How to Set Up a UK Company Subsidiary in India Under RBI Rules
Quick Answer
> One line summary: A UK company can set up a subsidiary in India as a private limited company under the Companies Act, 2013, subject to compliance with the Foreign Exchange Management Act (FEMA) and RBI regulations on foreign direct investment.
What is the process for a UK company to register a subsidiary in India?
The process begins with incorporating a private limited company under the Companies Act, 2013, through the Ministry of Corporate Affairs (MCA) portal. A UK company must first obtain a Director Identification Number (DIN) and Digital Signature Certificate (DSC) for at least one director who is an Indian resident. The subsidiary must have a minimum of two directors and two shareholders; at least one director must be an Indian resident.
The UK company will subscribe to shares of the Indian subsidiary as a foreign investor. This investment falls under the automatic route for most sectors, meaning no prior RBI approval is needed if the subsidiary operates in a sector where 100% foreign direct investment (FDI) is permitted under the Consolidated FDI Policy. The UK company must file Form INC-32 (SPICe+) for incorporation, along with a declaration of compliance with FEMA provisions.
After incorporation, the subsidiary must file Form FC-GPR with the RBI within 30 days of allotting shares to the UK parent. This form requires a certificate from a Chartered Accountant confirming the valuation of shares issued against inward remittance or import of capital goods. The entire process typically takes 15–20 working days if documents are in order.
What are the RBI rules for a UK company investing in an Indian subsidiary?
Under the Foreign Exchange Management Act (FEMA), 1999, and the Foreign Direct Investment (FDI) Policy, a UK company can invest in an Indian subsidiary through the automatic route for most sectors. The automatic route means no prior approval from the RBI or government is required, provided the subsidiary does not operate in a prohibited sector such as gambling, lottery, or real estate development.
The UK company must ensure the investment complies with pricing guidelines. For a listed Indian company, the price must not be less than the fair market value determined under SEBI regulations. For an unlisted company, the price must be based on a valuation by a Chartered Accountant or a merchant banker using internationally accepted valuation methods. The consideration must be received through normal banking channels, and the subsidiary must issue shares within 60 days of receiving the funds.
If the subsidiary operates in a sector with sectoral caps (e.g., defence, insurance, media), the UK company must comply with those caps. For example, in insurance, FDI is permitted up to 74% under the automatic route. The UK company must also ensure the subsidiary does not engage in any activity that requires government approval unless such approval is obtained.
What compliance requirements apply to a UK company subsidiary in India after incorporation?
After incorporation, the subsidiary must comply with ongoing statutory requirements under the Companies Act, 2013, and FEMA. The subsidiary must file annual financial statements and annual returns with the MCA within prescribed timelines. It must also maintain proper books of accounts and get them audited by a Chartered Accountant.
Under FEMA, the subsidiary must file Form FC-GPR within 30 days of issuing shares to the UK parent. If the subsidiary issues further shares or transfers shares to another foreign entity, it must file Form FC-TRS within 60 days. The subsidiary must also report its foreign liabilities and assets annually through Form FLA by July 15 of each year.
The subsidiary must comply with transfer pricing regulations under the Income Tax Act, 1961, for any transactions with the UK parent or associated enterprises. This requires maintaining documentation to demonstrate that transactions are at arm's length. Non-compliance can lead to penalties and adjustments by the tax authorities.
Can a UK company have a wholly owned subsidiary in India?
Yes, a UK company can establish a wholly owned subsidiary (WOS) in India under the automatic route for most sectors. A WOS means the UK company holds 100% of the equity shares of the Indian subsidiary. This is permitted in sectors where 100% FDI is allowed, such as manufacturing, IT services, e-commerce (marketplace model), and many services sectors.
The UK company must subscribe to 100% of the shares of the Indian subsidiary. The subsidiary must be incorporated as a private limited company under the Companies Act, 2013. The UK company can appoint its nominees as directors, but at least one director must be an Indian resident. The subsidiary can repatriate profits through dividends, subject to applicable taxes and FEMA regulations.
For sectors with sectoral caps, a WOS is not permitted. For example, in defence, FDI up to 74% is allowed under the automatic route, but 100% requires government approval. The UK company must check the Consolidated FDI Policy for the specific sector before proceeding.
What are the tax implications for a UK company subsidiary in India?
The Indian subsidiary is treated as a resident company for tax purposes and is subject to corporate income tax on its global income. The current corporate tax rate for domestic companies is 25% (plus surcharge and cess) for companies with turnover up to ₹400 crore, and 30% for others. A lower rate of 15% applies to new manufacturing companies set up after October 1, 2019, subject to conditions.
Dividends paid by the subsidiary to the UK parent are subject to dividend distribution tax (DDT) at the rate of 15% (plus surcharge and cess) under Section 115-O of the Income Tax Act. However, DDT is not applicable if the subsidiary opts for the new tax regime under Section 115BAA. In that case, dividends are taxed in the hands of the UK parent at 20% (plus surcharge and cess) under Section 115A, subject to the India-UK Double Taxation Avoidance Agreement (DTAA).
The India-UK DTAA provides for a reduced withholding tax rate of 10% on dividends if the UK company holds at least 10% of the voting power. For interest and royalties, the rates are 10% and 15% respectively, subject to conditions. The UK company must obtain a Tax Residency Certificate from UK authorities to claim treaty benefits. Transfer pricing rules apply to cross-border transactions, and the subsidiary must maintain arm's length pricing.
What You Should Do Next
If you are a UK company planning to set up a subsidiary in India, engage a qualified company secretary or chartered accountant in India to handle incorporation and RBI filings. For complex sectors or tax structuring, consult a legal professional experienced in cross-border investments.
This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.