Setting up a business in Bangalore, India: a guide for foreign companies
A business in India can be set up as a proprietary concern, a partnership firm, a Limited Liability Partnership or a company. The right form depends on what the promoter intends to do in India. Indian entrepreneurs generally have a working understanding of the trade-offs; it is foreign companies who most often need clarity before committing.
A foreign company wanting to commence activity in India will usually choose between (a) a wholly owned subsidiary incorporated as a private limited company, (b) a Limited Liability Partnership, or (c) a branch, liaison or project office of the foreign entity itself
The considerations that matter in practice are –
- (a) Total tax cost, including the cost of getting profits out of India
- (b) Repatriation route and exchange control compliance
- (c) Scope of permitted activity and ease of doing business
- (d) Exposure of the parent to Indian liabilities
Branch office compared with a wholly owned subsidiary
| Branch Office | Wholly Owned Subsidiary (Private Limited Company) |
|---|---|
| Regulatory approval Companies incorporated outside India and engaged in manufacturing or trading activities, including the rendering of professional and software services, may set up a branch office in India. The application is routed through an AD Category-I bank under the RBI Master Direction on establishment of branch, liaison and project offices, and requires Reserve Bank approval in cases outside the delegated route. |
Regulatory approval A private limited company can be incorporated without Reserve Bank approval, and there is no restriction on the activities it may carry on other than the sectoral limits in the FDI policy. |
| Track record A profit-making track record during the immediately preceding five financial years in the home country. |
Track record No track record of the parent is required. A private company needs a minimum of two subscribers and two directors. |
| Net worth Not less than USD 100,000 or its equivalent, being paid-up capital and free reserves less intangible assets as per the latest audited balance sheet, certified by a Certified Public Accountant or equivalent. For a liaison office the requirement is USD 50,000 and a three-year profit record. |
Capital No minimum paid-up capital. The requirement of Rs. 1,00,000 was removed by the Companies (Amendment) Act, 2015. Capital is fixed by reference to the business plan and the pricing guidelines under the FEMA Non-Debt Instruments Rules. |
| Local authorised representative The branch must nominate a resident Indian as authorised representative to sign documents. Companies usually nominate a senior employee. |
Resident director At least one director must have stayed in India for 182 days or more in the financial year. This is usually a senior employee or a professional director. |
| Tax on income A branch is taxed in India as a foreign company. The base rate is 35 per cent, reduced from 40 per cent by the Finance (No. 2) Act, 2024. With health and education cess of 4 per cent the effective rate is 36.40 per cent, rising to 37.128 per cent where income exceeds Rs. 1 crore (2 per cent surcharge) and 38.22 per cent where it exceeds Rs. 10 crore (5 per cent surcharge). The concessional regimes available to domestic companies do not apply. |
Tax on income A subsidiary is a domestic company. Under the concessional regime the rate is 22 per cent, giving an effective 25.168 per cent with a flat 10 per cent surcharge and 4 per cent cess. An eligible new manufacturing company may qualify for 15 per cent, an effective 17.16 per cent. Companies remaining under the general regime pay 25 per cent where turnover is within the prescribed limit, otherwise 30 per cent, plus surcharge and cess. Minimum Alternate Tax has been reduced to 14 per cent by the Finance Act, 2026 and does not apply to companies in the concessional regime. |
| Getting profits out A branch remits post-tax profits to head office. India does not levy a separate branch profits tax, so there is no further Indian tax on the remittance. The AD bank will require the audited accounts, an accountant’s certificate and the remittance certificates prescribed under the Income-tax Rules, 2026. |
Getting profits out Dividend Distribution Tax was abolished with effect from 1 April 2020. A dividend is now taxable in the shareholder’s hands, with withholding at 20 per cent plus applicable surcharge and cess on payment to a non-resident. Most of India’s treaties reduce this to between 5 and 15 per cent, subject to a Tax Residency Certificate, Form 10F and a beneficial ownership and no-permanent-establishment declaration. Profits may also be extracted as arm’s length service fees, royalty or interest. |
| Transfer pricing Dealings between the branch and head office are subject to attribution of profits to the permanent establishment and to transfer pricing scrutiny. |
Transfer pricing Transactions with the parent and other associated enterprises must be at arm’s length and reported in the accountant’s report. |
| Liability The branch is not a separate legal person. Liabilities of the branch extend to the parent, which must discharge them if the branch cannot. |
Liability The subsidiary is a separate legal person. Liabilities do not extend to the holding company beyond its subscribed capital. |
What does Rs. 5 crore of Indian profit actually return to the parent?
| Branch office | Wholly owned subsidiary | |
|---|---|---|
| Profit before tax | Rs. 5,00,00,000 | Rs. 5,00,00,000 |
| Indian tax | Rs. 1,85,64,000 at 37.128% | Rs. 1,25,84,000 at 25.168% |
| Profit after tax | Rs. 3,14,36,000 | Rs. 3,74,16,000 |
| Tax on repatriation | Nil | Rs. 37,41,600 at 10% treaty rate on dividend |
| Received by parent | Rs. 3,14,36,000 | Rs. 3,36,74,400 |
| Effective total tax | 37.13% | 32.65% |
The subsidiary returns roughly Rs. 22.4 lakh more on the same profit, an advantage of about 4.5 percentage points. The gap widens where the treaty rate is 5 per cent and narrows where it is 15 per cent. It reverses only where no treaty relief is available on the dividend, or where profits are retained in India rather than repatriated – in which case the subsidiary’s advantage is larger still, since the 25.168 per cent is the whole cost until a dividend is declared.
Assumptions: the parent is resident in a treaty jurisdiction and holds a valid Tax Residency Certificate with Form 10F; the subsidiary has opted into the concessional regime, which forgoes most incentive deductions. Figures are illustrative and not a substitute for advice on a specific case.
What else should a foreign promoter know before investing? -
Resident director – One of the challenges foreign companies face is identifying a resident director. The Companies Act, 2013 requires every company to have a director who has stayed in India for at least 182 days during the financial year. Many foreign companies appoint a senior Indian employee to this role.
Physical presence – Shareholders and foreign directors need not be physically present in Bangalore. Documents may be executed abroad and sent by courier after apostille or attestation by the Indian embassy, depending on whether the country is a party to the Hague Convention.
Foreign Direct Investment – The FDI policy should be checked before investment. Most sectors permit 100 per cent foreign equity under the automatic route without prior approval of the Government or the Reserve Bank. A short list of sectors remains prohibited, including real estate business, construction of farm houses and trading in transferable development rights, though construction-development projects are open at 100 per cent under the automatic route. Pre-investment consultation is advisable.
New direct tax law – The Income-tax Act, 2025 and the Income-tax Rules, 2026 replaced the 1961 Act with effect from 1 April 2026, and the concept of “tax year” has replaced previous year and assessment year. Section numbers and form numbers have changed although the substantive obligations have not. Filings for FY 2025-26 continue under the old forms even where made after 1 April 2026, so entities in their first year in India should confirm which set applies before filing.
Frequently asked questions:
How can a foreign company set up a business in India?
A foreign company can set up business in India through five main routes: a wholly owned subsidiary incorporated as a private limited company, which is the most common choice for an operational presence; a Limited Liability Partnership, in which FDI is permitted under the automatic route in sectors allowing 100 per cent FDI without performance conditions; a branch office for trading, manufacturing and professional services; a liaison office for market representation only, with no commercial activity or income in India; and a project office for a specific contract. Most sectors permit 100 per cent FDI under the automatic route without prior government approval. Balakrishna & Co. Chartered Accountant firm in bangalore provides entry-into-India advisory and incorporation services in Bangalore..
What is the process to register a foreign subsidiary company in Bangalore?
TRegistering a wholly owned subsidiary in Bangalore involves obtaining a Digital Signature Certificate for the proposed directors, including foreign nationals; reserving the name through SPICe+ Part A on the MCA portal; drafting the memorandum and articles of association; filing SPICe+ Part B together with AGILE-PRO-S, which covers incorporation, DIN for first directors, PAN, TAN, GST registration, EPFO and ESIC registration and bank account opening in a single application; opening the bank account and obtaining the Foreign Inward Remittance Certificate for the capital; allotting shares within 60 days of receipt of funds; and filing FC-GPR on the RBI FIRMS portal within 30 days of allotment. The process typically takes 15 to 20 working days. At least one director must be resident in India. The separate RUN facility is now used only for a change of name by an existing company, not for incorporation.
What are the accounting and compliance requirements for a foreign company in India?"
A foreign-owned subsidiary must comply with the Income-tax Act, 2025, covering return filing, advance tax and withholding tax; the GST law, covering registration and periodic returns; the Companies Act, 2013, covering annual ROC filings, statutory audit and board meetings; FEMA, covering FC-GPR, FC-TRS and the annual Foreign Liabilities and Assets return due by 15 July; transfer pricing, including the accountant’s report where there are international transactions with associated enterprises; and payroll compliance covering provident fund, ESI, professional tax and salary withholding. Balakrishna & Co. provides accounting outsourcing and virtual CFO services for foreign-promoted companies in Bangalore.
What is a Global Capability Center (GCC) and how is it set up in Bangalore?
A Global Capability Center (GCC), also known as a Global In-house Center (GIC) or captive center, is a wholly owned offshore unit established by a multinational company to manage operations, technology, finance, or analytics functions from India. Bangalore is India's top GCC destination with 500+ GCCs. Setting up a GCC involves: choosing the legal structure (typically a wholly owned subsidiary), FDI compliance, company incorporation, office setup, hiring, payroll and accounting compliance setup, and transfer pricing documentation for intercompany service fees. Balakrishna & Co. provides CA services for GCC setup and ongoing compliance in Bangalore.
What is FDI compliance for a foreign company in India?
FDI compliance for foreign companies in India includes: FC-GPR filing with RBI within 30 days of allotment of shares to foreign investors; FC-TRS filing for transfer of shares between resident and non-resident; Annual FLA return filed by July 15 each year reporting foreign liabilities and assets; Valuation certificate from SEBI-registered merchant banker or CA for share transfers; and compliance with sector-specific FDI caps under the Consolidated FDI Policy. Balakrishna & Co. handles complete FDI and FEMA compliance for foreign companies in Bangalore.
What are the transfer pricing requirements for foreign subsidiaries in India?
An Indian subsidiary must price its transactions with the parent and other associated enterprises at arm’s length, and must obtain an accountant’s report from a chartered accountant. The report is required where there is even a single international transaction with an associated enterprise; there is no monetary threshold. The Rs. 1 crore figure often quoted is a different test: it is the threshold below which detailed contemporaneous documentation need not be maintained, though the arm’s length requirement still applies. Specified domestic transactions carry a threshold of Rs. 20 crore. For FY 2025-26 the report is Form 3CEB under the 1961 Act; from tax year 2026-27 it is Form No. 48 under Rule 85 of the Income-tax Rules, 2026. Penalties include 2 per cent of the value of the transaction for failure to maintain or report documentation, Rs. 1,00,000 for failure to furnish the report, and 50 or 200 per cent of tax on under-reported or misreported income. Balakrishna & Co. provides transfer pricing documentation and certification in Bangalore.
We at Balakrishna and Co., Chartered Accountants, Bangalore, have been providing consultation, incorporation services to entrepreneurs (both Indian and foreign) over the last 30 years.
Those who are interested to set up a company / business in Bangalore, may write to us on prasad@balakrishnaandco.com or call us on 9845721255.