How to Register a UK Subsidiary in India: The 2026 Guide

India is one of the most attractive destinations for UK companies looking to expand internationally. It has the world’s largest pool of English-speaking engineering talent, a rapidly growing domestic market, and a time zone that overlaps usefully with both the UK and Asia-Pacific. For IT companies, engineering firms, and professional services businesses, setting up a team or back office in India can dramatically reduce costs without compromising on quality.

But the process is not straightforward. India has its own regulatory framework for foreign investment, its own company law, its own tax system, and compliance requirements that differ significantly from the UK. Many UK companies enter the market underprepared and spend their first year firefighting compliance issues rather than building their business.

This guide walks you through the entire process — from choosing the right structure to getting your first employee on payroll — so you know exactly what to expect before you start.

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Why UK Companies Are Expanding to India

Before getting into the mechanics, it is worth understanding why so many UK companies are choosing India right now.

Cost efficiency without quality trade-offs. Senior software engineers, data scientists, and engineering specialists in India typically cost 60–75% less than equivalent hires in the UK, even accounting for employer compliance costs and management overhead. For companies building out tech teams, this is transformational.

Talent availability at scale. India produces over 1.5 million engineering graduates every year. Cities like Pune, Bengaluru, Hyderabad, and Chennai have deep talent pools across software development, mechanical and civil engineering, finance, and operations. Hiring a team of 20 in Pune is meaningfully easier than hiring a team of 20 in most UK cities right now.

The UK-India relationship. The UK and India share strong historical and commercial ties. English is widely used in Indian business and legal contexts. The two countries have a Double Taxation Agreement (DTA) that governs how profits are taxed across both jurisdictions, which simplifies international tax planning considerably.

Government incentives. India’s central and state governments have actively streamlined the process for foreign companies to enter the market. The introduction of 100% FDI under the automatic route in most sectors means most UK companies can invest without prior government approval.

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Step 1: Choose the Right Business Structure

This is the most important decision you will make and it is worth getting right before anything else. There are four main options for a UK company entering India.

Private Limited Company (Wholly Owned Subsidiary)

This is by far the most common structure chosen by UK companies, and for good reason. A Private Limited Company (Pvt Ltd) incorporated in India is a separate legal entity from your UK parent. It can hire employees directly, hold assets, open bank accounts, enter contracts, and remit profits back to the UK under RBI guidelines.

Under India’s FDI policy, most sectors allow 100% foreign ownership under the automatic route — meaning no prior government approval is required. Your UK company simply invests in the Indian Pvt Ltd, holds 100% of the shares, and the Indian entity operates as a wholly owned subsidiary.

For IT companies, back-office operations, engineering services, and most professional services, the Pvt Ltd route under the automatic route is straightforward and appropriate.

Best for: IT companies, engineering firms, back offices, companies planning to hire more than a handful of people, companies that want full operational control.

Branch Office

A Branch Office is an extension of the foreign parent company, not a separate legal entity. It can carry out activities specified in its RBI approval but cannot carry out manufacturing or retail trade. Profits earned by a branch office are fully taxable in India, and the parent company remains directly liable for the branch’s obligations.

Branch offices require prior RBI approval, which makes setup slower and more complex than a Pvt Ltd. For most IT and engineering companies, a Pvt Ltd subsidiary is a better option.

Best for: Companies that need a limited, specific presence in India and do not want a separate legal entity.

Liaison Office

A Liaison Office can only act as a representative and communication channel for the foreign parent. It cannot generate any revenue in India, cannot sign commercial contracts, and cannot carry out any business activities. It is funded entirely by inward remittances from the parent company.

Liaison offices are used by companies that want a market exploration presence before committing to a full setup. They require RBI approval and are not suitable for companies that want to hire a development team or deliver services from India.

Best for: Market research, relationship building, early-stage exploration only.

Employer of Record (EOR)

An Employer of Record is not a legal structure — it is a service. An Indian EOR company becomes the legal employer of your India-based staff on your behalf, handling payroll, compliance, and employment contracts, while the employees work under your direction.

EOR is useful as a bridging arrangement — for example, if you want to hire two or three engineers in India quickly while your Pvt Ltd incorporation is being processed. It is also used by companies that want to test the India market before committing to their own entity.

The key limitation is cost and control. EOR margins add up at scale, and you do not have direct employment relationships with your team. Most companies that start with EOR transition to their own entity once they have more than 8–10 employees.

Best for: Hiring one to ten employees quickly, bridging during incorporation, testing the market before full commitment.

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Step 2: Understand India’s FDI Rules

Foreign Direct Investment (FDI) into India is regulated by the Foreign Exchange Management Act (FEMA) and administered by the Reserve Bank of India (RBI) and the Ministry of Finance. For most UK companies setting up IT or engineering operations, this is manageable — but it must be done correctly.

Automatic Route vs Approval Route

The vast majority of sectors allow FDI under the automatic route, meaning no prior approval from the RBI or Indian government is required. You simply incorporate your Indian entity and bring capital in as share subscription, then report the investment to the RBI after the fact.

A smaller number of sectors — defence, media, pharmaceuticals above certain thresholds, and others — require prior government approval under the approval route. If your business touches any of these sectors, you will need to factor in additional time and process.

For IT services, software development, engineering services, BPO, and most professional services, the automatic route applies.

Capital Requirements

There is no statutory minimum paid-up capital for a Private Limited Company in India. However, the amount of capital you bring in should be commercially justifiable relative to the operations you plan to run. Bringing in too little capital and then funding operations through loans or inter-company arrangements can create FEMA compliance complications.

A typical starting capital for a small subsidiary is INR 1–10 lakh (approximately £1,000–£10,000), with additional capital infused as needed. Each infusion of capital requires an FC-GPR filing with the RBI within 30 days of allotment of shares.

Reporting Obligations

Once you invest in an Indian subsidiary, you take on ongoing RBI reporting obligations. The key ones are:

• FC-GPR: Filed within 30 days of issuing shares to the foreign investor
• FLA Return (Foreign Liabilities and Assets): Annual filing by the Indian company with the RBI, reporting outstanding FDI and foreign assets
• APR (Annual Performance Report): Required for outbound investments (not applicable here, but relevant if your Indian entity later invests abroad)

Missing these filings attracts compounding penalties under FEMA. This is an area where many first-time entrants get caught out.

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Step 3: Incorporate Your Indian Company

Once you have chosen your structure (typically a Pvt Ltd), incorporation is handled through the Ministry of Corporate Affairs (MCA) portal. Here is what the process looks like.

Directors and Shareholders

A Private Limited Company requires a minimum of two directors. At least one director must have been resident in India (182+ days in the previous financial year) — this is a legal requirement under the Companies Act 2013. The UK parent company holds shares as the shareholder; it does not need to be a director.

Each director needs a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) before incorporation can proceed.

Documents Required

For the Indian entity:

• Memorandum of Association (MOA) — sets out the company’s objects
• Articles of Association (AOA) — sets out internal governance rules
• Registered office address proof in India
• INC-9 declaration from directors

For the UK parent company:

• Certificate of Incorporation
• Memorandum & Articles of Association (UK)
• Board resolution authorising the India investment
• These documents typically need to be apostilled in the UK before use in India

Timeline

From the moment all documents are in order, a straightforward Pvt Ltd incorporation typically takes 15–25 business days. Delays usually occur at the document collection and apostille stage, not within the MCA process itself. Plan for 4–6 weeks end to end to be safe.

Post-Incorporation Steps

Incorporation is just the beginning. Immediately after receiving your Certificate of Incorporation, you will need to:

• Open a corporate bank account in India (the RBI-approved inward remittance will go here)
• Apply for PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number)
• File the FC-GPR with the RBI once shares are allotted against the initial capital
• Register for GST (if turnover will exceed INR 20 lakh per year, which it typically will)
• Register for Professional Tax (state-specific requirement)

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Step 4: Set Up GST and Accounting

India’s Goods and Services Tax (GST) system has been in place since 2017 and applies to most supplies of goods and services. For a UK company’s Indian subsidiary providing IT or engineering services, GST registration is almost always required.

GST Registration

If your Indian entity will be providing services — including services exported to your UK parent — you need to register for GST. The standard rate for IT services is 18%. However, if your Indian subsidiary is providing services to a foreign entity (including your UK parent) and receiving payment in foreign currency, those services may qualify as zero-rated exports under GST, meaning you charge 0% GST and can claim refunds on input GST paid.

This is an important point. Many new subsidiaries incorrectly charge 18% GST on inter-company invoices to their UK parent when the supply should be zero-rated. Getting this right from the start avoids a GST reconciliation mess later.

Monthly and Quarterly Compliance

Indian GST requires monthly or quarterly returns depending on turnover. The main returns are:

• GSTR-1: Details of outward supplies (monthly or quarterly)
• GSTR-3B: Summary return and tax payment (monthly)
• GSTR-2B: Auto-populated input tax credit statement (monthly)

Reconciling your purchase register against GSTR-2B is critical — input tax credit can only be claimed on invoices that appear in your GSTR-2B, which depends on your suppliers filing their returns correctly.

Accounting Systems

Most Indian subsidiaries of foreign companies use either Tally (the dominant accounting software in India) or Zoho Books (which integrates well with international workflows and has strong API support). Both are GST-compliant and support the reporting formats required by Indian regulators.

Your UK parent will also need a mechanism to consolidate Indian subsidiary accounts into group reporting. Monthly management accounts in a format your UK finance team can work with are essential from the start.

Transfer Pricing

If your Indian subsidiary transacts with your UK parent — which it almost certainly will, whether through service fees, management charges, or loan arrangements — those transactions are subject to Indian transfer pricing rules under Section 92 of the Income Tax Act.

Transfer pricing requires that inter-company transactions be priced on an arm’s length basis. For companies with inter-company transactions above INR 1 crore in a year, an annual Transfer Pricing report (Form 3CEB) prepared by a Chartered Accountant is mandatory.

Getting your inter-company pricing structure right from the start — and documenting it — is far easier than trying to reconstruct it years later during a tax assessment.

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Step 5: Set Up HR, Payroll, and Labour Compliance

India has a complex and evolving labour law framework. The government has been consolidating legacy labour laws into four new Labour Codes, though implementation is still in transition. Here is what you need to manage.

Employment Contracts

Indian employment law does not mandate a specific format for employment contracts, but your contracts should be clear on notice periods, confidentiality, intellectual property assignment, and governing law. IP assignment clauses are particularly important for IT and engineering companies — you want to ensure that code, designs, and inventions created by your Indian employees are owned by the Indian entity (or the group) and not personally by employees.

Provident Fund (PF)

Employees earning below INR 15,000 per month in basic salary must be enrolled in the Employees’ Provident Fund (EPF). Contributions are 12% of basic salary from both employer and employee. Most companies extend PF to all employees as a matter of practice, regardless of salary level. PF registration is required once you have your first employee.

Employee State Insurance (ESI)

ESI applies to employees earning up to INR 21,000 per month (gross). It provides health and insurance benefits. Employer contribution is 3.25% of gross wages; employee contribution is 0.75%. ESI registration is required if you have 10 or more employees in applicable states.

Professional Tax

A state-level tax, Professional Tax applies in most Indian states and is deducted from employee salaries. The rates vary by state and salary slab — in Maharashtra (where Pune is located), the maximum is INR 2,500 per year per employee.

TDS on Salaries

Your Indian entity must deduct Tax Deducted at Source (TDS) from employee salaries under Section 192 of the Income Tax Act and remit it to the government monthly. Quarterly TDS returns (Form 24Q) must be filed, and annual Form 16 certificates issued to employees.

Failure to deduct and remit TDS on time attracts interest and penalties. This is one of the most common compliance gaps we see in new subsidiaries.

New Code on Social Security 2020

The Code on Social Security 2020, once fully implemented, will consolidate PF, ESI, gratuity, and other social security laws into a single framework. The definition of “wages” under the new code will affect PF and gratuity calculations significantly — the code requires basic wages to be at least 50% of total CTC, which will increase PF contributions for many employees. Companies setting up now should structure their payroll with this in mind.

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Step 6: Understand the UK-India Tax Treaty

The UK and India have a Double Taxation Agreement (DTA) that has been in place since 1993. For UK companies with Indian subsidiaries, the key provisions to understand are:

Permanent Establishment Risk

If your UK company has employees or agents operating in India who habitually conclude contracts on behalf of the UK company, this may create a Permanent Establishment (PE) of the UK company in India — meaning India can tax the UK company’s profits attributable to that PE. For most subsidiaries where the Indian entity operates independently and invoices the UK parent for services, PE risk is low. But it requires careful structuring, particularly around the roles and authority of India-based staff relative to the UK parent.

Dividend Withholding Tax

When your Indian subsidiary remits dividends to your UK parent, India levies a withholding tax. Under the DTA, this is reduced from the standard rate. Your Indian CA and UK accountant should coordinate on the most tax-efficient structure for profit repatriation.

Royalties and Technical Services

If your UK parent charges the Indian subsidiary royalties or technical service fees (common in software licensing or management service arrangements), the DTA affects the withholding tax rate applicable in India. Getting these rates right is part of structuring inter-company arrangements correctly.

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Common Mistakes UK Companies Make When Entering India

Having worked with numerous foreign subsidiaries, here are the mistakes we see most often:

1. Undercapitalising the subsidiary. Bringing in minimal capital and then funding operations through director loans or unsecured inter-company advances creates FEMA complications. Plan your capital structure properly at the outset.

2. Missing the FC-GPR deadline. The FC-GPR must be filed within 30 days of share allotment. Missing this requires a compounding application to the RBI, which takes time and attracts a fee.

3. Getting GST wrong on inter-company invoices. Incorrectly treating exports of services as domestic supplies (and charging 18% GST) is a common error that creates refund complications and inflates the Indian subsidiary’s apparent revenue.

4. Not setting up transfer pricing documentation early. Waiting until the first tax assessment to think about transfer pricing is too late. Document your inter-company pricing methodology from year one.

5. Treating Indian payroll like UK payroll. PF, ESI, TDS, Professional Tax, and gratuity provisions all work differently from UK equivalents. Using a UK-centric payroll setup without India-specific compliance is a recipe for penalties.

6. Ignoring annual ROC filings. Indian companies must file annual returns and financial statements with the Registrar of Companies (ROC) each year. Missing filings attract daily penalties and can result in the company being struck off the register.

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How Long Does the Whole Process Take?

Here is a realistic timeline for a UK company going from decision to first hire in India:

EOR can compress this to 2–3 weeks if you need to hire urgently while incorporation proceeds.

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Choosing the Right Partner in India

The quality of your India-side professional support makes an enormous difference to how smoothly your setup goes. A few things to look for:

CA firm, not just a consultant. A registered Chartered Accountant firm can sign statutory filings, prepare audited accounts, and take professional responsibility for compliance advice. A consultant cannot.

Cross-border experience. Your CA firm should have experience with FEMA, FDI documentation, transfer pricing, and the specific requirements of foreign subsidiaries — not just domestic Indian company compliance.

Sector familiarity. IT and engineering subsidiaries have specific GST treatment, specific transfer pricing considerations, and specific payroll structures. A firm that works regularly with these types of companies will save you significant time.

Ongoing relationship, not a one-off. Company setup is the beginning, not the end. Monthly accounting, GST filings, payroll processing, annual audits, and ROC filings all need to be managed. Choose a firm you can work with long-term.

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Summary: Your India Entry Checklist

• Choose your entity type (Pvt Ltd subsidiary is right for most UK IT and engineering companies)
• Confirm your FDI route (automatic route for most sectors)
• Apostille UK parent company documents
• Incorporate with MCA — two directors minimum, one India-resident
• Open Indian corporate bank account
• Remit initial capital and file FC-GPR with RBI within 30 days
• Register for PAN, TAN, GST, Professional Tax
• Register for PF and ESI before first hire
• Set up accounting system (Tally or Zoho Books)
• Document your transfer pricing methodology
• File annual returns: ROC, FLA, GST, Income Tax

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Setting up in India is not as simple as registering a company in Companies House, but it is entirely manageable with the right preparation and the right support on the ground. The companies that do it well treat the setup phase as an investment — getting the compliance infrastructure right from the start means the business can scale without looking over its shoulder.

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KRPR & Associates is a Chartered Accountant firm based in Pune, India. We assist UK and other foreign companies with company incorporation, FEMA and RBI compliance, GST and accounting setup, and HR and payroll services. If you are planning to set up an Indian subsidiary or back-office team, [get in touch for a free initial consultation].