- Foreign holding companies must comply with FDI policy and sectoral restrictions beyond basic corporate law.
- Indian companies can establish foreign subsidiaries subject to the two thousand twenty-two overseas investment framework.
- Annual foreign liabilities and assets reporting to the Reserve Bank of India is mandatory for most cross-border structures.
Foreign Holding Companies and Foreign Subsidiaries can connect businesses across India and overseas, but the ownership percentage alone does not establish that a structure is permitted under Indian law. The business activity, investment route and related compliance duties must be examined separately.
NRIs and overseas founders often build groups spanning more than one country. A U.S., UK, Singapore or other overseas company may own an Indian company, while an Indian company may establish or acquire an entity abroad.
The structure raises two questions. One concerns the corporate relationship between the entities. The other concerns the foreign-exchange and foreign-investment rules triggered when ownership crosses national borders.
India’s policy permits substantial foreign investment, including up to 100% in many sectors. The applicable percentage and approval route still depend on the sector and its conditions.
An overseas company may sit above an Indian subsidiary
Section 2(87) of the Companies Act says the expression “company” includes a body corporate. That allows an overseas-incorporated body corporate to occupy the holding-company position above an Indian company.
A simple example would place USA Technologies Inc. above India Technologies Pvt. Ltd., with the overseas parent holding 100% of the Indian entity. India Technologies Pvt. Ltd. would then be the wholly owned Indian subsidiary.
The Companies Act classification does not complete the regulatory review. India’s foreign-investment laws apply alongside company law, and the company’s activity must be tested against any sectoral restrictions.
The Department for Promotion of Industry and Internal Trade maintains India’s FDI policy framework. Foreign investment also operates through FEMA and the applicable Non-Debt Instruments framework.
Some investments can proceed through the automatic route. Others require the government route. A statement that a foreign company can own 100% of any Indian company would therefore be too broad.
The proposed business activity must be identified before the ownership structure is implemented. The permitted percentage and applicable conditions may change with that activity.
A holding parent and a “foreign company” answer different questions
The Companies Act separately defines “foreign company” in Section 2(42). The definition covers a company or body corporate incorporated outside India that has a place of business in India, whether directly, through an agent or electronically, and conducts business activity in India.
That inquiry focuses on the overseas entity’s own presence and conduct. A foreign parent may serve as the holding body corporate of an Indian subsidiary without that relationship, by itself, resolving the separate Section 2(42) question.
The parent’s facts matter. Its place of business and business activity in India must be assessed separately from its ownership of the Indian subsidiary.
Indian companies can build subsidiaries outside India
The investment direction can also run from India outward. An Indian company may establish or acquire a foreign subsidiary, subject to the applicable overseas-investment framework.
One example places India Ltd. above Singapore Pte. Ltd., with India Ltd. holding 80% of the Singapore entity. Singapore Pte. Ltd. would be the foreign subsidiary of the Indian parent.
Indian overseas investment is principally governed through the Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions introduced in 2022, as amended from time to time. The RBI describes those instruments as the operative overseas-investment regime.
An Indian company planning an acquisition or a new overseas entity must therefore examine the overseas-investment rules in addition to the Companies Act. The outward investment framework is a separate part of the analysis.
Several overseas layers can form one corporate chain
A group can contain more than one overseas level. Consider India Parent Ltd. holding Singapore Holdings Pte. Ltd., which in turn sits above UK Operations Ltd.
Singapore Holdings Pte. Ltd. is a foreign subsidiary of the Indian parent. UK Operations Ltd. is a further subsidiary beneath it and can commonly be described as a foreign step-down subsidiary of the Indian parent.
Section 2(87) recognises subsidiary relationships where control is exercised through another subsidiary. A direct-shareholder review may therefore miss the wider chain.
A longer example places US Global Inc. at the top of the group, with the following ownership sequence:
| Entity in the chain | Ownership shown in the example |
|---|---|
| US Global Inc. to India Holdings Pvt. Ltd. | 100% |
| India Holdings Pvt. Ltd. to India Services Ltd. | 75% |
| India Services Ltd. to India Digital Pvt. Ltd. | 60% |
India Holdings Pvt. Ltd. is the wholly owned Indian subsidiary of US Global Inc. India Services Ltd. sits further down the chain, followed by India Digital Pvt. Ltd.
The full map reveals the ultimate foreign parent. It also shows direct and indirect control at each level.
Foreign assets and liabilities may create RBI reporting duties
Indian resident entities with outstanding inward foreign direct investment or overseas direct investment can have Foreign Liabilities and Assets reporting obligations.
The RBI’s current guidance states that entities with outstanding FDI and/or ODI positions may be required to submit the annual Foreign Liabilities and Assets return through the prescribed reporting system.
The precise reporting position depends on the entity and its outstanding foreign assets or liabilities. Creating a subsidiary does not by itself resolve the reporting analysis.
Company law and FEMA cover different parts of the structure
Company law helps establish the corporate map. It addresses who the holding company is, whether an Indian entity is a subsidiary, whether an indirect subsidiary exists, and who exercises Board or voting control.
FEMA and the FDI framework address the cross-border investment itself. They ask whether investment is permitted in the particular activity, which route applies, what conditions govern it, and which reporting or banking procedures must be followed.
An Indian entity investing outside India faces the separate ODI framework. Compliance with one framework does not remove the need to comply with the other.
The distinction applies even when the corporate relationship is clear. A legally recognisable subsidiary does not, by itself, establish that an ownership level satisfies the applicable investment rules.
Founders must separate corporate ownership from personal work authorization
NRIs and overseas entrepreneurs frequently establish companies in more than one country. A founder living in the United States may use a U.S. parent company with an Indian technology subsidiary. Another founder may operate an Indian company that expands through a Singapore subsidiary.
Before choosing the structure, the parties should review company law, foreign-exchange rules, taxation, transfer pricing, beneficial-ownership reporting and the laws of the relevant overseas jurisdiction.
A founder’s immigration or visa status requires a separate analysis from corporate ownership. That is particularly relevant when the founder intends to personally work or provide services in a particular country.
The proposed structure should be reviewed under the Companies Act, FEMA, tax law and the law of each relevant foreign jurisdiction before implementation. This article provides general information and is not legal advice. Consult a qualified immigration attorney about your specific case.
