How To Set Up An Offshore Subsidiary In India?

An offshore subsidiary setup in India, what investors commonly call "setting up an offshore presence" in India is in fact incorporating an Indian subsidiary (or creating a branch/liaison/project office).

For a foreign business looking to expand into India, the most common route is to establish a subsidiary company under Indian law. In business conversations this is sometimes loosely referred to as an "offshore subsidiary in India." Legally, what you are creating is a company incorporated in India, registered under the Companies Act, 2013, and treated as a domestic entity, even though its shareholding is controlled by a foreign parent.

Why does this matter?

Because from day one, such a subsidiary is governed by Indian corporate law, Indian tax law, and India's Foreign Direct Investment (FDI) policy. Unlike a branch or liaison office, a subsidiary gives the foreign parent a full commercial footprint: the ability to hire employees, acquire property, enter contracts, and repatriate profits, subject to regulatory compliance.

Foreign investors often ask two key questions right at the start:

• "Can a foreign company set up offshore subsidiary in India?"
• "What are FDI norms for offshore subsidiaries?"

The answer is yes! A foreign company can establish a wholly-owned subsidiary (WOS) or joint venture (JV) in India, provided it complies with the Department for Promotion of Industry and Internal Trade (DPIIT) FDI policy and the Foreign Exchange Management Act (FEMA) regulations. However, the structure, permissible activities, and compliance requirements depend on the sector you are investing in, the percentage of foreign ownership, and whether the investment falls under the automatic route or requires government approval.

Legal Framework for Offshore Subsidiaries in India

When a foreign parent company sets up an offshore subsidiary in India, two broad regimes apply side by side:

1. Company Law framework):

• Governed by the Companies Act, 2013 and administered by the Ministry of Corporate Affairs (MCA).
• Incorporation is done through the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) system.
• The subsidiary, once incorporated, is treated as an Indian domestic company and must comply with the same annual filings, board governance, audit, and secretarial standards as a domestic Indian company.

2. Foreign Exchange & Investment framework:

• Governed by the Foreign Exchange Management Act, 1999 (FEMA) and rules/regulations issued by the Reserve Bank of India (RBI).
• All foreign investment into the subsidiary must comply with the Foreign Direct Investment (FDI) Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT).
• Filings include reporting of inflows through Form FC-GPR (Foreign Currency-Gross Provisional Return) via the RBI's FIRMS portal.
• Sectoral caps, investment routes (automatic vs government), and restrictions on sensitive sectors (defence, telecom, insurance, multi-brand retail, etc.) apply.

Entry Routes Available to Foreign Companies

Apart from incorporating a subsidiary, foreign investors may also enter India through other approved office structures:

Key Regulatory Authorities Involved

• Registrar of Companies (RoC) → Incorporation, statutory filings.
• Reserve Bank of India (RBI) → Monitoring foreign exchange inflows, compliance with FEMA.
• DPIIT (Ministry of Commerce & Industry) → Lays down sectoral FDI policy.
• SEBI (if listed parent is involved) → Compliance for cross-border listings
• Can a Foreign Company Set Up Offshore Subsidiary in India?

Yes! A foreign company is permitted to establish a subsidiary in India. What comes into existence is an Indian company incorporated under the Companies Act, 2013, with its shareholding held by the foreign parent. In commercial parlance, however, this structure is often referred to as an "offshore subsidiary."

Once incorporated, a subsidiary of a foreign company in India enjoys the status of a separate legal entity, distinct from its parent. It is recognized as a domestic Indian company for the purposes of taxation, corporate governance, and statutory compliance, regardless of whether the shareholding is wholly foreign-owned. Importantly, the liability of the foreign parent is confined to the extent of its unpaid share capital in the subsidiary, thereby insulating the parent company from direct legal exposure in India.

Types of Subsidiaries for Foreign Companies

A foreign investor typically chooses one of the following structures:

1.Wholly Owned Subsidiary (WOS):

• The foreign parent holds 100% of the shares.
• Allowed under the automatic route in sectors where 100% FDI is permitted (e.g., IT services, manufacturing, e-commerce marketplace model).
• Popular with multinational corporations seeking full control.

2.Joint Venture (JV):

• The foreign parent partners with an Indian entity.
• Useful where sectoral caps apply (e.g., insurance sector capped at 74% FDI).
• Also chosen when the foreign investor values local expertise or market access.

What are FDI norms for offshore subsidiaries?

Foreign Direct Investment (FDI) in India is primarily governed by the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT), read with the Foreign Exchange Management Act, 1999 (FEMA) and regulations framed by the Reserve Bank of India (RBI). When a foreign company sets up a subsidiary in India, its shareholding is treated as FDI and must align with these rules.

Automatic Route: No prior approval is required from the Government of India; only post-investment reporting to RBI is necessary. Most service sectors (e.g., IT/ITES, consultancy, manufacturing, single-brand retail) fall here, with 100% FDI allowed.

Government Route: Prior approval from the relevant ministry is required. Sensitive sectors such as multi-brand retail trading, defence, telecom, print media, and insurance often require this route.

Sectoral Caps and Restrictions

FDI norms are not uniform across sectors. Each sector has its sectoral cap (maximum permissible foreign investment).

DI norms dictate not just whether you can establish an offshore subsidiary in India, but also how much equity you can hold, what approvals you need, how profits can flow back, and how the entity must report to regulators. Ignoring these norms can lead to compounding proceedings, penalties under FEMA, and even invalidation of transactions.

Conclusion

India welcomes foreign investment, but it does so under a tightly regulated legal architecture. A well-structured offshore subsidiary is the most effective way to gain a foothold, provided it is aligned with sectoral FDI policy and backed by diligent compliance. For investors serious about India, this structure offers both stability and scalability — but only if approached with a clear legal roadmap.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.