# US Parent India Subsidiary Structure: How to Set it Up

Published: 06 Oct 2026
Author: Treelife
Practice area: Legal
Tags: Delaware C corporation, FEMA ODI compliance, flip structure, Form FC-GPR, transfer pricing, US company setup for Indian founders, US parent India subsidiary
Source: https://treelife.in/legal/us-parent-india-subsidiary/

## Summary

- A US parent India subsidiary structure places a Delaware C corporation above an Indian private limited company, with the Indian entity handling operations, payroll and service delivery.
- Resident Indian founders invest in the US parent under Schedule III of the Foreign Exchange Management (Overseas Investment) Rules, 2022, filing Form FC through an authorised bank.
- The Indian subsidiary must report the US parent's investment to the RBI via Form FC-GPR on the FIRMS portal.
- Every payment between the US parent and Indian subsidiary, including fees and dividends, is subject to transfer pricing rules.
- The Indian subsidiary is governed by the Companies Act 2013, the Non-debt Instruments Rules 2019, and the Income-tax Act 2025.
- US investors typically subscribe to preferred stock of the US corporation under US-standard documentation, avoiding FEMA pricing conditions in funding rounds.
- An alternative structure, an Indian parent with a US subsidiary, suits companies with Indian revenue and investors that need only a US sales presence, with Indian ODI capped at 400% of net worth.
- On exit, a US parent structure allows a US acquirer to buy the US parent directly, while an Indian parent structure requires FEMA pricing compliance on the share sale.
- The choice between a US parent and an Indian parent structure should be finalised before any shares are issued, since the two routes trigger different FEMA compliance paths.

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Blog Content Overview

- [0.1 Can an Indian founder own a US company that owns an Indian subsidiary?](#Can_an_Indian_founder_own_a_US_company_that_owns_an_Indian_subsidiary)

- [1 How does a US parent India subsidiary structure work?](#How_does_a_US_parent_India_subsidiary_structure_work)
[1.1 Why do US investors and customers ask for a US parent?](#Why_do_US_investors_and_customers_ask_for_a_US_parent)
- [1.2 Should the parent be a US company or an Indian company?](#Should_the_parent_be_a_US_company_or_an_Indian_company)

- [2 US company setup for Indian founders: the decisions to settle first](#US_company_setup_for_Indian_founders_the_decisions_to_settle_first)
- [3 Who should hold the shares of the US parent: resident individual, Indian entity or non-resident founder?](#Who_should_hold_the_shares_of_the_US_parent_resident_individual_Indian_entity_or_non-resident_founder)
[3.1 Is a resident individual allowed to control a US parent that has an Indian subsidiary?](#Is_a_resident_individual_allowed_to_control_a_US_parent_that_has_an_Indian_subsidiary)

- [4 Two ways to build it: US first or India first](#Two_ways_to_build_it_US_first_or_India_first)
[4.1 How long does it take?](#How_long_does_it_take)

- [5 Wholly owned subsidiary in India: incorporation, FDI route and the first 180 days](#Wholly_owned_subsidiary_in_India_incorporation_FDI_route_and_the_first_180_days)
[5.1 Does a US venture investor with Chinese or Hong Kong partners change the FDI route?](#Does_a_US_venture_investor_with_Chinese_or_Hong_Kong_partners_change_the_FDI_route)
- [5.2 What must the India subsidiary do in the first 180 days?](#What_must_the_India_subsidiary_do_in_the_first_180_days)

- [6 FEMA filings in a US parent India subsidiary structure, in the order they fall due](#FEMA_filings_in_a_US_parent_India_subsidiary_structure_in_the_order_they_fall_due)
[6.1 Does the US parent need to file anything in India?](#Does_the_US_parent_need_to_file_anything_in_India)

- [7 How money moves between a US parent and an Indian subsidiary](#How_money_moves_between_a_US_parent_and_an_Indian_subsidiary)
[7.1 What does transfer pricing require from year one?](#What_does_transfer_pricing_require_from_year_one)

- [8 US tax, place of effective management and permanent establishment](#US_tax_place_of_effective_management_and_permanent_establishment)
- [9 Can Indian founders live and work in the US for the parent?](#Can_Indian_founders_live_and_work_in_the_US_for_the_parent)
- [10 Common mistakes that cost founders time and money](#Common_mistakes_that_cost_founders_time_and_money)
- [11 Treelife practitioner note](#Treelife_practitioner_note)
- [12 Frequently asked questions on the US parent India subsidiary structure](#Frequently_asked_questions_on_the_US_parent_India_subsidiary_structure)
- [13 What a clean US parent India subsidiary structure looks like](#What_a_clean_US_parent_India_subsidiary_structure_looks_like)

A US parent India subsidiary structure puts a US corporation, usually a Delaware C corporation, above an Indian private limited company that builds, sells or services in India. US investors and enterprise customers ask for it because a US company is easier to fund, contract with and acquire. The structure also creates obligations in both countries: filings with the Reserve Bank of India (RBI), transfer pricing on every payment between the two companies, and US returns on the Indian shareholding. This guide maps the whole structure and links to our detailed pages on each step.

### Can an Indian founder own a US company that owns an Indian subsidiary?

Yes. An Indian founder can own a US parent that holds an Indian private limited subsidiary, but the route depends on who holds the US shares. A resident individual invests under Schedule III of the Foreign Exchange Management (Overseas Investment) Rules, 2022 and files Form FC through a bank. The Indian subsidiary then reports the parent’s investment on Form FC-GPR through the RBI’s FIRMS portal.

## How does a US parent India subsidiary structure work?

The founders own shares of a US corporation, the US corporation owns the shares of an Indian private limited company, and the Indian company employs the team and earns income from services, products or licences. Equity flows down from the parent, fees and dividends flow up, and each flow triggers its own filing in India, the United States or both.

Three layers matter. The parent is the fundraising, contracting and board entity. The subsidiary is where payroll, Indian tax and Companies Act 2013 compliance sit. The founders sit above both, and how they hold their shares decides which FEMA rules apply to them.

**What each layer does**

LayerEntityWhat it doesRules that govern itFoundersIndividuals, or an Indian holding entityOwn common stock of the US parent, hold board seatsOverseas Investment Rules 2022, if resident in IndiaUS parentDelaware C corporation by defaultRaises venture capital, signs US customers, owns or licenses IPDelaware corporate law, US federal taxIndia subsidiaryPrivate limited companyEmploys the Indian team, builds product or serves customers, invoices the parentCompanies Act 2013, Non-debt Instruments Rules 2019, Income-tax Act 2025

### Why do US investors and customers ask for a US parent?

- Investors usually subscribe to preferred stock of a US corporation on US-standard documents and prefer not to price Indian foreign exchange conditions into every round.

- Enterprise procurement teams onboard US vendors faster and pay from US accounts in dollars.

- US acquirers find a US parent simpler to buy than an Indian company whose share purchase carries FEMA pricing and reporting conditions.

### Should the parent be a US company or an Indian company?

A US parent suits a company that raises US venture capital and sells to US enterprises. An Indian parent with a US subsidiary suits a company led by Indian revenue and Indian investors that needs a US sales presence. The two structures sit on opposite sides of FEMA, so the choice should be made before any shares are issued.

**US parent or Indian parent**

FactorUS parent, India subsidiaryIndian parent, US subsidiaryTypical fitUS venture rounds, US enterprise sales, US acquirer exitIndian customers and investors, US office for salesFEMA routeHolder route under Schedule III, or an Indian holding vehicleIndian company makes ODI, within 400% of net worthWhere investors put moneyUS preferred stockIndian company shares, reported on Form FC-GPRCompliance weightBoth countries, plus transfer pricing on servicesIndian filings (APR, FLA) plus US Forms 1120 and 5472 for the subsidiaryExitUS acquirer buys the US parentAcquirer buys the Indian company, FEMA pricing applies

Our guide on [setting up an offshore subsidiary from India](https://treelife.in/legal/setting-up-an-offshore-subsidiary-from-india/) covers the Indian parent route, and the [foreign subsidiary jurisdiction guide](https://treelife.in/legal/foreign-subsidiary-jurisdiction/) compares the US with Singapore, the UAE and the UK.

## US company setup for Indian founders: the decisions to settle first

Five decisions fix the shape of the structure: the entity type and state of the US parent, who holds its shares, who owns the IP the Indian team creates, what the Indian company does for the parent, and how it is funded. Settle them in this order. The holder decision drives the FEMA route, and the funding decision drives the India-side filings.

**The five decisions**

DecisionDefault for a venture-backed software founderWhyEntity type and stateDelaware C corporationInvestors expect it. An LLC is tax transparent, and the Internal Revenue Service bars non-resident alien shareholders from S corporation statusHolder of the US sharesNo default, see the next sectionFEMA conditions differ by holderOwnership of IPAssigned to the US parent, with the Indian team’s employment contracts carrying IP assignmentInvestors diligence IP title at the parentRole of the India subsidiaryCaptive services to the US parent on a cost-plus basisKeeps Indian income and transfer pricing predictableFunding of the India subsidiaryEquity or compulsorily convertible instrumentsEquity is reported on Form FC-GPR, loans fall under the External Commercial Borrowings (ECB) framework

Our detailed guides cover each decision: [Delaware entity setup for Indian businesses](https://treelife.in/startups/delaware-entity-setup/) for the entity and state, [IP transfer in a flip](https://treelife.in/legal/flip-structure-for-indian-startups/) and [work for hire in India](https://treelife.in/legal/doctrine-of-work-for-hire/) for IP, [intercompany service fees](https://treelife.in/legal/intercompany-service-fees-between-indian-and-foreign-entity/) for the subsidiary’s role, and [FC-GPR filing after foreign investment](https://treelife.in/compliance/fc-gpr-filing-after-foreign-investment/) for funding.

The US-side set-up has four working steps, and none needs a US visit.

- A registered agent in the state of incorporation, which every US state requires.

- An Employer Identification Number (EIN). The online application needs a US taxpayer number, so founders without a Social Security Number or ITIN apply on Form SS-4 by phone, fax or mail.

- A US business bank account. Whether it can be opened remotely depends on the bank, so confirm each provider’s non-resident requirements before choosing one.

- Beneficial ownership reporting. FinCEN’s interim final rule of 26/03/2025 exempts US-formed entities, but check [fincen.gov](https://www.fincen.gov) before skipping a report.

## Who should hold the shares of the US parent: resident individual, Indian entity or non-resident founder?

Shares of the US parent can be held by resident Indian founders directly, through an Indian company or LLP, or by founders who are non-resident under FEMA. The route decides the rules. Resident individuals face the tightest conditions under Schedule III of the Overseas Investment Rules, 2022, including a Liberalised Remittance Scheme (LRS) limit of US$250,000 per financial year per individual.

**Holder routes compared**

Holder routeFEMA basisKey conditionsWatch pointResident individual founders directlySchedule III, Overseas Investment Rules 2022, Form FC through an Authorised Dealer (AD) Category I bankInvestment only in an operating foreign entity outside financial services, within the LRS limit of US$250,000 per yearSchedule III bars a resident individual with control from holding a foreign entity that has a subsidiary or step-down subsidiary. Whether an Indian subsidiary counts is read differently in practiceIndian holding company or LLP owned by the foundersOverseas Investment Rules 2022, financial commitment capped at 400% of net worthTwo-layer limit under Rule 19(3), audited net worth not older than 18 monthsPractitioner view varies on whether this route avoids the individual-control restriction. Confirm with the AD bankFounders who are non-resident under FEMAOverseas Investment Rules do not apply to their own holding. The India subsidiary’s inbound investment follows the Non-debt Instruments Rules 2019Residence is tested under section 2(v), FEMA 1999, not under the Income-tax ActFEMA residence and tax residence differ, and a founder moving abroad changes the analysis for co-founders who stay

### Is a resident individual allowed to control a US parent that has an Indian subsidiary?

This position is unsettled, and we do not state it as settled. Rule 19(3) of the Overseas Investment Rules, 2022 permits a resident investor to invest in a foreign entity that invests back into India, provided the structure has no more than two layers of subsidiaries. Our guide on [round tripping under FEMA](https://treelife.in/legal/round-tripping-under-fema/) covers that rule. Schedule III separately restricts a resident individual with control from holding a foreign entity that has a subsidiary or step-down subsidiary. Practitioners read the two together differently, and some commentary treats the restriction as ruling out direct resident-individual control of a US parent with an Indian subsidiary.

The document that closes the gap is the AD bank’s written acceptance of Form FC for your specific structure, or an RBI reply obtained through the AD bank. Get it before the US company is incorporated, not after. A founder who is an NRI or moving abroad should also read our guide on [India tax residency for NRI startup founders](https://treelife.in/taxation/india-tax-residency-for-nri-startup-founders/).

Related reading: the [FEMA ODI rules for Indian startups investing abroad](https://treelife.in/legal/fema-odi-rules-and-regulations/) cover the 400% net worth cap, Form FC and the Annual Performance Report in full.

## Two ways to build it: US first or India first

Founders without an Indian company can incorporate the US parent first and then incorporate the Indian subsidiary under it. Founders with an operating Indian company reach the same structure through a flip, which moves the shareholding above the Indian company, and the tax and FEMA cost sits in that step. The end state is identical. The work and the risk are not.

**Build sequence by path**

StepPath A: US firstPath B: India first (flip)1. US parentIncorporate the Delaware company and issue founder sharesSame2. Holder filingForm FC through the AD bank before any remittance, or on a zero-cash incorporation where an Indian resident has controlSame, plus share swap valuation3. India companyIncorporate a new private limited company through SPICe+ on the Ministry of Corporate Affairs (MCA) portalExisting company stays, shareholders swap their shares into the US parent4. Ownership transferNot applicableShare swap, with the Section 47 exemption analysis and GAAR review in our [flip structure guide](https://treelife.in/legal/flip-structure-for-indian-startups/)5. First fundingParent subscribes to Indian shares, FC-GPR followsParent already holds the shares, later infusions follow FC-GPR

### How long does it take?

We would plan six to eight weeks end to end once the FEMA steps are added. Four things set the pace: notarisation and apostille of the US parent’s documents, MCA name approval and any resubmission, the bank’s video KYC and account activation, and the AD bank’s review of Form FC. The US document apostille is usually the longest step.

There is no minimum paid-up capital for an Indian private limited company under the Companies Act.

## Wholly owned subsidiary in India: incorporation, FDI route and the first 180 days

The Indian subsidiary is a private limited company incorporated through SPICe+ and held by the US parent under the automatic FDI route for software and IT services. After incorporation it has statutory deadlines of its own: a first board meeting and a first auditor within 30 days, and Form INC-20A within 180 days.

The company needs at least two directors, one of whom has stayed in India for 182 days or more in the previous year (section 149(3), Companies Act 2013), and at least two members (section 3(1)(b)). The US parent holds all but one share and a nominee holds the last. Our page on [resident director options for a foreign-owned Indian subsidiary](https://treelife.in/legal/resident-director-options-for-a-foreign-owned-indian-subsidiary/) covers who can fill that seat. The US parent’s board resolution, charter documents and good standing certificate usually need notarisation or apostille before the MCA and the bank accept them.

### Does a US venture investor with Chinese or Hong Kong partners change the FDI route?

It can. Software and IT services sit under the automatic route, but investors whose beneficial owners are in a country sharing a land border with India are subject to Press Note 3 (2020). Press Note 2 (2026), in force from 01/05/2026, links the beneficial owner test to anti-money-laundering thresholds and, for holdings below them, moves the requirement from approval to reporting. Check the investor chain of the US parent at each round. Our guides on [downstream investment under FEMA](https://treelife.in/finance/downstream-investment-rules-in-india-under-fema/) and the [Press Note 3 amendment](https://treelife.in/news/india-amends-press-note-3-2020-what-the-fdi-policy-update-means-for-investors-and-founders/) cover the mechanics.

### What must the India subsidiary do in the first 180 days?

- Hold the first board meeting within 30 days of incorporation (section 173(1), Companies Act 2013).

- Appoint the first statutory auditor within 30 days (section 139(6)).

- Issue share certificates within two months and pay stamp duty.

- File Form INC-20A within 180 days, before starting business or borrowing.

- Open the bank account, register for GST once service turnover crosses ₹20 lakh, and complete provident fund, employees’ state insurance, shops and establishment and professional tax registrations as the team grows.

- From year one: four board meetings a year with no gap above 120 days, statutory audit, annual filings with the Registrar of Companies, income-tax return and TDS returns.

Our guides cover [post-incorporation formalities](https://treelife.in/compliance/post-incorporation-formalities-for-plcs-llps/), [opening a bank account for a foreign-owned Indian subsidiary](https://treelife.in/legal/opening-a-foreign-bank-account/) and, for captive delivery centres, [STPI registration](https://treelife.in/legal/stpi-registration-for-it-and-gcc-units/).

## FEMA filings in a US parent India subsidiary structure, in the order they fall due

Six filings recur: Form FC before the Indian investor remits funds abroad, a FIRMS report when the India subsidiary receives the parent’s money, allotment within 60 days, Form FC-GPR within 30 days of allotment, the Annual Performance Report by 31 December, and the Foreign Liabilities and Assets (FLA) return by 15 July. Most avoidable penalties come from losing the sequence between the first four.

**FEMA filing calendar**

FilingWho filesTriggerDeadlineBasisForm FCIndian resident investor, through the AD bankRemittance abroad, or a zero-cash incorporation where an Indian resident has controlBefore funds leave IndiaOverseas Investment Rules and Regulations 2022Advance remittance report on FIRMSIndia subsidiaryReceipt of the parent’s fundsWithin 30 days of receiptNon-debt Instruments Rules 2019Allotment of sharesIndia subsidiaryReceipt of application moneyWithin 60 days of receipt, failing which the money is refundedCompanies Act 2013, Non-debt Instruments Rules 2019Form FC-GPRIndia subsidiary, through the AD bankAllotment of shares or convertible instrumentsWithin 30 days of allotmentRegulation 4, Mode of Payment and Reporting Regulations 2019Annual Performance ReportIndian investorEach overseas entity, every year31 DecemberOverseas Investment Regulations 2022FLA returnIndian entities with outstanding foreign investment or overseas investmentPosition as on 31 March15 July. The RBI extended the FY 2025-26 return to 31/07/2026, and extensions are year specificRBI FLAIR portal

The issue price of Indian shares sold to the US parent cannot be below fair value under Rule 21 of the Non-debt Instruments Rules, 2019, so a valuation report is needed at every subscription. Contraventions attract a penalty of up to three times the sum involved under section 13 of FEMA 1999, and late reporting attracts a late submission fee on top. If the India subsidiary later invests in another Indian company, Form DI and the downstream rules apply. Our page on [FC-GPR filing](https://treelife.in/compliance/fc-gpr-filing-after-foreign-investment/) walks through the portal steps.

### Does the US parent need to file anything in India?

No. The US parent files nothing with the RBI directly. The Indian shareholder carries Form FC and the Annual Performance Report, and the Indian subsidiary carries the FIRMS report, Form FC-GPR and its share of the FLA return. A US parent that remits money without the Indian side knowing creates the gap that surfaces in due diligence.

## How money moves between a US parent and an Indian subsidiary

Five flows run between the two companies: equity from the parent, service fees paid to the subsidiary, royalties on IP licensed to the subsidiary, dividends from the subsidiary, and loans. Each is a transaction between associated enterprises, so each needs an arm’s length price, a written agreement and a tax and GST treatment decided before the first invoice.

**Money flows and their treatment**

FlowDirectionIndia treatmentTreaty rate or formEquity subscriptionUS parent to India subsidiaryNot income. Reported on FIRMS and Form FC-GPRValuation floor under Rule 21, Non-debt Instruments Rules 2019Service fees (captive development)India subsidiary invoices US parentIncome of the subsidiary. Export of services under section 2(6) of the IGST Act 2017, zero-rated under section 16 with a Letter of UndertakingTransfer pricing: Form 48 under the Income-tax Act 2025Royalty on IP licensed to IndiaIndia subsidiary pays US parentWithholding on payment to a non-resident. Import of services under reverse charge, section 5(3), IGST Act 2017India US DTAA Article 12: 10% or 15% depending on the royalty type. Tax residency certificate and Form 41 neededDividendsIndia subsidiary pays US parentWithholding on payment to a non-residentIndia US DTAA Article 10: 15% if the parent holds at least 10% of voting stock, 25% otherwise. Form 41 neededLoan from parentUS parent to India subsidiaryFalls under the RBI’s ECB framework, with maturity and pricing conditionsInterest under Article 11: 10% for banks, 15% for others

Treaty relief now needs two documents. From 01/04/2026, Form 41 under section 159(8) of the Income-tax Act 2025 and Rule 75 of the Income-tax Rules 2026 replaced Form 10F, and it is filed electronically alongside the US tax residency certificate (IRS Form 6166). Without both, the Indian payer withholds at the domestic rate.

### What does transfer pricing require from year one?

Every payment above is an international transaction between associated enterprises. Under the Income-tax Act 2025, in force from 01/04/2026, section 161 sets the arm’s length principle, section 162 defines associated enterprises (26% voting power is one test), section 165 lists the pricing methods and section 167 carries safe harbour. The accountant’s report moved from Form 3CEB to Form 48 under section 172. From year one, the Indian subsidiary needs:

- A written intercompany agreement signed before services start, see our guide to the [parent subsidiary intercompany agreement in India](https://treelife.in/legal/parent-subsidiary-intercompany-agreement-in-india/).

- A benchmarking study with a functions, assets and risks analysis for each flow, unless safe harbour is elected.

- Form 48 filed with the return. Secondary sources show the due date as either 31 October or 30 November for tax year 2026-27.

- A decision on safe harbour. For tax year 2026-27 onward, Rule 89(2) of the Income-tax Rules 2026 read with section 167 sets 15.5% of operating expenses for IT services, with an eligibility ceiling of ₹2,000 crore, a five-year lock-in and no access to the mutual agreement procedure for covered transactions. The older 17% to 24% margins and the ₹300 crore ceiling no longer apply. Our guide on [safe harbour for IT, ITeS and captives](https://treelife.in/legal/safe-harbour-rules-for-it-ites-and-captives/) covers eligibility and the low-risk test.

Failure to file Form 48 carries a penalty of ₹1,00,000 and failure to keep or report records carries 2% of the transaction value, shown in secondary sources as sections 447 and 442 of the 2025 Act.

## US tax, place of effective management and permanent establishment

The US parent is a C corporation taxed at 21% federal rate under section 11(b) of the Internal Revenue Code and files IRS Form 1120 each year. Because Indian persons own 25% or more, it files Form 5472 for related-party transactions. As the shareholder of a controlled foreign corporation, it also reports the India subsidiary on Form 5471 and computes net CFC tested income.

**US-side items created by the India subsidiary**

ItemWhat it isWhy it mattersForm 5472Information return on transactions with foreign related parties, sections 6038A and 6038C, Internal Revenue CodePenalty of US$25,000 per form per year for failure. Each Indian founder is a separate related partyForm 5471Return on a controlled foreign corporation, section 6038The India subsidiary is a controlled foreign corporation of the US parent from day oneNet CFC tested incomeNew name for global intangible low-taxed income, from the One Big Beautiful Bill Act signed 04/07/2025The deduction falls to 40% for tax years beginning after 31/12/2025, which commentators put at 12.6% before credits. India’s corporate rate of about 25.17% under section 200 of the 2025 Act (formerly section 115BAA) is usually above the US high-tax threshold, which a US CPA tests each yearForeign research amortisationSection 174, Internal Revenue CodeDomestic research costs can be expensed from 2025, but foreign research costs stay on a 15-year amortisation. Paying an Indian subsidiary for software development is foreign researchDividend participation exemptionSection 245A, Internal Revenue CodeMay exempt dividends from the India subsidiary in the US, and it also disallows credit for Indian withholding. Confirm with a US CPA

A US accountant who has never seen an Indian subsidiary will file Form 1120 and miss Forms 5471 and 5472. Brief them on the full structure at the start of the first year.

Two India-side tax risks sit above the structure. If the founders run the US parent from India, the parent can be treated as an Indian tax resident under the place of effective management (POEM) test in section 6(3) of the 1961 Act, carried into the 2025 Act, applied through CBDT Circular No. 6 of 2017. If the parent directs the Indian team, or its US staff work from India for long periods, it can create a permanent establishment (PE) under Article 5 of the India US DTAA. Both turn on substance, not on paper. Our guides on [place of effective management](https://treelife.in/legal/place-of-effective-management-poem-in-india/) and [permanent establishment risk, including the effect of an Indian subsidiary on the foreign parent](https://treelife.in/legal/permanent-establishment-risk-in-india/) cover the tests and the controls.

## Can Indian founders live and work in the US for the parent?

Forming and owning a US company needs no US visa, but working inside the United States for it does. Most Indian founders run the US parent from India at first. The E-2 treaty investor visa is not available to Indian nationals, so the realistic routes for relocating are L-1A, O-1A and EB-5, and immigration counsel should confirm eligibility.

**Visa routes for an Indian founder**

RouteWho it suitsKey conditionsWatch pointNo visa, remote operationFounders running the US parent from IndiaNo visa to form or own the companyPlace of effective management risk if all decisions are taken in IndiaE-2 treaty investorNot availableIndia has no qualifying treaty with the United StatesCitizenship of a treaty country is the only routeL-1A intracompany transfereeFounder moving from the Indian company to the US parentA qualifying parent, subsidiary or affiliate link between the two companies, and one continuous year of employment abroad in the preceding three years. New-office petitions start at one yearThe structure must be in place and operating before the transfer. L-1A can lead to an EB-1C green cardO-1A extraordinary abilityFounders with documented acclaimEvidence of national or international recognition. No investment requirementHigh evidentiary barEB-5 immigrant investorFounders with capital to commitA qualifying investment above a statutory minimum, which is lower in a targeted employment area, and 10 full-time US jobsIndia’s unreserved EB-5 numbers were reported exhausted for FY 2026, resetting on 01/10/2026

A founder who moves to the US also changes their FEMA and tax residence, which changes the holder analysis above for the founders who stay in India.

## Common mistakes that cost founders time and money

**Mistake 1: Holding US shares as a resident individual without testing Schedule III.** US-side incorporation takes days, so founders move first and ask later. The correct approach is the AD bank’s written position on Form FC before incorporation. The cost of getting it wrong is a FEMA contravention with a penalty of up to three times the sum involved under section 13, plus compounding.

**Mistake 2: Wiring share capital without planning the allotment clock.** Money reaches the Indian account before the board has approved the issue. Allot within 60 days of receipt and file Form FC-GPR within 30 days of allotment, or refund the money.

**Mistake 3: Starting services before an intercompany agreement and benchmark exist.** The team starts work in week two and the agreement is signed months later. Sign the agreement first. The penalty for missing records is 2% of the transaction value.

**Mistake 4: Leaving the US accountant unbriefed on the Indian subsidiary.** The result is Form 1120 filed without Forms 5471 and 5472, with a US$25,000 penalty per missed Form 5472. Give the CPA the full structure chart in the first month.

**Mistake 5: Treating the US parent as a mailbox while the founders run it from India.** This invites POEM scrutiny. Hold real board decisions with documented substance, and keep records of where decisions are taken.

## Treelife practitioner note

In the US parent and India subsidiary engagements we have run at Treelife, the structure rarely fails on the law. It fails on sequence. The US company gets incorporated in a week, the first customer invoice goes out in the second, and the holder route, the intercompany agreement and the FEMA calendar are discussed afterwards.

Two patterns repeat. First, the AD bank sets the timeline. Banks differ in how they process Form FC for a zero-cash incorporation where an Indian resident has control, and in how they read the Schedule III restriction when the foreign entity has an Indian subsidiary. A written position from the bank’s forex desk before incorporation has saved founders from re-papering the holder route after investors have signed. Second, the first intercompany invoice is the moment the structure becomes real. If the services agreement, benchmark and GST treatment are not in place by then, the first year’s Form 48 becomes a reconstruction exercise rather than a filing.

The regulatory anchor to keep in view is Rule 19(3) of the Overseas Investment Rules, 2022. It permits the loop, and it applies at the time of investment and at any time after, so a later step-down entity under the US parent can break a structure that was clean on day one. Review it before every new entity is added.

## Frequently asked questions on the US parent India subsidiary structure

**Q: What tax does India charge on dividends from the subsidiary to the US parent?**

A: Withholding is capped at 15% if the parent holds at least 10% of the voting stock and 25% otherwise, under Article 10 of the India US DTAA. A tax residency certificate (US Form 6166) and Form 41 support the claim. The US parent may be able to claim a participation exemption under section 245A and cannot credit the Indian withholding against it, so confirm with a US CPA.

**Q: How are founders taxed when they sell shares of the US parent?**

A: A resident Indian founder is taxed in India on the gain. Unlisted shares become long-term after 24 months, and long-term gains are taxed at 12.5% under section 112 of the 1961 Act as amended by the Finance (No. 2) Act 2024, plus surcharge and cess. US tax on a non-resident’s gain from stock of a US operating company is generally nil, subject to US counsel’s confirmation.

**Q: Can the US parent pay dividends to Indian founders efficiently?**

A: No. The India US DTAA caps US withholding on dividends to an individual at 25%, against 30% under US domestic law, and India taxes the dividend again with credit for the US tax. The structure suits fundraising and exit, not distributions.

**Q: How long does the setup take end to end?**

A: We would plan six to eight weeks, covering US incorporation, Indian incorporation, the bank’s Form FC review and account activation.

**Q: What documents does the Indian subsidiary need from the US parent?**

A: Certificate of incorporation, charter documents, a board resolution approving the investment and naming a signatory, a good standing certificate and beneficial ownership details. Notarisation or apostille is usually required, and the exact list varies by AD bank.

**Q: Can the US parent lend to the Indian subsidiary?**

A: Yes, but the loan is an External Commercial Borrowing under the RBI’s ECB framework, with conditions on maturity, pricing and reporting. Most early-stage structures use equity or compulsorily convertible instruments instead. Our note on [ECB for start-ups](https://treelife.in/legal/ecb-for-start-ups/) covers eligible lenders.

**Q: What are the penalties for missing FEMA filings?**

A: Section 13 of FEMA 1999 allows a penalty of up to three times the sum involved where it can be quantified. Late reporting also attracts a late submission fee, and entities with historic lapses are asked to regularise before new overseas investment.

**Q: Can family members hold shares in the US parent?**

A: Each resident family member is a separate individual investor with a separate LRS limit of US$250,000 per financial year. Resident individuals cannot gift overseas investments to non-residents. Co-founders and family holders should agree on one holder route before incorporation.

**Q: Does DPIIT recognition survive the structure?**

A: The Indian subsidiary remains an Indian private limited company and can apply for recognition in its own name. Which benefits attach, including any tax holiday, depends on the current Department for Promotion of Industry and Internal Trade (DPIIT) notification.

**Q: How do US investors fund a US parent with an Indian subsidiary?**

A: They subscribe to preferred stock of the US parent, so no Indian filing arises on their investment. Form FC-GPR arises only when the parent then infuses money into the Indian subsidiary. Investors’ diligence usually asks for proof of the FEMA filings and the transfer pricing file.

**Q: How are Indian employees’ stock options handled?**

A: The US parent grants options or restricted stock units to Indian employees, who are taxed in India as a perquisite on exercise or vesting. The grants also carry FEMA reporting obligations. 

**Q: What if one founder is an NRI?**

A: A founder who is non-resident under section 2(v) of FEMA is outside the Overseas Investment Rules for their own holding, but the resident co-founders still need their own holder analysis. The Indian subsidiary’s inbound investment follows the Non-debt Instruments Rules 2019.

**Q: Does an Indian founder need a US visa or Social Security Number to set up the US parent?**

A: No visa is needed to form or own the company, and an EIN can be obtained without a Social Security Number through Form SS-4. A visa is needed only to work inside the United States, and the E-2 route is closed to Indian nationals.

## What a clean US parent India subsidiary structure looks like

The default we would name for a founder-led software company raising US venture capital is this: a Delaware C corporation parent, a wholly owned Indian private limited subsidiary on a cost-plus services agreement, funded by equity, with the holder route confirmed in writing by the AD bank before the US company is incorporated. Everything else in a US parent India subsidiary structure is a variation on that base, and each variation adds a filing in one country or the other.

### Related posts:

- [Form 48 Transfer Pricing: What to have ready before you file](https://treelife.in/legal/form-48-transfer-pricing/)

- [Singapore Company Incorporation from India: A Step by Step Guide](https://treelife.in/legal/singapore-company-incorporation-from-india/)

- [Demystifying POSH: A World of Taboos and Uncertainty](https://treelife.in/legal/demystifying-posh-a-world-of-taboos-and-uncertainty/)

- [Types Of Intellectual Property Rights In Gaming Industry | Everything you should know](https://treelife.in/legal/types-of-intellectual-property-in-gaming/)

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This is informational content from Treelife. For advice specific to your situation, contact support@treelife.in