Setting Up a Wholly Owned Subsidiary (WOS) in India: FDI Guidelines, MCA Filings, and Banking Formalities

Setting up a Wholly Owned Subsidiary (WOS) in India requires registering a Private Limited Company through India company setup services under the Companies Act 2013, with 100% of share capital held by the foreign parent entity. The process entails SPICe+ MCA digital incorporation, Foreign Direct Investment (FDI) clearance via the Automatic Route, capital remittance through an Authorized Dealer Bank, and mandatory RBI FC-GPR reporting within 30 days of share allotment.

When deciding between setting up a subsidiary and using an EOR, as outlined in our UK Founder’s Blueprint to Setting Up Operations in India, establishing an independent WOS provides maximum operational control, complete IP ring-fencing, and eligibility for favorable corporate tax treatments under Section 115BAA supported by our India accounting team. This technical guide outlines the regulatory checklist for legal counsels, CFOs, and finance controllers.

1. FDI Policy Framework: Automatic Route vs. Approval Route

Foreign Direct Investment into India is governed by the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT) and Foreign Exchange Management (Non-debt Instruments) Rules 2019:

• FDI Automatic Route (No Prior Approval): Most sectors relevant to UK businesses—including IT and software development, BPO, consultancies, engineering services, and wholesale trade—fall under 100% FDI Automatic Route. Foreign groups can proceed straight to MCA incorporation without prior RBI approval.
• Government Approval Route: Required for sensitive sectors such as defense, telecom, multi-brand retail, or under Press Note 3 (2020) if any ultimate beneficial owner is situated in a country sharing a land border with India. Structured approvals can be coordinated through cross-border advisory services.

2. Step-by-Step Regulatory Timeline & Checklist

3. Capital Infusion Protocols: FIRC and KYC

Capital infusion into an Indian private limited company from a UK bank account is governed by strict anti-money laundering (AML) and foreign exchange rules. The foreign parent must remit equity subscription capital via SWIFT directly from its corporate bank account to the new Indian entity's capital account opened through our incorporation and banking service.

Upon receipt, the Indian Authorized Dealer Bank issues two mandatory documents:

1. Foreign Inward Remittance Certificate (FIRC) / Inward Remittance Advice: Proving that foreign funds were received through compliant banking channels for equity subscription.
2. KYC Report of the Remitter: Certified by the foreign remitting bank confirming the ownership and legitimacy of the sending entity.

Failure to obtain proper FIRCs before issuing shares will lead to severe complications during the mandatory RBI FC-GPR reporting on the FIRMS application portal.

4. Significant Beneficial Ownership (SBO) Compliance

Under Section 90 of the Companies Act 2013 and the Companies (Significant Beneficial Owners) Rules 2018, every Indian subsidiary must identify individuals who hold a beneficial interest of not less than 10% in the company. Payline's corporate secretarial services prepare and file Form BEN-2 with the ROC, safeguarding directors from non-compliance penalties.

5. Post-Incorporation Tax and Secretarial Roadblocks

Once incorporated, the subsidiary must establish compliant corporate secretarial, accounting, and payroll registers:

• Statutory Auditor Appointment: Form ADT-1 must be filed within 15 days of the first board meeting, supported by our India accounting and audit practice. Learn how to structure this in our guide on Preparing for Your First Statutory Audit in India.
• Direct Tax Alignment: Establishing transfer pricing agreements compliant with arm's length principles under the India-UK treaty guided by our cross-border tax advisory team. Review our practical guide on Corporate Tax Structuring for Foreign Subsidiaries in India.
• Initial Payroll Setup: Setting up EPF, ESIC, and salary structures compliant with the New Wage Code via our India payroll onboarding services.

Frequently Asked Questions (Wholly Owned Subsidiaries)

What is the penalty for late FC-GPR filing with the RBI?

Late filing of Form FC-GPR beyond the 30-day window from the date of share allotment attracts Late Submission Fees (LSF) calculated based on the investment amount and delay period. Deliberate non-reporting can require formal compounding proceedings with the RBI under FEMA Section 15.

Can a foreign parent company own 100% of an Indian subsidiary without Indian shareholders?

Under Indian corporate law, a private limited company must have a minimum of two shareholders. To maintain wholly owned subsidiary status, the UK parent company holds 99.9% of shares, while 1 share (0.1%) is held by an individual or corporate nominee holding beneficial ownership on behalf of the UK parent (documented via Form MGT-4, MGT-5, and MGT-6), which Payline arranges as part of our India business setup solutions.