Setting Up an Indian Subsidiary: FDI Routes, FC-GPR and the 30-Day Clock

A foreign parent setting up in India tends to budget attention for the incorporation and very little for the thirty days after the money arrives. That is the wrong way round. Incorporation is a well-trodden process with predictable timelines. The FEMA reporting that follows the first share issue runs on short deadlines, and missing one creates a contravention that has to be formally resolved before the company can get on with anything else.

Step one: the route

Before anything else, establish which FDI route your activity falls under, because it determines whether you need prior approval.

Automatic route — no prior approval from the government or the Reserve Bank. Most sectors, including most manufacturing, IT and software services, and the majority of B2B services, sit here, up to 100%.

Government route — prior approval required, through the relevant administrative ministry. This covers sectors with caps or conditions, and the list changes; multi-brand retail, certain print and digital media, and some financial services have historically featured.

Two overlays that catch people independently of the sector:

• Press Note 3 of 2020. An entity of a country sharing a land border with India, or where the beneficial owner of an investment is situated in or is a citizen of such a country, can invest only under the government route. This is a beneficial-ownership test, not a nationality-of-incorporation test — so a Singapore or Mauritius holding company with the relevant beneficial ownership is caught. Diligence the ownership chain properly before assuming the automatic route.
• Prohibited sectors. Lottery, gambling and betting, chit funds, Nidhi companies, real estate business other than permitted construction-development and REITs, trading in transferable development rights, tobacco manufacture, and the sectors closed to private investment altogether.

Step two: incorporation

The structural requirements of the Companies Act, 2013 do not bend for foreign ownership:

• at least two directors for a private limited company, and at least one must be resident in India — a person who has stayed in India for not less than 182 days during the financial year. The shareholding can be 100% foreign; the board cannot;
• at least two shareholders. Where the parent is to hold effectively everything, a nominee holds a single share, and the beneficial interest in it should be documented;
• a registered office in India, with proof;
• DIN for every director, and a DSC for anyone signing;
• incorporation through SPICe+, which also carries PAN, TAN, EPFO, ESIC and bank account applications.

For non-resident directors and corporate subscribers, documents executed outside India need to be apostilled where the country is a party to the Hague Convention, and consularised where it is not. This is the step that most often sets the timeline, because it happens in the parent's jurisdiction and outside your control. Start it first.

Step three: the money, and the reporting that follows

This is where the deadlines are.

On inward remittance. The subscription money comes into the company's bank account through an authorised dealer bank. The bank issues a FIRC (Foreign Inward Remittance Certificate) and a KYC report on the remitter. Keep both — they are annexures to the FC-GPR.

Allotment. The board allots the shares. The thirty-day clock starts here.

FC-GPR, within 30 days of allotment. Filed on the Reserve Bank's FIRMS portal under the Single Master Form. What goes with it:

• the FIRC and the KYC report from the authorised dealer bank;
• a valuation certificate from a chartered accountant, merchant banker or practising cost accountant, certifying the price is not below fair value determined on an internationally accepted pricing methodology on an arm's-length basis;
• a company secretary's certificate;
• the board resolution and the list of allottees.

The pricing rule matters: shares issued to a non-resident must be at or above fair value. Issuing at a discount to fair value is itself a contravention, which no amount of timely filing cures.

If FC-GPR is late, a Late Submission Fee is computed on the amount and the period of delay and must be paid before the filing goes through. Longer or contested delays move to compounding under Section 13 of FEMA — an application to the Reserve Bank, a hearing, a compounding order and a penalty. It takes months, and in the meantime the contravention sits on the company's record and obstructs subsequent filings.

Step four: the recurring obligations

Once running, the subsidiary carries the ordinary Indian compliance load plus a FEMA layer.

Two of these are missed constantly.

The FLA return. Due by 15 July, based on the audited accounts where available and on unaudited figures where not, with a revised return once audited. Every company that has received FDI files it, every year, whether or not anything changed. There is no turnover threshold.

Transfer pricing. Every transaction with the parent or any associated enterprise — management fees, royalty, cost allocations, intra-group services, a loan, even an interest-free one — is an international transaction requiring arm's-length pricing, contemporaneous documentation and a Form 3CEB report. Companies that charge nothing for a service received from the parent are not outside transfer pricing; they have a transaction priced at zero, which is a position they will have to defend.

Getting money back out

Worth knowing on day one, because it shapes the structure.

• Dividend is freely repatriable on the automatic route after tax, subject to the Companies Act rules on declaration out of profits and the applicable withholding, read with any treaty.
• Buy-back and capital reduction are permitted within the Companies Act framework and the FEMA pricing rules, with the price on exit to a non-resident subject to a ceiling rather than a floor.
• Royalty and technical fees are payable on the automatic route, but are related-party payments and therefore squarely a transfer pricing matter.
• Share transfer to a resident requires FC-TRS and, again, pricing within the prescribed band.

A structure that leaves no realistic route for returns — all value in a service fee that transfer pricing will not support, say — is a structure that needs revisiting before the first remittance, not after.

A realistic sequence

1. Diligence the route, including the beneficial-ownership position under Press Note 3.
2. Start apostille or consularisation of the parent's documents immediately; it governs the timeline.
3. Identify the resident director properly, with a clear understanding of their duties.
4. Incorporate through SPICe+.
5. File INC-20A within 180 days and appoint the first auditor within 30 days of incorporation.
6. Open the bank account, receive the remittance, obtain the FIRC and KYC report.
7. Allot the shares, get the valuation certificate, and file FC-GPR within 30 days. Diarise this on the day of allotment.
8. Register on the FIRMS portal and keep the entity master current — later filings depend on it.
9. Set the annual calendar: FLA by 15 July, transfer pricing documentation through the year, ROC filings on the AGM clock, DIR-3 KYC by 30 September.

The thirty days after allotment is the only genuinely unforgiving window in the whole process. Everything else can be managed; that one is worth a calendar reminder set the day the board meets.