely on its headquarters' group documentation. In the UAE, arm's length pricing is a condition of the free zone zero rate.

The cost-plus services model, and what it has to be benchmarked against

Most first structures are simple. The subsidiary sells and supports the parent's product and is paid its costs plus a mark-up, or the Indian parent builds the product and is paid its costs plus a mark-up for the engineering. Either way, the mark-up has to be supported by what comparable independent companies earn for comparable functions, assets and risks.

Sign the intercompany agreement before the first service is performed. It should set out what each company does, the cost base, the mark-up, invoicing and payment, who owns what is built, and how the arrangement ends, and the key clauses of a master service agreement are a sound checklist for it. If the subsidiary will use the parent's brand, protect it first through trademark registration in India and decide whether a royalty is paid for it.

Where the Indian parent is the service provider, safe harbour offers a price the tax department accepts without benchmarking. The Income-tax Rules, 2026 set a minimum operating profit of 15.5 per cent of operating expense for information technology services where operating revenue does not exceed Rs 2,000 crore, elected for five tax years at a time.

Safe harbour is not available for transactions with associated enterprises in a notified jurisdictional area or in a no-tax or low-tax territory, which the Rules define as one whose maximum income-tax rate is below 15 per cent. The United States, the United Kingdom and Singapore are above that line. The UAE, at 9 per cent, is below it, so on the rule as written an Indian parent invoicing a UAE subsidiary is outside safe harbour, while the subsidiary itself may be paying 9 per cent for want of qualifying income.

Two provisions matter once the numbers grow. Under section 170, a primary transfer pricing adjustment of Rs 1 crore or more, including one accepted to close an assessment, triggers a secondary adjustment: the excess has to come back to India within the prescribed time, 90 days under the 1961 regime, or it is treated as an advance carrying imputed interest, unless the company pays additional tax on it at 18 per cent. And section 177 caps the deduction for interest paid to a non-resident associated enterprise, where that interest exceeds Rs 1 crore, at 30 per cent of EBITDA. That does not bite when the parent lends to the subsidiary, but it does if the subsidiary lends back to the parent, or guarantees a third-party loan to it.

Form 3CEB, Master File and Country-by-Country reporting thresholds

The accountant's report under section 172, which was Form 3CEB under the 1961 Act, is the transfer pricing filing that reaches a company with a single subsidiary, because it has no monetary threshold. It is due one month before the return, and a company with an international transaction files its return by 30 November under section 263(1), so the report is due by 31 October, both for the year to 31 March 2026 and under the 2026 Rules. The 1961 Act's penalty for failing to furnish it is a flat Rs 1 lakh.

The Master File and the Country-by-Country report, under sections 171 and 511, are group filings. On the 1961 regime figures, the detailed Master File applied above Rs 500 crore of group revenue with international transactions above Rs 50 crore, and the Country-by-Country report above Rs 6,400 crore of group revenue. A company making its first investment abroad is nowhere near either.

Country	Obligation	Threshold	Timing
India	Accountant's report, section 172 (Form 3CEB for the year to 31 March 2026)	None: any international transaction with an associated enterprise	31 October, one month before the 30 November return
India	Master File and Country-by-Country report, sections 171 and 511	Rs 500 crore and Rs 6,400 crore of group revenue respectively, on the 1961 regime figures	Annual, at group level
United States	Form 5472 with Form 1120	A 25 per cent foreign shareholder and reportable related-party transactions	With the corporate return
United Kingdom	Full transfer pricing rules	Unless the whole group is a small or medium-sized enterprise	Reflected in the company tax return
Singapore	Transfer pricing documentation, section 34F	Gross revenue above S$10 million, or documentation required the previous year	Prepared by the filing date; produced within 30 days of a request
UAE	Master File and Local File, Ministerial Decision No. 97 of 2023	Group revenue of AED 3.15 billion, or the company's own revenue of AED 200 million	Produced within 30 days of a request

Place of effective management, and the risk of running a foreign company from India

The structural risk in an Indian-owned subsidiary is a company that is foreign on paper and Indian in fact: founders and engineers in India, and the board meeting held in the office they share.

When a foreign subsidiary becomes an Indian tax resident

Under section 6(10) of the Income-tax Act, 2025, a company is resident in India in a tax year if its place of effective management in that year is in India, meaning the place where the key management and commercial decisions necessary for its business as a whole are, in substance, made. If it is, the subsidiary's worldwide income is taxable in India while it remains resident at home, and the treaty's rules for dual-resident companies have to be worked through.

The Central Board of Direct Taxes' guidance was issued under the 1961 Act: Circular No. 6 of 2017, built on whether the company has an active business outside India, and Circular No. 8 of 2017, which disapplied that guidance for a company with turnover or gross receipts of Rs 50 crore or less. Section 536(2)(j) of the 2025 Act continues such circulars so far as they are not inconsistent with it, and no reissued guidance had been published by September 2026. The Rs 50 crore carve-out is measured on the foreign company's own turnover, and it switches off the guidelines, not the test in the Act.

Permanent establishment, the same problem in the other direction

Permanent establishment is the mirror image: whether a country can tax a non-resident on a business it carries on there. Indian staff who spend long periods in the destination, or negotiate and sign contracts there for the Indian company, can give the Indian company a permanent establishment abroad. People in India who habitually conclude contracts for the subsidiary can do the same in reverse. The tests are in Article 5 of each treaty and differ in detail, so have contracts signed by the company that is party to them, in its own country.

What good substance actually looks like

Substance is a board that meets and decides where the company is resident, on papers circulated beforehand, and a senior person in the destination with real authority over contracts, hiring and the bank account. It is contracts, bank mandates and books that are genuinely the subsidiary's own. The UAE writes a version of this into its free zone conditions.

India's general anti-avoidance rule, now sections 178 to 184 of the Income-tax Act, 2025, sits over every treaty claim, and section 181 includes the denial of a treaty benefit among its consequences. The India-UAE treaty separately denies benefits where obtaining them was a main purpose of creating the entity. A tax residency certificate, which section 159(8) requires before a non-resident claims treaty relief in India, is necessary for any of these claims and never sufficient on its own.

Getting the money back: dividends, royalties, interest and treaty rates

Profit reaches the Indian parent through a chain. The destination taxes the profit, may withhold tax on the payment, India taxes what arrives, and a foreign tax credit stops the withholding being paid twice. The chain, not any one rate in it, sets the real cost of the structure.

Withholding at source, and what the treaty does to the rate

When the Indian parent pays the subsidiary royalties or fees for technical services, India withholds under section 393(2) of the Income-tax Act, 2025, formerly section 195 of the 1961 Act, at the rates in force, which section 207 sets at 20 per cent for royalties and technical fees under qualifying agreements. A lower treaty rate applies where the subsidiary gives the parent its tax residency certificate, and tribunals have held that surcharge and cess are not added to a treaty rate.

When the subsidiary pays the parent a dividend, three of the four destinations charge nothing. The UK has no withholding on ordinary dividends, Singapore's one-tier system treats company tax as final, and Article 45(1) of the UAE Corporate Tax Law sets the rate at 0 per cent. Only the United States withholds, at 15 per cent under the treaty where the parent holds at least 10 per cent of the voting stock. The UK does withhold 20 per cent on interest and royalties, reduced by the treaty.

Service fees are where the treaties differ most. The India-US treaty taxes fees for included services only where the services are ancillary to a royalty or "make available technical knowledge, experience, skill, know-how, or processes"; routine services outside that are business profits, taxable only through a permanent establishment.

The India-Singapore treaty taxes fees for technical services at 10 per cent. The India-UAE treaty has no separate provision for them at all, so they are business profits, taxable in India only through a permanent establishment. India's equalisation levy has also gone: the 2 per cent levy from 1 August 2024 and the 6 per cent levy from 1 April 2025.

Treaty	Dividends	Interest	Royalties	Fees for technical services	Destination's own withholding on a dividend to India
India-United States	15 per cent with at least 10 per cent of voting stock; 25 per cent otherwise	10 per cent to a bank, similar institution or insurer; 15 per cent otherwise	15 per cent; 10 per cent for equipment rental	15 per cent, only where ancillary or making know-how available; 10 per cent where ancillary to equipment rental	15 per cent (treaty rate)
India-United Kingdom	10 per cent; 15 per cent on property income dividends	10 per cent to a bank; 15 per cent otherwise	10 per cent for equipment; 15 per cent otherwise	10 per cent where ancillary to leased equipment; 15 per cent otherwise	None
India-Singapore	10 per cent with at least 25 per cent of shares; 15 per cent otherwise	10 per cent to a bank or similar institution, including an insurer; 15 per cent otherwise	10 per cent	10 per cent	None
India-UAE	10 per cent	5 per cent to a bank or similar institution; 12.5 per cent otherwise	10 per cent	No separate provision; business profits	None (0 per cent)

Foreign tax credit, and Form 67

Section 159 of the Income-tax Act, 2025, which replaced sections 90 and 90A of the 1961 Act, gives effect to treaty relief, and section 160 gives relief at the lower of the two rates where there is no treaty. The credit is allowed in the tax year in which the income is taxed in India. It is claimed on Form 67 for years to 31 March 2026, and on the form prescribed under the Income-tax Rules, 2026 after that.

The credit covers foreign tax on the income India is taxing, which for a dividend is the withholding tax. Relief for the subsidiary's own corporate tax depends on the relief article of the particular treaty. So a dividend from the UK, Singapore or the UAE arrives with no withholding to credit, and is taxed at the parent's full rate unless that treaty provides otherwise.

What a foreign dividend is taxed at in India now

Many guides still describe a concessional 15 per cent rate for dividends from a foreign company in which the Indian company holds 26 per cent or more. That rate, in section 115BBD of the 1961 Act, was withdrawn from assessment year 2023-24, and no successor provision was found in the 2025 Act. A foreign dividend is taxed at the Indian company's normal rate, plus surcharge and cess.

What survives is section 148 of the Income-tax Act, 2025, formerly section 80M: a deduction for dividends received from a domestic or foreign company, up to the amount of dividends the parent itself distributes at least one month before its return due date under section 263(1). It is one of only two Chapter VIII deductions that survive an election into the 22 per cent regime under section 200. Miss the one-month lead and the whole deduction is lost.

Hiring the first people, and when an EOR beats a subsidiary

For the first one or two people in a market, an Employer of Record is faster, needs no overseas investment filings, and leaves employment law risk with a local employer that already carries it. It stops fitting when those people must sign customer contracts, when the fee outgrows the cost of running payroll, or when the market expects a local company.

Once the subsidiary employs people directly, each destination has first-week duties. In the UK it registers as an employer with HMRC before the first payday, and automatic enrolment duties start on the first employee's first day, with a declaration of compliance within five months and a minimum contribution of 8 per cent of qualifying earnings, at least 3 per cent of it from the employer.

In Singapore, a relocated Indian national needs an Employment Pass, and CPF applies only to citizens and permanent residents. In the UAE, residence visas are sponsored by the company, and how many a free zone company can sponsor depends on its zone and licence package. In the United States, payroll starts once the EIN is issued and the company is registered in the states where its employees work.

Staff who stay employed by the Indian parent and travel remain on Indian terms, so the labour codes compliance checklist and employment contracts and HR compliance for Indian startups still govern them. Keep their trips short and their authority to sign contracts clear.

The running compliance calendar, in both countries

Once the subsidiary exists, the group runs two sets of books, often on different financial years, against two statutory calendars. Section 129(3) of the Companies Act, 2013 also requires a company with subsidiaries to prepare consolidated financial statements, so the subsidiary's close becomes part of the parent's, and the monthly close checklist applies to both entities.

Someone has to own this calendar across both companies, whether an in-house finance lead, the auditor's team or a virtual CFO. The fixed dates are below, to be set against the Indian company's own filings in the annual ROC compliance calendar. Event-driven filings, above all Form FC, sit outside any calendar and have to be caught when the event happens.

When	Filing	Country
1 March	Delaware annual report and franchise tax	United States
3 months after the year end	Estimated chargeable income, unless waived	Singapore
15 April (calendar year)	Form 1120 with Form 5472, or an extension on Form 7004	United States
15 July (31 July 2026 for 2025-26)	Annual Return on Foreign Liabilities and Assets	India
30 September (31 December year end)	Corporate tax return and payment	UAE
31 October	Accountant's report on international transactions	India
30 November	Corporate income tax return; Indian company's return in a transfer pricing case	Singapore and India
31 December	Annual Performance Report for each foreign entity	India
6 and 7 months after the year end	Annual general meeting, then annual return	Singapore
9 months, 9 months and a day, and 12 months after the year end	Accounts, corporation tax payment, then company tax return	United Kingdom

What it actually costs, year one and year two

No regulator publishes what professional firms charge to set up or run a foreign subsidiary, and quotes vary widely, so treat any single figure presented as the cost with suspicion. The government side can be stated precisely.

Year one carries the incorporation fees. Delaware charges from USD 109 for a one-page certificate of incorporation, rising with authorised shares, with optional expedited service from USD 100. Companies House charges GBP 100 online and ACRA S$315.

UAE free zone fees are set by each zone: DMCC states a first-year range of AED 35,000 to 50,000, and ADGM reported non-financial registration and renewal fees of USD 5,000 each from January 2025, both of which are indicative. In India, year one adds the statutory auditor's certificate for Form FC and any valuation.

Year two recurs: the Delaware USD 50 report fee plus franchise tax from USD 175 or USD 400, the UK's GBP 50 confirmation statement and Singapore's S$60 annual return. Then come the lines no government sets: a registered agent or office service, a Singapore nominee director and company secretary, audits, local tax returns, the Indian accountant's report, Annual Performance Report certification and a second set of books. Get a fixed quote for each line from someone who will still be doing it in year three. The most expensive cost is the avoidable one: USD 25,000 for a missed Form 5472, or a blocked funding round for a missed Annual Performance Report.

Setting up a subsidiary abroad from India: the order to do this in

For an Indian company taking its first step abroad, this sequence keeps every clock satisfied and every option open.

1. Calculate the headroom: 400 per cent of net worth on the last audited balance sheet, less existing financial commitment. Check whether the investment must come from internal accruals and whether a no objection certificate is needed.

2. Choose the route: an Employer of Record to test a market, a branch where no separate balance sheet is needed, or a subsidiary for a business that must contract, bank and hire in its own name.

3. Choose the destination on customers, investors, the cost of compliant presence, tax on money coming home, tax on profit and the consequence in India.

4. Check the destination's hard constraints: the UAE's qualifying activities list, Singapore's resident director, the UK's identity verification and the time a US bank account will take.

5. Design the capital before incorporating: authorised shares sized for Delaware franchise tax, initial capital, and whether later funding is equity, a loan or a guarantee, all of which count against the ceiling.

6. Pass the board resolution under section 186 of the Companies Act, 2013 and designate one authorised dealer bank.

7. Obtain any valuation the transaction needs, before the transaction.

8. File Form FC and obtain the unique identification number before any shares are issued to the Indian company or any money moves.

9. Incorporate, appoint the local director, secretary, registered agent or registered office, complete identity verification, and register for tax within the destination's deadline.

10. Remit the capital and diarise six months from the remittance date for the evidence of investment.

11. Sign the intercompany agreement before the first service, and decide between safe harbour and benchmarking.

12. Set up governance that holds: board decisions taken where the subsidiary is resident, and contract authority, bank mandates and records in the subsidiary.

13. Put every fixed date for both countries into one calendar with one owner.

14. Plan repatriation before there is profit: dividend or service fee, the treaty rate and residency certificate, the section 148 timing and the foreign tax credit claim.

Plan the exit too. A sale of the subsidiary is reported on Form FC as a disinvestment within thirty days of receiving the proceeds. The gain is computed under section 72 of the Income-tax Act, 2025, and on unlisted shares held for more than 24 months it is long-term and taxed at 12.5 per cent under section 197(1)(b).

Closing the subsidiary instead follows the destination's law and still ends in the Indian disinvestment filing, much as winding up or closing a company in India ends in filings of its own. And if the subsidiary becomes the group's holding company through a flip, a later reverse flip is a cross-border deal, covered in the guide to mergers and acquisitions in India.

If Form FC, the intercompany agreement and two countries' filing calendars are pulling your team away from the market you are trying to enter, Outsource360's company registration and compliance service handles incorporation and secretarial work, its legal team drafts intercompany agreements, its tax advisory team covers cross-border tax and transfer pricing, and its virtual CFO team keeps the books for both companies. You can book a consultation if it would help to talk it through first.

Frequently asked questions

Do I need RBI approval to set up a subsidiary abroad from India?

Usually not. Overseas direct investment runs on the automatic route through the company's authorised dealer bank where total financial commitment stays within 400 per cent of net worth and the activity is not prohibited. The company files Form FC and obtains a unique identification number before investing. Approval is needed above the ceiling, above USD 1 billion in a financial year, and for rupee-linked financial products, and some residents need a no objection certificate first.

What is the process for setting up a subsidiary abroad from India?

Check the 400 per cent of net worth headroom, pass a board resolution, designate an authorised dealer bank, obtain any valuation needed, and file Form FC for a unique identification number before shares are issued or money is sent. Then incorporate, remit the capital, submit evidence of investment within six months, sign an arm's length intercompany agreement, and file the Annual Performance Report every 31 December and the FLA return every July.

What is the difference between ODI and OPI?

Under Rule 2 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, overseas direct investment is any acquisition of unlisted equity of a foreign entity, any subscription to its memorandum, ten per cent or more of a listed foreign entity, or less than ten per cent of a listed entity with control. Other investment in foreign securities is overseas portfolio investment. Any stake in an unlisted foreign company, however small, is overseas direct investment.

Can an Indian company own 100 per cent of a foreign company?

Yes. A wholly owned subsidiary is standard overseas direct investment, subject to the 400 per cent of net worth ceiling, the bona fide business test, the bans on real estate activity, gambling and rupee-linked financial products, and the two-layer limit where the foreign entity invests back into India. The destination must also allow full foreign ownership, which the UAE has done on the mainland for most activities since 2021.

What happens if I incorporate a company abroad before filing Form FC?

The investment has been made without the required reporting, because it happens when the shares are acquired, not when money is sent. It can be regularised within three years of the due date with a late submission fee of Rs 7,500 plus 0.025 per cent of the amount involved for each year of delay, capped at that amount. Until then, Regulation 12 bars any further financial commitment. After three years, compounding is the only route.

When is the Annual Performance Report due for an overseas subsidiary?

By 31 December every year, for each foreign entity, based on its audited financial statements, or by 31 December of the following year if the entity's year ends on 31 December. It is required in dormant years. The only exemptions are a holding below ten per cent with no control and no other financial commitment, and an entity in liquidation.

How many layers of subsidiaries can an Indian company have abroad?

Rule 19(3) of the Overseas Investment Rules, 2022 bars a financial commitment in a foreign entity that has invested or invests into India where the result is more than two layers of subsidiaries, tested at the time of the commitment or at any time afterwards. Banks, systemically important non-banking financial companies, insurers and Government companies are exempt. Within two layers, investing back into India is permitted on the automatic route.

Which country is best for an Indian company's first foreign subsidiary?

It depends more on customers and investors than on tax. A Delaware corporation suits US investors and customers, but it is the only one of the four common destinations that withholds tax on dividends to an Indian parent. The UK is quick to form, but its small profits rate is often lost to a group subsidiary. Singapore needs a resident director. A UAE free zone's zero rate does not cover software or IT services.

Should an Indian company use a Delaware C-Corp or an LLC for its US subsidiary?

A C-Corp, in almost every case. An LLC owned by an Indian company is transparent for US tax, so the Indian company is treated as carrying on the US business itself, files as a foreign corporation and can owe branch profits tax on top of corporate tax. A C-Corp pays 21 per cent federal tax on its own profits and limits the parent's US exposure to withholding on dividends.

How is Delaware franchise tax calculated?

On two methods, and the company pays the lower. The authorised shares method charges USD 175 for 5,000 shares or fewer, USD 250 up to 10,000, and USD 85 for each further 10,000. The assumed par value capital method charges USD 400 per million dollars of assumed par value capital, with a USD 400 minimum. The state defaults to authorised shares, so ten million authorised shares means USD 85,165 for a full year unless the company reports its gross assets and issued shares.

Can a Singapore subsidiary of an Indian company claim the start-up tax exemption?

Not if the Indian company holds all the shares. IRAS requires either that all shareholders are individuals or that at least one individual holds at least 10 per cent of the issued ordinary shares. A wholly corporate-owned subsidiary meets neither, so it claims the partial tax exemption instead: 75 per cent of the first S$10,000 and 50 per cent of the next S$190,000 of chargeable income.

Is a UAE free zone company tax free?

Not automatically, and rarely for an IT business. A Qualifying Free Zone Person pays 0 per cent only on qualifying income, and software development and IT services are not qualifying activities under Ministerial Decision No. 229 of 2025. If non-qualifying revenue exceeds 5 per cent of total revenue or AED 5 million, whichever is lower, the company loses the status for that tax period and the following four and pays 9 per cent above AED 375,000.

Does a foreign subsidiary pay tax in India?

Not ordinarily, but it can. Under section 6(10) of the Income-tax Act, 2025, a foreign company whose place of effective management is in India is resident in India, and its worldwide income becomes taxable here. That happens when its key management and commercial decisions are in substance made in India. People in India habitually concluding contracts for it can also create a permanent establishment.

How are dividends from a foreign subsidiary taxed in India?

At the Indian company's normal rate plus surcharge and cess. The concessional 15 per cent rate in section 115BBD of the 1961 Act was withdrawn from assessment year 2023-24. Section 148 of the Income-tax Act, 2025 allows a deduction to the extent the parent distributes dividends itself at least one month before its return due date, and foreign withholding tax can be credited under the treaty.

Does a small foreign subsidiary need transfer pricing documentation in India?

Yes. The accountant's report on international transactions under section 172 of the Income-tax Act, 2025, which was Form 3CEB under the 1961 Act, has no monetary threshold, so a single transaction with the subsidiary triggers it, and it is due by 31 October. The Master File and Country-by-Country report have group revenue thresholds that a company with one small subsidiary will not normally reach.

Is an Employer of Record an alternative to setting up a subsidiary abroad?

For one or two people testing a market, often yes. Paying an Employer of Record is a current account payment for services, so there is no Form FC, no Annual Performance Report and nothing counted against the investment ceiling. It stops working when those people need to sign customer contracts, which can create a permanent establishment, or when the business needs a local company to hold contracts, a bank account and invoices.

References

1. Foreign Exchange Management (Overseas Investment) Rules, 2022, effective 22 August 2022: Rule 2 (overseas direct investment, overseas portfolio investment, control, strategic sector); Rule 9(1) (bona fide business activity); Rule 10 (no objection certificate); Rules 16 and 18 (pricing, restructuring); Rule 19 (prohibitions, start-up investment from internal accruals, and the two-layer limit in Rule 19(3)); Schedule I, paragraph 3 (400 per cent of net worth); Schedule III (resident individuals).

2. Foreign Exchange Management (Overseas Investment) Regulations, 2022, Regulations 5, 9(1), 10, 11 and 12, and Overseas Investment Directions, 2022, including the USD 1 billion prior approval requirement, as consolidated in the Reserve Bank of India Master Direction on Overseas Investment, 24 July 2024, rbi.org.in.

3. Reserve Bank of India, A.P. (DIR Series) Circular No. 16 dated 30 September 2022, on late submission fees, rbi.org.in; Annual Return on Foreign Liabilities and Assets on the FLAIR portal, including the extended due date of 31 July 2026 for 2025-26.

4. Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015, on remittance caps for overseas offices and branches; Foreign Exchange Management Act, 1999, section 15, on compounding.

5. Companies Act, 2013, section 186 (loans, guarantees and investments) and section 129(3) (consolidated financial statements).

6. Income-tax Act, 2025 (Act No. 30 of 2025), in force 1 April 2026, incometaxindia.gov.in: sections 6(10), 72, 148, 159 (including 159(8)), 160, 161 to 173 (including 162, 165, 167, 170, 171 and 172), 177, 178 to 184, 197(1)(b), 200, 207, 263(1), 393(2), 511 and 536(2)(j).

7. Income-tax Rules, 2026, notified 20 March 2026: rule 85(2) on the due date of the accountant's report; rules 86(m), 89(2), 91 and 92 on the information technology services safe harbour at 15.5 per cent, the Rs 2,000 crore ceiling, the five-year option, and the exclusion of associated enterprises in notified or low-tax territories.

8. Income-tax Act, 1961, sections 90, 92 to 92F, 115BBD (withdrawn by the Finance Act, 2022 from assessment year 2023-24) and 271BA; Income-tax Rules, 1962, Rule 128 and Form 67; Finance (No. 2) Act, 2024 and Finance Act, 2025, abolishing the equalisation levy.

9. Central Board of Direct Taxes, Circular No. 6 of 2017 (24 January 2017) and Circular No. 8 of 2017 (23 February 2017), on place of effective management.

10. OECD Model Tax Convention on Income and on Capital, Article 5.

11. India-United States convention, signed 12 September 1989, Articles 10, 11 and 12, including Article 12(4)(b), irs.gov; India-United Kingdom convention, HMRC Double Taxation Relief Manual DT9552, gov.uk; India-Singapore agreement, Articles 10 to 12; India-United Arab Emirates agreement, Articles 10 to 12 and the limitation of benefits provision.

12. Delaware Division of Corporations, franchise tax calculation, annual report instructions and fee schedule revised 1 August 2026, corp.delaware.gov; Delaware General Corporation Law, section 141; Delaware Division of Revenue on corporate income tax.

13. Internal Revenue Service, Instructions for Form SS-4, irs.gov, and Instructions for Form 5472, irs.gov; Internal Revenue Code sections 11, 482, 884 and 1446; Treasury Regulation 1.482-9(d); 31 CFR 1010.230.

14. Financial Crimes Enforcement Network, beneficial ownership information, including the interim final rule of 26 March 2025 and the final rule announced 11 August 2026, fincen.gov.

15. Companies House fees from 1 February 2026, gov.uk; identity verification from 18 November 2025, gov.uk; appropriate registered office addresses; people with significant control; Register of Overseas Entities.

16. HMRC: Marginal Relief for Corporation Tax, gov.uk; Company Taxation Manual CTM03940; International Manual INTM412080 and INTM412090; late filing penalties from 1 April 2026; VAT registration threshold; GOV.UK guidance on registering as an employer; The Pensions Regulator on automatic enrolment.

17. ACRA, Singapore, on fees, Corporate Service Providers, local resident directors, company secretaries, annual general meetings, annual returns and audit exemption, acra.gov.sg; Ministry of Manpower on the Employment Pass, COMPASS and EntrePass, mom.gov.sg.

18. IRAS, Singapore, on the corporate tax rate, start-up and partial tax exemptions and the YA 2026 rebate, iras.gov.sg; estimated chargeable income; Form C-S and Form C; goods and services tax; transfer pricing.

19. UAE Federal Decree-Law No. 47 of 2022, Articles 3, 18, 34, 45, 51, 53 and 55, uaelegislation.gov.ae; Cabinet Resolution No. 116 of 2022; Cabinet Resolution No. 100 of 2023, uaelegislation.gov.ae; Ministerial Decisions No. 229 of 2025 (qualifying activities, de minimis and disqualification), No. 84 of 2025 (audited financial statements) and No. 97 of 2023 (transfer pricing documentation).

20. UAE Ministry of Finance, 7 August 2026, on Small Business Relief to 31 December 2029, and guidance on the domestic minimum top-up tax; Federal Tax Authority Decision No. 3 of 2024, the late registration penalty and its waiver, and VAT registration thresholds; Cabinet Decision No. 98 of 2024 on economic substance; Cabinet Resolution No. 109 of 2023 on beneficial ownership.

21. Free zone fees are as published by, or reported from announcements of, DMCC and ADGM, and are indicative. No professional fees are given. The worked figures for the late submission fee, Delaware franchise tax, the UK associated companies divisor and the Singapore exemption gap are arithmetic on the published rules, not figures issued by any authority.

Disclaimer

This article is for educational and general business information purposes only and does not constitute professional legal, financial, or tax advice. It describes the position in India, the United States, the United Kingdom, Singapore and the United Arab Emirates as it stood on the date at the top of this page, and law in all five changes by notification, circular, ministerial decision and amendment. Several points should be checked in their current form before a structure is chosen or a filing made: whether the 2017 guidance on place of effective management continues to apply under the Income-tax Act, 2025; the forms, thresholds and safe harbour conditions under the Income-tax Rules, 2026, including whether a UAE subsidiary of a group within the UAE domestic minimum top-up tax is still in a low-tax territory; the qualifying activities and disqualification rules for UAE free zone companies; and all free zone and service provider fees, which are indicative. Treaty rates are maximum rates available only to a beneficial owner meeting the treaty's conditions, and remain subject to India's general anti-avoidance rule. Verify any provision, rate or deadline that decides a filing against the current text published by the relevant authority, and consult a qualified lawyer, chartered accountant or tax adviser in each country concerned before acting.