Why set up a US subsidiary?
- US enterprise customers prefer contracting with, and paying, a US entity.
- Hiring US sales and customer-success staff on US payroll.
- US payment rails, marketplaces and app stores.
- Keeping the Indian company as the parent — which suits companies raising from Indian investors or planning an Indian listing.
ODI limits for Indian companies
Investment by an Indian company in a foreign entity is Overseas Direct Investment (ODI) under the Foreign Exchange Management (Overseas Investment) Rules, 2022.
- Automatic route: total financial commitment up to 400% of the Indian company’s net worth as per its last audited balance sheet (not older than 18 months), subject to an overall USD 1 billion per financial year; beyond that, RBI approval is needed.
- Financial commitment counts equity, and also loans, guarantees and other support given to the subsidiary — not just share capital.
- Bona fide business: the subsidiary must carry on real business activity; certain activities (such as some financial services) have additional conditions.
- Layers: a structure where the US subsidiary invests back into India resulting in more than two layers of subsidiaries is not allowed.
Step-by-step
- Board approval in the Indian company for the investment and any loans or guarantees, and shareholder approval where the Companies Act requires it.
- Form the US company — usually a Delaware C-Corp, with the Indian company as the sole or majority shareholder. See C-Corp vs LLC and choosing a registered agent.
- Obtain the EIN — EIN without an SSN or ITIN.
- Remit the investment through your AD bank, which reports it in Form FC and obtains a Unique Identification Number (UIN) for the ODI.
- Submit evidence of investment (share certificate) to the AD bank within the prescribed six months.
- Open the US bank account — bank account guide.
- Put intercompany agreements in place before money or services flow between the two companies.
Ongoing FEMA reporting
- Annual Performance Report (APR) for the US subsidiary — due by 31 December every year.
- Annual FLA return by 15 July, since the Indian company now holds an overseas investment.
- Reporting of further investment, loans, guarantees, restructuring or disinvestment through the AD bank.
- Repatriation of amounts due from the subsidiary — dividends, royalties, fees — within the timelines the rules set.
Transfer pricing
Transactions between the Indian parent and its US subsidiary are international transactions under Indian transfer-pricing rules — and are also scrutinised by the IRS. Typical set-ups:
- The Indian company builds the product and the US company resells it, with the US entity earning a routine margin.
- The US company provides sales and marketing support to the parent on a cost-plus basis.
Document the method, benchmark it, and file the accountant’s transfer-pricing report in India each year — Form 3CEB for years up to FY 2025-26, and Form 48 under the Income-tax Rules, 2026 thereafter. Treaty rates on payments between the two: India–US DTAA. Full detail, including the 2026 safe harbour: India–US transfer pricing.
US tax and filings
- A C-Corp subsidiary pays 21% federal corporate tax on its profits, plus state taxes where it operates.
- Because it is foreign-owned, it files Form 5472 with its Form 1120 for transactions with the Indian parent. Form 5472 guide.
- Dividends to the Indian parent face US withholding, reduced under the India–US tax treaty (generally 15% for a company holding at least 10% of voting stock).
- Delaware annual report and franchise tax by 1 March.
Subsidiary or flip?
A subsidiary keeps India on top; a flip puts a US company on top. If US venture investors will lead your next round, they may want the flip. If not, a subsidiary is usually simpler, cheaper to maintain and easier to unwind. Help with either: US Delaware holdco structuring or US company registration.
Frequently asked questions
How much can an Indian company invest in its US subsidiary?
Which form is used to report ODI in a US subsidiary?
Does an Indian parent need transfer pricing documentation for its US subsidiary?
Does the US subsidiary file Form 5472?
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.