Overview
A Foreign Subsidiary Company refers to an entity set up outside India by an Indian company or resident to carry on business abroad, which becomes a subsidiary of the Indian parent. This overseas investment is governed by the Foreign Exchange Management Act, 1999 and the overseas investment framework administered by the Reserve Bank of India. The Indian parent must route its investment through prescribed channels and report it to the RBI through an authorised dealer bank. The foreign subsidiary is incorporated under the laws of the country where it is established, while the Indian parent's outbound investment must comply with Indian exchange control rules.
Objective
To help an Indian company or resident set up and structure a subsidiary abroad in compliance with India's overseas investment rules under FEMA.
Characteristics
- An overseas entity controlled by an Indian parent company or resident
- Incorporated under the laws of the host country
- Indian outbound investment governed by FEMA overseas investment rules
- Investment routed and reported through an authorised dealer bank
- Ongoing reporting to the Reserve Bank of India on the overseas investment
Eligibility
- An Indian company or eligible resident making the overseas investment
- Investment within the limits and conditions permitted under FEMA
- A permissible business activity in the host country
- Compliance with the overseas investment reporting requirements
- Funds routed through banking channels from India
Governing law
- Foreign Exchange Management Act, 1999 (FEMA)
- Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022
- Reserve Bank of India (RBI)
- Company law of the host country where the subsidiary is incorporated
The process
- 1Assess the overseas investment route
The proposed investment is assessed against the FEMA overseas investment framework to confirm it falls within the permitted limits, sectors, and conditions.
- 2Incorporate the subsidiary abroad
The subsidiary is incorporated under the laws of the host country, with local documentation and directors as required by that jurisdiction.
- 3Route the investment through an authorised dealer bank
The Indian parent remits the investment through an authorised dealer bank in India, which processes the outbound funds under the overseas investment rules.
- 4Report the investment to the RBI
The overseas investment is reported to the Reserve Bank of India through the prescribed forms filed via the authorised dealer bank, followed by annual reporting on the foreign entity.
Documents required
- Board resolution of the Indian parent approving the overseas investment
- Details and incorporation documents of the overseas entity
- Valuation or share subscription documents where applicable
- KYC and details of the Indian investor
- Authorised dealer bank forms for the outbound remittance
- Financials of the Indian parent supporting the investment
Benefits
- A legal presence in an overseas market through a controlled entity
- Ability to expand operations and serve customers abroad
- Structured outbound investment compliant with FEMA
- Limited liability at the level of the overseas subsidiary
- Consolidated global operations under the Indian parent
Frequently asked questions
Which law governs an Indian company setting up a subsidiary abroad?
The outbound investment by the Indian company is governed by the Foreign Exchange Management Act, 1999 and the overseas investment rules and regulations administered by the Reserve Bank of India. The subsidiary itself is incorporated under the company law of the host country.
Does the overseas investment need to be reported in India?
Yes, the overseas investment must be reported to the Reserve Bank of India through the prescribed forms filed via an authorised dealer bank. There are also annual reporting obligations on the performance of the foreign entity for as long as the investment is held.