Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
Usually when US customers, hires or investors need a US counterparty: enterprise clients asking for a US vendor, staff to be employed in the US, US investors, or executives transferring to the US. Before that point, invoicing US clients from India often works. When the time comes, the Indian parent invests under India's overseas investment rules through its bank, and the new US company takes on its own US tax filings.
Key takeaways
- An Indian company invests in a US subsidiary as Overseas Direct Investment under the Foreign Exchange Management (Overseas Investment) Rules, Regulations and Directions of 2022.
- Under the automatic route, the Indian entity's total financial commitment abroad generally cannot exceed 400% of its net worth as per its last audited balance sheet.
- Form FC is filed through the Indian company's authorised dealer bank on or before the first remittance, and the subsidiary receives a Unique Identification Number.
- An Annual Performance Report is due for each foreign entity by 31 December every year while the investment is held.
- A US C-Corp owned 25% or more by an Indian parent files Form 1120 and Form 5472 for its transactions with the parent.
Signals that the US subsidiary is now worth it
A US entity adds cost and filings, so it should solve a real commercial problem. The common triggers are:
- Enterprise procurement: US customers ask for a W-9, a US bank account for payments, US-based insurance certificates or a US contracting party, and reject an Indian vendor.
- Hiring in the US: employing US salespeople or engineers requires a US employer for payroll and benefits; using the Indian company directly can create a US taxable presence.
- US investors: most US venture funds invest in a Delaware C-Corp, and some require the Indian business to sit beneath it.
- Executive transfers: sending a manager or specialist on an L-1 visa requires a qualifying US entity that can show real business plans and funding.
- Payments and marketplaces: many US payment processors, app stores and marketplaces onboard US entities more smoothly.
If you only invoice a handful of US clients who are happy paying an Indian company, the subsidiary can usually wait.
India's overseas investment rules, at a high level
The Indian side is governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022, the matching Regulations, and the RBI's Overseas Investment Directions, 2022. For a straightforward wholly owned US subsidiary under the automatic route, expect:
- A board resolution of the Indian company approving the investment and naming signatories.
- Confirmation that the US company has limited liability and is engaged in a bona fide business activity.
- A check that total financial commitment abroad stays within 400% of the Indian entity's net worth per its last audited balance sheet.
- Form FC, filed through the authorised dealer (AD) bank on or before the first remittance; the bank reports it and a UIN is allotted. A UIN is a record, not an approval.
- Submitting evidence of investment, such as the share certificate, to the AD bank within the prescribed time.
- An Annual Performance Report for the subsidiary by 31 December each year.
Loans from the parent to the subsidiary are generally permitted only once the parent has made equity investment and holds control. Structures that route money back into India through more than two layers of subsidiaries are restricted. Late reporting can be regularised with a late submission fee, but repeated delays complicate future remittances. Your Indian CA and AD bank should confirm the exact documents for your case.
What changes on the US side once the subsidiary exists
| Area | What the US subsidiary takes on |
|---|---|
| Entity | Usually a C-Corp; a single-member LLC owned by an Indian company is disregarded for US tax, which often clashes with how India views it |
| Federal tax | Form 1120 each year, plus Form 5472 for transactions with the Indian parent and other related parties |
| Related-party pricing | Services, software licences and cost recharges between India and the US must be priced at arm's length and documented on both sides |
| State | Annual reports, franchise tax and registration in each state where it operates or hires |
| Payroll | State and federal employer registrations before the first US hire |
| Ownership reporting | As a US-created company, it is outside FinCEN BOI reporting under the final rule effective August 14, 2026, but this should be monitored |
The Indian parent's own transfer pricing reporting covers the same transactions, so the two sets of books need to agree on amounts, dates and descriptions.
A sensible order of operations
- Agree the commercial purpose: sales, delivery, hiring or fundraising.
- Choose the state and entity type with US and Indian advisers together.
- Pass the Indian board resolution and prepare the ODI paperwork with the AD bank.
- Form the US company and obtain its EIN.
- Open the US bank account, then remit initial capital against the Form FC filing and issue shares.
- Sign intercompany agreements for any services, licences or cost sharing before invoices start flowing.
- Set up US bookkeeping that tags every parent transaction for Form 5472 and the Indian APR.
Timelines vary with bank onboarding and document certification, so plan for several weeks rather than days.
Common mistakes to avoid
- Wiring money to the new US company before Form FC is filed with the AD bank and a UIN is allotted.
- Forming a single-member US LLC under an Indian company without checking how India and the US will each tax it.
- Letting Indian staff negotiate and sign US customer contracts on the parent's behalf after the subsidiary exists, blurring which entity is earning US income.
- Billing the US subsidiary for Indian development work without a written intercompany agreement or arm's-length pricing.
- Missing the Annual Performance Report deadline because the US year-end and Indian financial year are not aligned.
- Paying US expenses from the parent's or a founder's card, leaving related-party transactions unrecorded for Form 5472.
Documents and records to prepare
- Board resolution of the Indian company approving the US investment
- Indian company's last audited financial statements (for the net worth test)
- Form FC and supporting documents required by the AD bank
- US formation documents, EIN letter and share issuance resolutions
- Share certificate or other evidence of investment for the AD bank
- Intercompany services, licence or cost-sharing agreements
NYBACS 360° support
How NYBACS helps
- Forms the US subsidiary, obtains its EIN and prepares the bylaws, resolutions and share records your AD bank will ask to see.
- Coordinates timing between the US formation, US bank account opening and the Indian parent's Form FC filing with your CA.
- Maintains US books that separate parent funding, recharges and services for Form 1120, Form 5472 and the Indian APR.
- Organises corporate records and business-plan inputs when executives transfer on an L-1, alongside your immigration attorney.
Frequently Asked Questions
Do we need RBI approval to set up a US subsidiary?
Most straightforward investments fall under the automatic route and are processed through the authorised dealer bank without prior RBI approval. Approval is needed only in specified cases, such as commitments above the permitted limits or certain sectors. Your AD bank and CA should confirm which route applies.
Can Indian founders invest personally instead of through the company?
Resident individuals can make overseas investments under the Liberalised Remittance Scheme, subject to its annual limit and extra conditions on the type of foreign entity. Whether the company or the founders should own the US entity depends on fundraising plans, Indian tax and future transfers, and needs advice in India.
Should the US subsidiary be a Delaware C-Corp?
Often, especially where US fundraising, stock options or enterprise customers are likely. A company operating in one state with no investor plans may choose its home state instead to avoid running two states' compliance.
How should the Indian parent fund the subsidiary at the start?
Usually with equity, which keeps the ODI reporting simple and gives the US company a clean balance sheet for banks. Loans can follow once equity is in place and should carry arm's-length terms and a written agreement.
Does NYBACS form or manage the Indian parent company?
No. We do not provide incorporation or entity services in India. We handle the US side and coordinate with the Indian parent's chartered accountant or company secretary for the ODI steps.
