Common Mistakes People Make
Expanding business operations by setting up a subsidiary company in India is a smart move for many international companies and entrepreneurs. India offers access to a large market, skilled talent pool, and favorable policies for foreign investment. However, the process of establishing a subsidiary in India isn’t as simple as filling out a few forms and opening a bank account. Without the right guidance, many companies fall into costly traps that can delay or derail their expansion.
At Wazzeer, we help startups, SMEs, and international businesses navigate the legal and compliance landscape in India. Based on our extensive experience, here are some of the most common mistakes businesses make while setting up a subsidiary company in India — and how you can avoid them.
1. Choosing the Wrong Business Structure
One of the first and most critical decisions is selecting the right structure for your subsidiary. Most foreign companies opt for a Private Limited Company as it allows 100% foreign direct investment (FDI) under the automatic route. However, some businesses mistakenly consider LLPs or branch/liaison offices, not realizing the limitations and regulatory challenges they pose.
What can go wrong?
Choosing an LLP or branch office might restrict your operational freedom and tax benefits, or delay approvals from the Reserve Bank of India (RBI).
Tip: Always consult an expert to identify the most strategic and legally sound entity structure for your industry and goals.
2. Not Understanding FDI Compliance Requirements
While India has liberalized its FDI policy, many sectors still have caps or require government approval. Some founders assume that sending funds from a foreign parent company is a simple wire transfer, unaware that any foreign investment must be reported to the RBI with detailed documentation.
What can go wrong?
Non-compliance with FEMA (Foreign Exchange Management Act) regulations can lead to hefty penalties and even reversal of investment.
Tip: Ensure all inward remittances are backed by proper documentation, and file the necessary reports with RBI — such as FC-GPR and Advance Reporting Form — within the prescribed timelines.
3. Delays in Obtaining Key Registrations
Registering the company with the Ministry of Corporate Affairs (MCA) is only the first step. You also need to register for:
- PAN & TAN (for tax deductions)
- GST (if turnover threshold is met or if inter-state supply is involved)
- Shops & Establishment License
- Import Export Code (if applicable)
What can go wrong?
Delays in obtaining these licenses can halt operations and delay invoicing, recruitment, or banking activities.
Tip: Make a checklist of all post-incorporation compliances and assign a dedicated compliance partner (like Wazzeer) to handle timelines.
4. Opening a Bank Account Without Proper Documentation
Banking in India requires specific KYC (Know Your Customer) documentation and can be frustrating without local guidance. Foreign directors often face delays due to issues with notarization, apostille, or verification of documents.
What can go wrong?
Delays in bank account opening can hold up fund transfers, making it impossible to pay vendors or employees.
Tip: Prepare all foreign documents in advance and ensure they are notarized and apostilled as per Indian requirements. Also, choose banks with experience in handling foreign subsidiaries.
5. Ignoring Transfer Pricing and Tax Implications
Transfer pricing rules apply when your Indian subsidiary transacts with its foreign parent. Many companies fail to maintain proper documentation or pricing models, leading to tax scrutiny.
What can go wrong?
Incorrect pricing of services or goods between parent and subsidiary can result in fines, interest, and legal battles with the Indian Income Tax Department.
Tip: Have a proper transfer pricing study done and maintain all supporting documentation to defend your pricing model during audits.
6. Not Appointing a Resident Director Properly
As per the Companies Act, every company incorporated in India must have at least one resident director — a person who has stayed in India for at least 182 days during the financial year. Many companies appoint someone without checking their eligibility.
What can go wrong?
Non-compliance with this requirement can result in penalties and invalidate board resolutions.
Tip: Work with professionals to identify and appoint a compliant resident director. Wazzeer also offers Resident Director as a Service to simplify this requirement for foreign companies.
7. Underestimating Ongoing Compliance
Incorporation is just the beginning. Many foreign companies focus only on setup and neglect ongoing compliance like:
- ROC filings (MCA)
- GST returns
- Income tax returns
- TDS deductions and filings
- Statutory audits
What can go wrong?
Missing deadlines can lead to financial penalties, loss of credibility, or even disqualification of directors.
Tip: Set up a calendar of compliance activities or partner with a service provider that offers end-to-end legal and compliance support.
8. Failing to Localize Contracts and Policies
Many companies use global templates for employment contracts, NDAs, and vendor agreements without localizing them for Indian laws and employment practices.
What can go wrong?
This can lead to unenforceable contracts, labor disputes, or IP risks.
Tip: Always have your contracts and HR policies reviewed or drafted by legal professionals familiar with Indian law.
Final Thoughts
Setting up a subsidiary in India can open massive opportunities — but only if done right. What seems like a minor oversight in the beginning can snowball into serious legal or financial trouble later. That’s why hundreds of businesses trust Wazzeer to handle their incorporation and compliance needs with transparency, speed, and expertise.
If you’re planning to expand into India or set up a subsidiary, don’t leave it to guesswork.
Talk to Wazzeer today — and set up your business the right way, from day one.