FEMA Process for Foreign-Owned Companies in India

India permits foreign corporations to own up to 100% of an Indian company in most sectors. It also allows them to operate branch, liaison and project offices without incorporating locally. Each of these structures, however, is a capital account transaction regulated under the Foreign Exchange Management Act (“FEMA”) 1999. The Reserve Bank of India (RBI) administers the framework, and Authorised Dealer banks implement it.

What is the FEMA Process?

The FEMA Process for Foreign-Owned Companies in India follows two distinct tracks.

Subsidiary track. A foreign parent that incorporates a wholly owned subsidiary or joint venture makes foreign direct investment under the FEMA (Non-Debt Instruments) Rules, 2019. The parent:

• confirms the sector falls under the automatic route,
• incorporates the company with the Ministry of Corporate Affairs (MCA),
• remits share capital through an Authorised Dealer Category-I Bank,
• allots shares within sixty days of receiving funds,
• reports the allotment in Form FC-GPR within thirty days, and
• files the annual Foreign Liabilities and Assets (FLA) return by 15 July each year.

Place-of-business track. A foreign company that opens a branch, liaison or project office:

• applies in Form FNC through an AD bank,
• receives a Unique Identification Number (UIN) from RBI,
• registers with the Registrar of Companies (ROC) in Form FC-1 within thirty days of establishment, and
• files Form FC-3, Form FC-4 and the Annual Activity Certificate (AAC) every year.

This Article guide explains both tracks in full: governing instruments, entry routes, sequential procedures, reporting calendars, tax and trade registrations, repatriation and exit mechanics, and the consequences of non-compliance.

What are the key regulations concerning FEMA in India?

Foreign-owned companies in India are governed by FEMA 1999 and its subordinate rules. Indian subsidiaries owned by non-residents follow the FEMA (Non-Debt Instruments) Rules, 2019 and RBI reporting regulations. Foreign companies operating branch, liaison or project offices follow the 2016 establishment regulations and register under Chapter XXII of the Companies Act 2013.

The Statutory Instruments That Apply

The FEMA Process for Foreign-Owned Companies in India rests on a layered set of primary instruments:

• FEMA 1999. Section 6 regulates capital account transactions, Section 10 governs authorised persons, Section 13 prescribes penalties and Section 15 enables compounding.
• FEMA (Non-Debt Instruments) Rules, 2019 (NDI Rules). Notified by the Central Government, these govern equity instruments, sectoral caps, entry routes, pricing and downstream investment.
• FEMA (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. Issued by RBI, these prescribe the reporting forms and the Late Submission Fee.
• FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations, 2016.
• RBI Master Directions. These cover Foreign Investment in India, Establishment of Liaison/Branch/Project Offices in India by Foreign Entities, and External Commercial Borrowings.
• DPIIT instruments. The Consolidated FDI Policy and Press Notes issued by the Department for Promotion of Industry and Internal Trade.
• Companies Act 2013. This includes Sections 379–393 and the Companies (Registration of Foreign Companies) Rules, 2014.
• Other statutes. These are the Income Tax Act 1961, the Foreign Trade (Development and Regulation) Act 1992 and the Special Economic Zones Act 2005.

Indian Company Versus Foreign Company: A Critical Legal Distinction

Under Section 2(42) of the Companies Act 2013, a “foreign company” is a body corporate incorporated outside India that has a place of business in India and conducts business activity here. A subsidiary incorporated in India is an Indian company even when 100% foreign-held. Under Section 2(v) of FEMA it is a “person resident in India”, and it may undertake any activity permitted under the FDI framework.

Under the NDI Rules, an Indian company is:

• “Owned” by non-residents where more than 50% of its capital is beneficially held by them.
• “Controlled” by non-residents where they can appoint a majority of directors or control management or policy decisions.

A company meeting either test is a Foreign Owned or Controlled Company (FOCC). Its own investments in other Indian entities count as indirect foreign investment.

Structure	Legal Character	FEMA Gateway	Approval Channel	Permitted Scope	Core Annual Filings
Wholly owned subsidiary / JV company	Indian company, separate legal entity, limited liability	NDI Rules	Automatic route (post-facto reporting) or Government route via FIFP	Any activity permitted under FDI policy	FLA return, Form FC-GPR on new issues, MCA annual filings
Limited Liability Partnership	Indian LLP, limited liability	NDI Rules (automatic route only where 100% FDI permitted without performance conditions)	Post-facto reporting in Form LLP(I)	Sectors with 100% automatic-route FDI	FLA return, LLP Form 8 and Form 11
Branch Office	Extension of foreign parent	2016 Establishment Regulations	AD Category-I Bank via Form FNC; RBI in specified cases	Specified activities; no manufacturing outside SEZ, no retail trading	FC-3, FC-4, AAC, income tax return
Liaison Office	Extension of foreign parent; no income generation	2016 Establishment Regulations	AD Category-I Bank via Form FNC; RBI in specified cases	Representational and liaison activities only	FC-3, FC-4, AAC, Form 49C
Project Office	Extension of foreign parent for a specific contract	2016 Establishment Regulations	General permission where conditions are met; otherwise RBI	Execution of the awarded project only	FC-3, FC-4, AAC, income tax return

Key Insights and Information on FEMA Process

1. Liability and tax position. A branch office makes the foreign parent itself taxable in India as a foreign company at a 35% base rate plus surcharge and cess. It also exposes the parent’s balance sheet to Indian liabilities. A subsidiary ring-fences liability and may elect the 22% concessional domestic rate under Section 115BAA.
2. Liaison office limits. A liaison office cannot earn any Indian income. Any commercial activity risks both a FEMA contravention and permanent establishment exposure.
3. Manufacturing. Manufacturing is not permitted through a branch office outside a Special Economic Zone (SEZ). Manufacturing groups therefore almost invariably choose the subsidiary route, which keeps FEMA compliance centred on equity reporting rather than activity restrictions.

What are the Methods of Investing in India?

Foreign direct investment enters India under either the automatic route, needing no prior government approval, or the government route, requiring approval through the Foreign Investment Facilitation Portal. Sectoral caps, prohibited activities, Press Note 3 (2020) land-border restrictions and fair-value pricing guidelines under the NDI Rules determine whether and how a foreign-owned company can invest.

The Automatic Route

Under the automatic route, the investor needs no prior approval from the Government of India or RBI. Compliance is limited to post-facto reporting. Most sectors permit 100% foreign direct investment under this route, including:

• manufacturing,
• IT and IT-enabled services,
• single-brand retail trading (subject to sourcing conditions beyond 51%), and
• the marketplace model of e-commerce.

The inventory-based e-commerce model is not open to foreign investment.

The Government Route and the Foreign Investment Facilitation Portal

Proposals under the government route are filed on the Foreign Investment Facilitation Portal (FIFP), administered by DPIIT. DPIIT forwards each application to the concerned administrative ministry and, where required, to the Ministry of Home Affairs for security clearance.

Sectors requiring approval include:

• multi-brand retail trading up to 51%,
• print media dealing with news and current affairs up to 26%,
• defence beyond 74%, and
• brownfield pharmaceuticals beyond 74%.

The investment can proceed only after the approval letter is issued, and only on its stated conditions.

Press Note 3 (2020) and Land-Border Countries

Rule 6(a) of the NDI Rules, which codifies Press Note 3 (2020), applies to any investor that is:

• an entity of a country sharing a land border with India, or
• an entity whose beneficial owner is situated in, or is a citizen of, such a country.

These countries are China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. Such investors may invest only under the government route, regardless of sector. A later transfer of ownership that brings beneficial ownership within this restriction also requires government approval.

Prohibited Sectors for Investment in India

Foreign investment is prohibited in:

• lottery business,
• gambling and betting, including casinos,
• chit funds and Nidhi companies,
• trading in transferable development rights,
• real estate business and construction of farmhouses,
• manufacturing of cigars, cheroots and cigarettes of tobacco or its substitutes, and
• sectors closed to private investment, such as atomic energy and railway operations.

Pricing Guidelines and Valuation

Capital instruments of an unlisted company issued to a non-resident must be priced at no less than fair value. Fair value must be determined under an internationally accepted pricing methodology on an arm’s length basis. It must be certified by a Chartered Accountant, a SEBI-registered Merchant Banker or a practising Cost Accountant.

The same floor applies to transfers from residents to non-residents. A ceiling applies to transfers from non-residents to residents. For convertible instruments, the conversion price or formula must be fixed upfront at issue. Optionality clauses are permitted with a minimum one-year lock-in and no assured exit return.

What is the Procedure of Incorporating a Foreign-Owned Company in India?

Incorporating a foreign-owned subsidiary under FEMA involves six sequential steps: confirming the entry route, legalising parent documents, incorporating through SPICe+, receiving share capital via an Authorised Dealer Category-I Bank, allotting shares within sixty days, and reporting Form FC-GPR on the RBI FIRMS portal within thirty days of allotment.

Step 1: Confirm the Entry Route and Entity Structure

Map the proposed Indian business activity to the NDI Rules sector schedule. Confirm eligibility for the automatic or government route, screen beneficial ownership under Press Note 3, and choose between a subsidiary and a branch structure.

Step 2: Legalise Parent Documents and Obtain Digital Credentials

Apostille or consularise the parent’s certificate of incorporation, board resolution and director identity documents. Then obtain Digital Signature Certificates for signatories, so that MCA electronic forms can be authenticated without physical presence in India.

Step 3: Incorporate Through SPICe+ with the MCA

File SPICe+ Part A for name reservation and Part B for incorporation with the Central Registration Centre. This secures the Certificate of Incorporation, Corporate Identity Number, Permanent Account Number (PAN) and TAN through one integrated process.

Step 4: Open a Bank Account and Receive the Foreign Remittance

Open a current account with an Authorised Dealer Category-I Bank. Receive the share subscription money from the investor’s own account through banking channels, and obtain the Foreign Inward Remittance Certificate and the remitter’s KYC report.

Step 5: Allot Shares Within Sixty Days

Obtain a fair-value certificate and hold the board meeting allotting shares within sixty days of receiving funds. File Form PAS-3 with the ROC within thirty days and credit the shares in dematerialised form.

Step 6: Report Form FC-GPR on the FIRMS Portal

Within thirty days of allotment, the company files Form FC-GPR through its AD bank on RBI’s FIRMS portal. Attach the valuation certificate, company secretary certificate, FIRC and KYC documentation.

What are the Requirements for Company Incorporation under FEMA in India

Investor documents. The foreign corporate investor submits:

• a certified copy of its certificate of incorporation and constitutional documents,
• a board resolution authorising the investment and appointing an authorised representative, and
• proof of registered address.

Individual subscribers submit passports and address proof.

Legalisation. India is a party to the Hague Apostille Convention. Documents from member states therefore require only an apostille issued by the competent home-country authority. Documents from non-member states must be notarised and then attested by the Indian Embassy or Consulate. Non-English documents need certified translations.

Directors and shareholders.

• A private company needs at least two directors.
• Under Section 149(3), at least one director must have stayed in India for at least 182 days during the financial year.
• Director Identification Numbers are allotted through SPICe+.
• A private company also needs at least two shareholders, so a wholly owned subsidiary usually has a group affiliate or individual hold one share as nominee, with declarations under Section 89.

Post-incorporation filings.

• Form INC-20A: declaration of commencement of business, filed within 180 days of incorporation and before the company starts business or borrows.
• First auditor: appointed by the board within thirty days under Section 139(6).
• Significant beneficial ownership: declarations under Section 90.

Dematerialisation. Section 2(85) excludes holding and subsidiary companies from the “small company” definition. A wholly owned subsidiary is therefore bound by the dematerialisation mandate under Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

How Form FC-GPR Reporting Works on FIRMS

Before filing its first return, the company registers an Entity Master and a business user on the Foreign Investment Reporting and Management System (FIRMS). Reporting then takes place through the Single Master Form, in which Form FC-GPR is filed.

The AD bank examines the submission and forwards it to RBI, which generates an acknowledgement. Where shares are not issued within sixty days of receipt, the money must be refunded within fifteen days thereafter.

FEMA Reporting Obligations for Foreign-Owned Subsidiaries

After incorporation, a foreign-owned subsidiary must report every subsequent share issue in Form FC-GPR, every resident–non-resident share transfer in Form FC-TRS, every downstream investment in Form DI, and file the annual Foreign Liabilities and Assets return with RBI by 15 July, alongside ECB reporting where foreign borrowings exist.

Form	Trigger Event	Statutory Timeline	Responsible Party	Filing Channel
Form FC-GPR	Issue of capital instruments to a non-resident	Within 30 days of issue	Indian investee company	FIRMS via AD bank
Form FC-TRS	Transfer between resident and non-resident, including buy-back from a non-resident	Within 60 days of transfer or receipt/remittance of funds, whichever is earlier	Resident transferor or transferee	FIRMS via AD bank
Form DI	Downstream investment by an FOCC	Within 30 days of allotment	Investing Indian entity	FIRMS
Form ESOP	Issue of ESOPs or sweat equity to non-resident employees	Within 30 days of issue	Issuing company	FIRMS via AD bank
Form CN	Convertible notes issued by a recognised startup	Within 30 days of issue	Startup company	FIRMS via AD bank
Form LLP(I) / LLP(II)	Capital contribution to, or transfer of interest in, an LLP	30 days of receipt / 60 days of transfer	LLP / resident party	FIRMS via AD bank
FLA Return	Annual position of foreign liabilities and assets	By 15 July each year	Every company/LLP with outstanding FDI or ODI	RBI online FLA reporting system
Form ECB and ECB-2	Foreign borrowing from a recognised lender	Loan Registration Number before drawdown; ECB-2 within 7 working days of each month-end	Borrowing company	AD bank to RBI

The Annual Foreign Liabilities and Assets Return

Every Indian company or LLP that has received foreign direct investment, or made overseas direct investment, in the previous year or any earlier year (including the current year) must file the FLA return by 15 July. Where accounts are unaudited at that date, the return is filed on provisional figures and revised once audited figures are available.

Downstream Investment by Foreign-Owned or Controlled Companies

Under Rule 23 of the NDI Rules, an FOCC’s investment in another Indian entity must comply with the same entry route, sectoral caps, pricing guidelines and conditions that apply to direct foreign investment. Funding must come from foreign remittances or internal accruals, not domestic borrowings.

The investment must be reported in Form DI. The first-level company must also obtain an annual statutory auditor’s certificate on downstream compliance, and this is referenced in the Directors’ Report.

Share Transfers and Form FC-TRS

Transfers between residents and non-residents require fair-value pricing and Form FC-TRS reporting. Deferred consideration is permitted up to 25% of the total consideration, payable within eighteen months, through escrow or indemnity arrangements.

Foreign Borrowings from the Parent

Loans from a foreign parent fall under the External Commercial Borrowings framework, not the FDI framework. The borrower must obtain a Loan Registration Number from RBI through its AD bank before drawdown, and file monthly ECB-2 returns.

How to Establish a Branch, Liaison or Project Office Through Form FNC?

A foreign company opens a branch, liaison or project office in India by submitting Form FNC to its chosen Authorised Dealer Category-I Bank. The bank examines eligibility, obtains a Unique Identification Number (UIN) from RBI, and issues the approval letter. Certain nationalities and sensitive sectors additionally require prior RBI and Government approval.

Financial Eligibility Thresholds

Parameter	Branch Office	Liaison Office
Profit track record	Profit-making in the immediately preceding five financial years	Profit-making in the immediately preceding three financial years
Minimum net worth	₹84,00,000 [USD 100,000] or equivalent	₹42,00,000 [USD 50,000] or equivalent

Net worth means paid-up capital plus free reserves, less intangible assets, as shown in the latest audited balance sheet or a statement certified by a Certified Public Accountant. An applicant that is a subsidiary and does not itself qualify may submit a Letter of Comfort from a parent that meets the criteria.

Cases Requiring Prior RBI Approval

The AD bank must forward the application to RBI where:

• the applicant is a citizen of, or registered in, Pakistan;
• the applicant is from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau, in which case approval is granted in consultation with the Government of India, with heightened scrutiny for proposed offices in Jammu and Kashmir, the North-East region and the Andaman and Nicobar Islands;
• the principal business falls within defence, telecommunications, private security, or information and broadcasting (separate Government reference is not required where the applicant holds a contract with the Ministry of Defence, Service Headquarters or a Defence PSU); or
• the applicant is an NGO, a non-profit organisation, or a body or agency of a foreign government.

AD Bank Processing and UIN Allotment

The application in Form FNC is submitted with:

• the English version of the certificate of incorporation and constitutional documents, apostilled or consularised,
• the latest audited balance sheet,
• a power of attorney in favour of the signatory,
• a Letter of Comfort where applicable, and
• a KYC report from the applicant’s home-country banker.

The AD bank conducts due diligence and forwards the case to RBI for UIN allotment. Once the UIN is allotted, the bank issues the approval letter. The office must ordinarily be established within six months of approval, and the AD bank may extend this period for reasonable cause. Additional offices also require approval through the AD bank, and the entity must designate one nodal office for consolidated reporting.

Permitted Activities

Branch office. A branch office may undertake:

• export and import of goods,
• professional or consultancy services,
• research in the parent’s field,
• promotion of technical or financial collaborations,
• acting as buying or selling agent,
• IT and software development services,
• technical support for products supplied by the parent, and
• operations of foreign airlines and shipping companies.

Liaison office. A liaison office may only:

• represent the parent,
• promote export and import,
• promote technical or financial collaborations, and
• act as a communication channel between the parent and Indian parties.

Project Offices

A foreign company awarded an Indian contract may open a project office without prior RBI approval where any one of the following applies:

• the project is funded by inward remittance from abroad,
• it is funded by a bilateral or multilateral international financing agency,
• it has been cleared by the appropriate authority, or
• the Indian awarding company has received a term loan from a public financial institution or bank for the project.

Where none of these conditions is met, the application goes to RBI through the AD bank.

Branch Offices in a Special Economic Zone

A branch office in an SEZ needs no prior RBI approval where it:

• operates in a sector with 100% automatic-route FDI,
• complies with the SEZ Act 2005, and
• functions on a standalone basis.

Unit approval under the SEZ framework is still required.

Feature	Branch Office	Liaison Office	Project Office
Income generation	Permitted within specified activities	Prohibited	Permitted for the project only
Funding	Indian earnings and parent remittances	Inward remittances from parent only	Project receipts and parent remittances
Validity	No fixed tenure	Generally three years; two years for NBFCs and construction-development entities	Project tenure
Manufacturing	Only in SEZ, subject to conditions	Prohibited	Only as the contract requires
Profit remittance	Permitted through AD bank	Not applicable	Surplus remittable on completion
Approval channel	AD bank, or RBI in specified cases	AD bank, or RBI in specified cases	General permission, or RBI

Companies Act Registration and Annual Compliance for Foreign Companies

Every foreign company establishing a place of business in India must file Form FC-1 with the Registrar of Companies within thirty days. It must then file Form FC-3 annual accounts within six months of financial year-end and Form FC-4 annual return within sixty days, and submit the Annual Activity Certificate to its AD bank by 30 September.

Registration in Form FC-1

Under Section 380 of the Companies Act 2013 and Rule 3 of the Companies (Registration of Foreign Companies) Rules, 2014, Form FC-1 is filed with the ROC having jurisdiction over New Delhi. Required attachments include:

• the certified charter documents,
• particulars of directors and secretary,
• the names and addresses of persons resident in India authorised to accept service,
• the principal Indian address,
• the FEMA approval letter from the AD bank or RBI, and
• declarations regarding director disqualifications.

On approval, the ROC allots a Foreign Company Registration Number.

Form FC-2 for Alterations

Any change in the charter, registered office, directors or authorised representatives must be reported in Form FC-2 within thirty days of the change.

Form FC-3 and Form FC-4

Form FC-3 contains the financial statements of the Indian business operations. These are prepared under Schedule III, audited by an Indian Chartered Accountant, and accompanied by a list of all Indian places of business. It is filed within six months of the close of the financial year.

Form FC-4 is the annual return, filed within sixty days of the financial year-end. Foreign companies whose Indian operations cross the CSR thresholds also fall within Section 135 obligations. These thresholds are:

• net worth of ₹500 crore [approx. USD 59.5 million],
• turnover of ₹1,000 crore [approx. USD 119 million], or
• net profit of ₹5 crore [approx. USD 0.6 million].

Annual Activity Certificate and Form 49C

The Annual Activity Certificate is issued by a Chartered Accountant and confirms that the office has operated within its approved activities. It is submitted with audited financial statements by 30 September to the designated AD bank. Branch and liaison offices also send a copy to the Director General of Income Tax (International Taxation), New Delhi. Where an entity has multiple offices, the nodal office files a combined AAC.

Separately, liaison offices file Form 49C under Section 285 of the Income Tax Act 1961 within sixty days of the financial year-end.

Filing	Applies To	Authority	Deadline
Form FC-1	BO, LO, PO	ROC	Within 30 days of establishment
Form FC-2	BO, LO, PO	ROC	Within 30 days of any change
Form FC-3	BO, LO, PO	ROC	Within six months of financial year-end
Form FC-4	BO, LO, PO	ROC	Within 60 days of financial year-end
Annual Activity Certificate	BO, LO, PO	AD bank; copy to DGIT (International Taxation) for BO/LO	By 30 September
Form 49C	LO	Jurisdictional Assessing Officer	Within 60 days of financial year-end
Form 3CEB	BO, PO, subsidiaries with international transactions	Income Tax Department	One month before the return due date

What are the Tax Process for FEMA Compliance in India?

FEMA compliance operates alongside tax and trade registrations. Every foreign-owned entity requires a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), GST registration where taxable supplies exist, an Importer Exporter Code from the Directorate General of Foreign Trade (DGFT) for cross-border trade, and transfer pricing documentation for intra-group transactions.

PAN and TAN

Subsidiaries receive their Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) automatically through SPICe+.

Branch, liaison and project offices apply separately: Form 49AA for PAN, which is the form prescribed for foreign entities, and Form 49B for TAN.

Goods and Services Tax

GST registration is required once the turnover threshold is crossed, or immediately for inter-State taxable supplies. Imports of services may attract reverse-charge liability.

Importer Exporter Code

The DGFT issues the Importer Exporter Code online, linked to the entity’s PAN. Holders must update their IEC details annually between April and June to prevent deactivation.

Transfer Pricing and Outbound Remittances

International transactions with associated enterprises are governed by Sections 92 to 92F of the Income Tax Act. They require a Form 3CEB accountant’s report, and a master file where the specified thresholds are met.

Outbound remittances to the parent, such as royalties, fees for technical services or reimbursements, require withholding under Section 195. Forms 15CA and 15CB must be furnished before the AD bank releases the funds.

How to Repatriatiate, Exit and Close Company Under FEMA?

Dividends from a foreign-owned subsidiary are freely repatriable after applicable tax withholding, while branch offices remit profits through their AD bank on submission of audited accounts and tax evidence. Exit through share transfer requires fair-value pricing and Form FC-TRS, and closing a branch or liaison office requires AD bank closure formalities.

Dividend Repatriation

Dividends are declared under Section 123 of the Companies Act and remitted without RBI approval. They are subject to withholding at 20% plus surcharge and cess under Section 115A, or at a lower treaty rate where the parent furnishes a Tax Residency Certificate and Form 10F.

Branch Office Profit Remittance

A branch office remits profits on submitting the following to its AD bank:

• certified audited financial statements,
• a Chartered Accountant’s certificate showing how remittable profit was computed, and
• evidence that applicable taxes have been paid or provided for.

Exit from a Subsidiary

A foreign parent may exit by:

• transferring shares to a resident, at no more than fair value, or to another non-resident;
• buy-back or capital reduction, with reporting where applicable;
• voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code 2016; or
• strike-off under Section 248 of the Companies Act.

Liquidation proceeds are remitted through the AD bank against auditor certificates and tax clearance.

Closure of Branch and Liaison Offices

The closure application to the AD bank includes:

• the original approval letter,
• a Chartered Accountant’s certificate on the remittable amount and the disposal of assets,
• confirmation that all liabilities have been settled,
• income tax clearance, and
• for liaison offices, an auditor’s confirmation that no income accrued from Indian sources.

Case Study for Foreign Owned Company Registration in India

A foreign parent typically begins with a low-commitment liaison office to test the Indian market, then incorporates a wholly owned subsidiary once commercial operations are justified. Each phase triggers distinct FEMA approvals, ROC registrations and annual filings, and the transition must be sequenced so that no reporting obligation lapses.

Consider a European industrial automation group exploring Indian demand.

Phase one: liaison office. The group submits Form FNC through an AD Category-I Bank, receives the UIN, and establishes a liaison office. It registers the office in Form FC-1 within thirty days. Throughout this phase it files the AAC, Form FC-3, Form FC-4 and Form 49C on schedule, and funds all expenses through inward remittances.

Phase two: subsidiary. Once local customer demand justifies manufacturing, which a liaison office cannot undertake, the group confirms that its sector permits 100% automatic-route investment. It then:

• apostilles its corporate documents,
• incorporates a wholly owned subsidiary through SPICe+, with a group affiliate holding a nominee share,
• remits capital through its designated AD bank,
• allots shares within sixty days, and
• files Form FC-GPR within thirty days of allotment.

Phase three: closing the liaison office. After transferring personnel and contracts to the subsidiary, the group closes the liaison office through the AD bank and notifies the ROC.

FAQs

The questions below address complex non-resident scenarios that frequently arise when foreign corporations invest in Indian subsidiaries or operate branch and liaison offices. They cover approval triggers, Press Note 3 ownership screening, nominee shareholding, late reporting, document legalisation, profit repatriation and intra-group share transfers under FEMA.

1. Does a foreign parent need prior RBI approval to incorporate a wholly owned subsidiary in India?

No prior RBI approval is required where the subsidiary’s activity falls within a sector that permits 100% foreign direct investment under the automatic route. In that case the obligation is entirely post-facto: allotment within sixty days of receiving funds, followed by Form FC-GPR within thirty days.

Prior approval is required in three situations:

• the sector is under the government route,
• the proposed shareholding exceeds the automatic-route cap, or
• the investor or its beneficial owner is connected to a land-border country under Press Note 3.

Government approval is then sought through the Foreign Investment Facilitation Portal, and the investment can proceed only after the approval letter is issued. RBI’s role in these cases is regulatory oversight and reporting, not grant of approval.

2. How does Press Note 3 affect a parent with a minority investor from a land-border country?

Rule 6(a) of the NDI Rules applies to any investing entity whose beneficial owner is situated in, or is a citizen of, a country sharing a land border with India. The rule prescribes no minimum shareholding threshold. A non-Chinese parent with a significant Chinese minority shareholder may therefore be treated as falling within the restriction.

If it does, the Indian investment must follow the government route even in sectors that are otherwise automatic. Foreign groups typically trace ownership through every intermediate holding company and fund structure before investing. Where beneficial ownership changes after the investment, and the change brings the Indian company within Press Note 3, the change itself requires government approval.

3. Why does a wholly owned subsidiary need two shareholders, and how is the nominee treated under FEMA?

Section 3(1)(b) of the Companies Act 2013 requires a private company to have at least two members. A One Person Company is not available to a foreign corporate. The foreign parent therefore usually holds all shares except one, which a group affiliate or individual holds as nominee.

The nominee shareholding must be documented through declarations under Section 89, and the beneficial interest remains with the parent. For FEMA purposes, both holders are non-residents. The nominee share is reported alongside the parent’s shares in Form FC-GPR, and the company retains its wholly owned character for reporting.

4. What happens if shares are not allotted within sixty days of receiving the foreign remittance?

The NDI framework requires capital instruments to be issued within sixty days of receiving the consideration. If allotment does not occur within that period, the amount must be refunded to the non-resident within fifteen days after the sixty-day period ends.

Retaining the money beyond these limits without allotment is a FEMA contravention. It cannot be cured by simply filing Form FC-GPR late; it typically requires compounding before RBI. Companies should therefore schedule board meetings, valuation reports and private placement documentation before the remittance is received, not after, to keep the allotment window comfortable.

5. Must a liaison office register with the ROC and file annual returns even though it earns no income?

Yes. A liaison office is a “place of business” under Section 2(42) of the Companies Act 2013, so the foreign company must register it with the ROC in Form FC-1 within thirty days of establishment.

The absence of income does not remove the filing obligations. The liaison office must still:

• file Form FC-3 with audited financial statements of its Indian operations,
• file Form FC-4 annually,
• report changes in Form FC-2,
• submit the Annual Activity Certificate to its AD bank by 30 September, with a copy to the Director General of Income Tax (International Taxation), and
• file Form 49C under Section 285 of the Income Tax Act.

6. Can a liaison office be converted into a branch office or a subsidiary?

There is no automatic conversion mechanism.

To a branch office. The foreign company submits a fresh Form FNC application through its AD bank and must meet the branch office eligibility criteria: a five-year profit track record and the prescribed net worth. On approval, the liaison office is closed.

To a subsidiary. The parent incorporates a new Indian company under the NDI Rules, transfers permissible functions and personnel, and then closes the liaison office through the AD bank and the ROC.

Liaison offices in the NBFC and construction-development sectors cannot be extended beyond their validity. These sectors have additional constraints on conversion, so planning should begin well before expiry.

7. Is the FLA return mandatory for a loss-making subsidiary or one with no fresh investment during the year?

Yes. The FLA return applies to every Indian company and LLP that has received foreign direct investment, or made overseas direct investment, in the previous year or any earlier year, including the current year. Profitability and fresh investment activity are irrelevant.

The return is due by 15 July. Where the audit is incomplete, provisional figures are used, and the return is revised once audited accounts are available. Persistent non-filing is a contravention. Because the return is annual and easily overlooked, it is a frequent subject of compounding applications.

8. Can a branch office or liaison office buy or lease property in India?

Under the FEMA (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, a foreign company with a branch office, project office or other permitted place of business, other than a liaison office, may acquire immovable property necessary for that activity.

A liaison office cannot acquire immovable property. It may take premises on lease for a period not exceeding five years.

Entities from certain neighbouring jurisdictions face additional restrictions and require prior RBI approval for acquisition. Property acquired for business must be used only for the permitted activity. On closure, its disposal must be addressed in the closure documentation submitted to the AD bank.

9. How should documents signed abroad be legalised for Indian MCA and FEMA filings?

India is a party to the Hague Apostille Convention.

• Member states. Documents executed in a member state, such as certificates of incorporation, board resolutions and passports, need only an apostille from the competent home-country authority.
• Non-member states. Documents must be notarised locally and then attested by the Indian Embassy or Consulate.

Documents in languages other than English require certified translations. Foreign directors also need Digital Signature Certificates, issued on the basis of apostilled or consularised identity documents. AD banks apply the same legalisation standards when processing Form FNC and FIRMS submissions.

10. How does a branch office remit its profits to the foreign parent?

A branch office may remit profits net of applicable Indian taxes through its designated AD Category-I Bank. The supporting documents are:

• certified audited financial statements,
• a Chartered Accountant’s certificate showing how the remittable profit was computed, and
• evidence that income tax has been paid or provided for.

Forms 15CA and 15CB under Rule 37BB must also be furnished. Because a branch is taxed as part of the foreign company, the remittance is not treated as a dividend.

11. What are the consequences of filing Form FC-GPR late?

A delayed Form FC-GPR can be regularised by paying the Late Submission Fee prescribed under the Mode of Payment and Reporting Regulations, provided the delay does not exceed three years from the due date. The fee is determined by the amount involved and the length of the delay.

Delays beyond three years, or contraventions linked to the reporting failure such as late allotment, cannot be cured through the fee alone. These must be compounded before RBI under the Foreign Exchange (Compounding Proceedings) Rules, 2024. Unaddressed contraventions remain exposed to penalties under Section 13 of FEMA 1999.

12. Does a transfer of shares between two non-resident group companies require Form FC-TRS?

Form FC-TRS is mandated for transfers between a person resident in India and a person resident outside India. A transfer between two non-residents generally falls outside the Form FC-TRS requirement.

The transfer still must comply with:

• sectoral caps and conditions,
• the government route where applicable, and
• Press Note 3, where the transferee’s beneficial ownership is linked to a land-border country.

The Indian company must update its register of members and its MCA records. Where the transferee is a new group entity, beneficial ownership disclosures under Section 90 of the Companies Act must also be updated.

Non-resident corporations seeking end-to-end assistance with Form FNC filing, AD Category-I Bank liaison and ROC registration are welcome to connect with CompanyIN to discuss their India entry and compliance roadmap.

Disclaimer: The information provided in this article is solely for general informational and educational purposes regarding Indian corporate and foreign exchange regulations and does not constitute formal legal, tax, or regulatory advice. Foreign entities should consult qualified professionals at CompanyIN before initiating any statutory filings or commercial commitments in India.