Introduction

India's economic landscape presents a lucrative opportunity for foreign investors and multinational corporations. With a large consumer base, skilled workforce, and government initiatives to boost ease of doing business, many foreign entities opt to establish a wholly owned subsidiary (WOS) in India. A WOS allows complete ownership and control while offering a distinct legal identity under Indian laws. This article details the exhaustive process of incorporating a wholly owned subsidiary in India, enriched with real-life examples, legal references, and procedural steps.

1. Understanding Wholly Owned Subsidiary

A wholly owned subsidiary is an entity where 100% of the share capital is held by a foreign parent company. It is registered as a private limited company under the Companies Act, 2013. Unlike a liaison or branch office, a WOS has broader operational freedom and can conduct full-fledged business activities, including manufacturing, trading, and service delivery.

Example: Google India Pvt Ltd is a wholly owned subsidiary of Alphabet Inc., allowing it to conduct independent operations while maintaining alignment with its parent company’s strategic goals.

2. Regulatory Framework Governing WOS in India

• Companies Act, 2013 – Governs incorporation, management, and compliance.

• Foreign Exchange Management Act (FEMA), 1999 – Regulates foreign direct investment (FDI).

• RBI Guidelines – For reporting inward remittances and issuance of shares.

• Income Tax Act, 1961 – Applicable for direct tax obligations.

FDI Policy: Most sectors are under the automatic route (no prior government approval needed). However, strategic sectors such as defence, telecom, and insurance may require prior approval.

3. Key Benefits of Setting Up a WOS in India

• 100% foreign ownership

• Independent legal identity

• Limited liability for parent company

• Better branding and credibility in India

• Ability to repatriate profits (after taxes)

• Eligibility for tax incentives and state subsidies

4. Step-by-Step Incorporation Process

Step 1: Name Approval
Apply for name reservation using the RUN (Reserve Unique Name) service on the MCA portal or as part of the SPICe+ form.

• Ensure name uniqueness and check for trademark conflicts.
• Use the suffix “Private Limited”.

Step 2: Obtain Digital Signature Certificates (DSC)
DSCs are required for proposed directors to sign electronic forms.

• Certifying authorities issue DSCs within 1-3 days.

Step 3: Obtain Director Identification Number (DIN)
DIN is allotted through the SPICe+ form if the individual is a first-time director.

• Minimum one resident director (stay in India for at least 182 days during the financial year) is mandatory.

Step 4: Draft MOA and AOA

• MOA (Memorandum of Association): Defines the company’s objectives.

• AOA (Articles of Association): Lays down internal management rules.

• Include foreign holding details and authorized capital.

Step 5: File SPICe+ Form for Incorporation
Submit SPICe+ along with required attachments:

• Identity & address proof of directors

• Proof of registered office (rent agreement/utility bill)

• MOA and AOA

• Declaration by professionals

Upon successful verification, the Registrar of Companies (RoC) issues:

• Certificate of Incorporation (COI)

• PAN and TAN

• Corporate Identification Number (CIN)

Step 6: Open Bank Account & Capital Infusion

• Open a bank account in the subsidiary’s name.

• Infuse capital via inward remittance under FDI.

Step 7: Reporting to RBI

• File Advance Reporting Form within 30 days of capital infusion.

• File FC-GPR (Form for Allotment of Shares) within 30 days of share issue.

• Use FIRMS portal for all FEMA-related filings.

Step 8: Obtain Other Statutory Registrations

• GST registration (if turnover exceeds threshold)

• Shops & Establishment Act

• Professional Tax, EPF, ESI (depending on employee strength)

5. Real-Life Examples

• Apple India Pvt Ltd: A wholly owned subsidiary used for distribution and marketing, giving Apple more control over pricing and brand positioning.

• BMW India Pvt Ltd: Controls manufacturing and sales, fully owned by BMW AG, Germany.

These structures helped these companies mitigate operational risks, control IP rights, and optimize taxes.

6. Post-Incorporation Compliance Requirements

• Hold first Board Meeting within 30 days of incorporation

• File INC-20A (Declaration of Commencement of Business)

• Maintain statutory registers and minutes

• Conduct regular board meetings and annual general meetings

• File annual returns: AOC-4 (financial statements), MGT-7 (annual return)

• Income tax return (Form ITR-6)

• Transfer pricing documentation for international transactions

7. Tax Implications and Financial Considerations

• Corporate tax rate: 25% (if turnover < INR 400 crore), otherwise 30%

• Dividend Distribution Tax (DDT) has been abolished; dividend taxed in hands of shareholder

• Withholding tax applies on royalty, technical service fees, and interest payments to parent company

• Transfer Pricing Rules apply to transactions with the parent company

• Eligible for benefits under India’s Double Taxation Avoidance Agreements (DTAAs)

8. Challenges & Practical Considerations

• understanding bureaucratic delays

• Understanding compliance timelines

• Ensuring a qualified and trustworthy local director

• Exchange rate fluctuations affecting repatriation

• Maintaining arm’s length pricing to avoid transfer pricing penalties

9. Strategic Tips for Foreign Investors

• Hire local advisors for legal, tax, and compliance matters

• Choose the right city: Metro cities offer better infrastructure but higher costs

• Structure shareholding carefully for tax efficiency

• Leverage India’s start-up ecosystem for collaboration

10. Conclusion

A wholly owned subsidiary in India offers strategic advantages, full control, and operational autonomy. With a clear understanding of legal frameworks, tax structures, and regulatory procedures, foreign investors can unlock immense potential in the Indian market. Professional assistance is recommended to ensure a seamless incorporation journey and ongoing compliance.