Guide for Foreigners to Set Up a Business in India (2026)

1. Step 1 – Check the FDI Rules for Your Sector
   • Automatic route: In most sectors (manufacturing, IT and software, services, consultancy, trading – wholesale/B2B, e-commerce marketplace, etc.), foreign investment of up to 100% is allowed without prior government approval. Only post-investment reporting to the RBI is required.
   • Government route: In certain sectors, or beyond specified limits (for example, some defence, broadcasting, print media and multi-brand retail investments), prior approval of the Government is needed through the National Single Window System.
   • Prohibited sectors: FDI is not allowed in lottery, gambling and betting, chit funds, Nidhi companies, real estate business and farm houses, trading in Transferable Development Rights, manufacture of tobacco products, and certain other activities.
   • Investors from land-border countries (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan): under Press Note 3 (2020), investments by entities from these countries, or where the beneficial owner is from these countries, generally need government approval. From 2026, investments where such beneficial ownership is below 10% and passive (non-controlling) can come under the automatic route.
   • Key 2026 changes: 100% FDI in insurance companies is now allowed under the automatic route (Press Note 1 of 2026). Limited FDI in inventory-based e-commerce has also been permitted for exports of goods made in India.
2. Step 2 – Choose the Right Business Structure

   Structure	Best suited for	Approval	Key points
   Wholly owned subsidiary / joint venture (Private Limited Company)	Most businesses that want to operate, earn revenue and grow in India	Automatic route in most sectors; incorporation with the Registrar of Companies	Separate legal entity with limited liability; can do any permitted business; 100% foreign ownership possible; most popular option
   Limited Liability Partnership (LLP)	Professional and consulting businesses with fewer partners	Automatic route only in sectors where 100% FDI is allowed under the automatic route without performance conditions	Lower compliance than a company; cannot raise equity like a company; not suitable for restricted sectors
   Branch Office	Foreign companies wanting to export/import, provide consultancy or IT services, or represent the parent	Through an Authorised Dealer (AD) bank under FEMA; RBI/Government approval in some cases	Not a separate entity – parent is fully liable; cannot do manufacturing (except in SEZ) or retail trading; taxed as a foreign company
   Liaison Office	Market research and representation before starting operations	Through an AD bank under FEMA; RBI/Government approval in some cases	Cannot earn any income in India; expenses met by remittances from the parent; generally valid for 3 years
   Project Office	Foreign companies executing a specific contract in India	General permission subject to conditions; through an AD bank	Limited to the project; closed on completion

   For most foreign businesses, a wholly owned subsidiary (private limited company) gives the best combination of flexibility, limited liability and credibility with customers, banks and the tax department.
3. Step 3 – Requirements for a Private Limited Company
   • Shareholders: At least 2 shareholders. A foreign parent company and its nominee (or two foreign entities/individuals) can hold 100% of the shares.
   • Directors: At least 2 directors. At least one director must be resident in India, i.e. must have stayed in India for at least 182 days during the financial year (proportionately for a newly incorporated company). The other directors can be foreign nationals.
   • Capital: No minimum capital is prescribed by law, but the capital should be adequate for the business and any sector-specific minimum capitalisation norms.
   • Registered office in India – a rented or owned office, with rent agreement/NOC and a recent utility bill.
   • Documents of foreign directors and shareholders: passport, address proof, and – for a foreign company – certificate of incorporation and board resolution. These must be notarised and apostilled in the home country (or consularised by the Indian Embassy where the country is not a member of the Hague Apostille Convention).
4. Step 4 – Incorporation Process (Step by Step)
   1. Digital Signature Certificates (DSC) for the proposed directors and subscribers.
   2. Name reservation through SPICe+ Part A on the MCA portal.
   3. Incorporation application through SPICe+ Part B, with e-MoA and e-AoA. This single form also allots the Director Identification Number (DIN), PAN and TAN, and applies for GST registration, EPFO and ESIC registration and a bank account (through AGILE-PRO-S).
   4. Certificate of Incorporation issued by the Registrar of Companies, along with the Corporate Identity Number (CIN), PAN and TAN.
   5. Open a bank account in India and receive the share capital from the foreign investor through normal banking channels. Obtain the Foreign Inward Remittance Certificate (FIRC) and KYC of the remitter from the bank.
   6. Issue shares within 60 days of receiving the money (otherwise the amount must be refunded). Shares must be issued at a price not lower than fair value as determined by a Chartered Accountant, SEBI-registered Merchant Banker or practising Cost Accountant.
   7. Report the investment to the RBI in Form FC-GPR within 30 days of issue of shares, on the RBI’s FIRMS portal through the AD bank (after registering the Entity Master).
   8. Declaration of commencement of business (Form INC-20A) within 180 days of incorporation, after the subscribers have paid for their shares.
   With documents in order, incorporation is usually completed within 2–4 weeks.
5. Step 5 – Other Registrations
   • GST registration in each State from where supplies are made (see our article on GST multi-State registration).
   • Import Export Code (IEC) from DGFT, if importing or exporting goods or services.
   • Shops & Establishment registration under the State law, and professional tax registration where applicable.
   • PF and ESI registration once employee thresholds are met.
   • Sector-specific licences (for example, FSSAI for food, drug licences, RBI registration for NBFCs) and Startup India (DPIIT) recognition where eligible.
6. Step 6 – Taxation of Foreign-Owned Businesses
   • Indian subsidiary: Taxed as a domestic company – at a concessional rate of 22% (about 25.17% with surcharge and cess) if it opts for the concessional regime without specified exemptions and deductions; otherwise at 25% or 30% plus surcharge and cess.
   • Branch / project office: Taxed as a foreign company at 35% plus surcharge and cess.
   • Dividends to the foreign parent: Subject to TDS at 20% plus surcharge and cess, or the lower rate under the applicable Double Taxation Avoidance Agreement (DTAA) on furnishing a Tax Residency Certificate and Form 10F.
   • Transfer pricing: Transactions with the parent and group companies (services, royalties, loans, purchases) must be at arm’s length, with transfer pricing documentation and an annual accountant’s report.
   • Royalty and technical service fees paid abroad attract TDS; DTAA rates and Forms 15CA/15CB apply on remittances.
7. Step 7 – Ongoing Compliances
   • Companies Act: statutory audit, board meetings (at least 4 a year), Annual General Meeting, annual filings (AOC-4 and MGT-7), auditor appointment (ADT-1) and maintenance of statutory registers.
   • FEMA: Annual Return on Foreign Liabilities and Assets (FLA) to the RBI by 15 July every year; FC-GPR for every fresh issue of shares; FC-TRS for transfer of shares between residents and non-residents within 60 days; downstream investment reporting where applicable.
   • Income tax: TDS deduction and quarterly returns, advance tax, tax audit, transfer pricing report and income tax return.
   • GST: monthly/quarterly returns, annual return and e-invoicing where applicable.
   • Branch and liaison offices: register with the Registrar of Companies as a foreign company within 30 days of establishing a place of business, and file the Annual Activity Certificate with the AD bank.
8. Visas for Foreign Promoters and Staff
   • Foreign nationals visiting India to explore opportunities or set up the business generally travel on a Business Visa.
   • Foreign nationals who will be employed in the Indian entity need an Employment Visa, subject to conditions including a minimum salary threshold, and must register with the FRRO where required.

What This Means for Foreign Investors

• Start with a sector check – automatic route, government route or prohibited – and confirm whether any investor or beneficial owner is from a land-border country.
• For most businesses, a wholly owned subsidiary is the most practical and flexible structure. Use a liaison office only for market research.
• Plan for the resident director requirement and get foreign documents apostilled early – this is where most delays happen.
• Do not miss the FC-GPR (30 days) and FLA (15 July) filings – late reporting under FEMA attracts compounding and late submission fees.
• Structure group transactions with transfer pricing and DTAA benefits in mind from the start.

Note: This guide is based on the Consolidated FDI Policy and DPIIT Press Notes (including Press Note 1 of 2026 on insurance and the 2026 amendment to Press Note 3 of 2020), the FEMA (Non-Debt Instruments) Rules, 2019 as amended in 2026, the FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other Place of Business) Regulations, 2016, the Companies Act, 2013 and the tax laws in force as on 14 October 2026. Sectoral caps and conditions change from time to time; please check the latest FDI Policy and consult us for advice on your specific proposal.