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Setting Up An IT Foreign Subsidiary Company In India: The Ultimate Guide

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Introduction

In the past few years, India has become one of the most attractive destinations to incorporate a business. Several government rules make it simple for a new firm to be established. Business-friendly regulations, simple company registration procedures, budget-friendly labor, and market liberalization make it easier for industrialists to do business in India.

Setting up a Foreign Subsidiary IT Company in India can be daunting, especially if you’re unfamiliar with the procedures and regulations. However, it’s important to remember that India is one of the most attractive markets for setting up an IT company. The combination of a large English-speaking population, a growing economy, and a large pool of skilled labor make India an ideal destination for software companies.

This guide will walk you through the process of setting up a Foreign Subsidiary IT Company in India from start to finish. We’ll cover everything from choosing the right location to registering your business and obtaining the necessary licenses. By the end of this guide, you’ll be ready to start operating your IT company in India!

Expanding your IT business in India

This decade has seen a sharp increase in the number of software companies in India, almost as if a software industry revolution existed. For the fact that India has the third-largest software startup ecosystem in the world, starting an IT Business in India may be beneficial as it .

Various software companies in India provide software solutions to clients, including Infosys, Wipro, Tech M, TCS, and many others. Software businesses are sprouting up in all of India’s main cities. Several multinationals have developed and continue to establish themselves in the Indian market, such as Google, Cisco, Adobe, and Oracle.

Moreover, in FY22, the IT industry accounted for 7.4% of India’s GDP.

According to NASSCOM, FY2022 was a phenomenal year for India’s technology business, with revenue increasing by 15.5% (the highest rate ever) to $227 billion.

Another industrial milestone was the crossing of 5 million in the total direct workforce, with the highest-ever net increase of 445K.

Why set up your IT company in India?

As we mentioned, India is an excellent destination for software companies. 

But why exactly is that? Here are a few reasons: 

First, India has a large population of English speakers, making communication and collaboration easier for companies based in English-speaking countries. 

Second, India has a growing economy, which means an increasing demand for software and IT services. 

Third, India has a large pool of skilled labor, and many qualified developers and engineers are available for companies based in India. 

These are just a few reasons India is an attractive destination for software companies. If you’re considering expanding your business to India, we encourage you to research and consult with a professional to get started.

Legal ways to set up an IT Foreign Subsidiary Company in India 

  • Wholly Owned Subsidiary Company – Foreign nationals can set up their IT business in India by forming a Wholly Owned Subsidiary Company as per the Companies Act, 2013, in the 100% FDI permitted sectors. This type of business structure has maximum flexibility and many advantages compared with other business structures.
  • Joint Venture – It is a type of business structure where a foreign entity enters into a joint venture agreement with two or more business entities to expand, share the technology, and manage the risk jointly among the JV partners. For JVs in India, there are no separate laws.
  • Liaison Office – A liaison office acts as a bridge between the head office and parties in India. It is mainly concerned with representing the parent company in India. It promotes technical collaboration between the parent company and the Indian company. However, LO cannot undertake business activities in India. Initially, LO gets permission from RBI for three years which can be extended. Also, a minimum of USD 50,000 or its equivalent is a net worth requirement.
  • Branch Office -. By setting up a branch office of your IT Company in India, one can render professional consultancy services and other services like software development and promoting technical collaboration.
  • Project Office – A foreign company needs to set up a project office (PO) in India to execute a project in India. PO can carry out activities of the execution of the project only, and it is prohibited to carry out any other business activity. Prior approval from RBI is required to set up a PO in India.

Minimum Requirements for setting up an IT Foreign Subsidiary in India

  1. Capital: There is no minimum capital requirement in India to create a Private Limited Company.
  2. Directors: A private company in India must have at least two directors. Both must be persons, at least one of whom must be an Indian resident. (A resident of India is someone who has spent at least 182 days in the preceding year in India.)
  3. Shareholders: According to the Companies Act of 2013, a Private Limited Company must have at least two shareholders. There are no requirements for shareholders’ residential status. Shareholders can be persons, entities, or a mix of the two.

The Process of setting up an IT Foreign Subsidiary Company in India

Now that we’ve covered legal ways to set up an IT foreign subsidiary company in India let’s talk about the process of actually doing it. 

Incorporating a subsidiary company in India is a time-consuming and challenging process. The following steps are included in the incorporation procedure:

These are the basic steps you must follow to set up a foreign subsidiary IT company in India. Of course, some additional steps may be specific to your business. But in general, these are the steps you need to take to get started.

Documents Required to set up an IT  Foreign Subsidiary company in India

Documents should be prepared while establishing a subsidiary in India

Before establishing a subsidiary in India, the following documents are required:

Company Related

  1. Articles of Association and Memorandum of Association
  2. Proof of registered business address – Rent agreement if the property is rented, and a copy of ownership documentation if the property is owned
  3. Utility Bill Copies
  4. A copy of the promoter’s resolution
  5. Copy of the company’s capital layout 
  6. Certificate of establishment for foreign corporations

Directors and Shareholders Related

  1. Digital Signature Certificate (DSC) and Director Identification Number (DIN)
  2. Proof of the Directors’ and Shareholders’ identities and addresses
  3. Photographs of the Board of Directors and Shareholders
  4. Directors’ ownership in other entities
  5. Declaration by Directors and Shareholders

Mandatory Compliances after Setting up a foreign subsidiary in India

To prevent penalties or sanctions, management should be aware of post-incorporation compliance.

The primary stages for forming a subsidiary company in India are as follows:

First Board meeting: According to Section 173(1) of the Companies Act 2013, the company must hold its first meeting of the Board of Directors within 30 days of its incorporation. The meeting can be attended in person or through video conferencing.

Bank account: Every company must open a bank account to deposit the amount as subscribed by the subscribers of the Memorandum of Association.

Address: Section 12 requires that a firm have a registered office within 15 days of its establishment (1). This address will receive all official correspondence from various authorities.

Auditor: According to Section 139(1), the first auditor must be appointed by the Board of Directors (BOD) within 30 days of the firm’s registration. If that fails, the members must designate the auditor within 90 days at an extraordinary general meeting. The mandate of the original auditor will remain until the first annual general meeting.

Statutory registers: The corporation is required to keep statutory registers at its registered office. The documents must be retained in the proper format; otherwise, the firm would incur sanctions.

Share certificate: The share certificate must be issued to a shareholder within 60 days of the company’s formation date.


Books of Accounts: Section 128 requires that every corporation keep appropriate books of accounts that offer an accurate and fair picture of the company’s financial status.

Guidelines for a successful IT Foreign subsidiary company in India

Now let’s talk about some guidelines to help you set up a successful Foreign subsidiary of your IT company in India. If you follow these guidelines, you’ll be on your way to a successful expansion: 

  • Do your research: As we’ve mentioned, it’s important to do your research before expanding your business to India. It includes learning about the market, the competition, and the legal requirements. 
  • Registering your business: Next comes registering your business with the Registrar of Companies which can be done online or offline. 
  • Obtaining the necessary licenses: Once your business is registered, you’ll need to get the required licenses and permits to operate your business. 
  • Setting up a physical presence: After registering your business, you’ll need a location to establish your workspace.
  • Hire the right employees: One of the keys to success is hiring the right employees. When hiring, make sure to look for employees who have the skills and experience that you need. 
  • Train your employees: Once you’ve hired them, you must train them on your company’s culture and values. This will help them be successful in their new roles. 
  • Marketing your business: The final step is marketing your business to a new audience. This can be done through online and offline channels. 
  • Following up: Once you’ve started operating your business, it’s essential to follow up with your customers and make sure they’re happy with your products and service.

By following these guidelines, you’ll be on your way to setting up a successful IT foreign subsidiary company in India.

How FinAccountants Can Help You Expand your IT Business in India

Setting up a subsidiary in India might be a difficult undertaking. The sheer amount of rules and regulations on creating a subsidiary firm in India, onboarding workers, processing payroll, and maintaining compliance can be overwhelming. 

At FinAccountants, we work as your global partner to reduce the burden. Contact us today to learn more about our India subsidiary outsourcing services.

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