US Subsidiary of Indian Company: ODI, Tax and Costs 2026

To set up a US subsidiary of an Indian company, the Indian parent files Form FC with its authorised dealer bank under India's 2022 overseas investment rules, incorporates a US corporation (usually a Delaware C corporation), obtains an EIN, opens a US bank account and only then remits capital. The subsidiary pays 21% US federal corporate tax plus state tax where it does business, files Form 5472 every year, and must price every transaction with the Indian parent at arm's length.

This guide is for founders, CFOs and finance heads of Indian IT, SaaS, engineering, pharma and consumer companies that sell or plan to sell in the US. It covers the order of steps that keeps you compliant with FEMA, the entity choice, the US and Indian tax position, what the subsidiary must file each year and the mistakes we see most often. If you have already decided on the US and want the structure, filings and intercompany agreements handled as one project, our corporate services team does exactly that.

Why do Indian companies set up a US subsidiary instead of selling from India?

Most Indian companies set up a US subsidiary because US customers, banks and investors want a US counterparty, not because of tax. Selling directly from India works for a while, then three things usually force the change.

• Contracts and procurement. Large US buyers often require a US entity on their vendor list, US insurance and a US contracting party they can sue in a US court.
• People on the ground. Once you hire US sales staff or have Indian employees spending long periods in the US closing deals, the Indian company risks a taxable presence in the US. A subsidiary puts that activity in a separate, properly taxed entity. Our note on when expansion creates tax presence explains the trigger points.
• Payments and sales tax. US payment processors, marketplaces and state sales tax registrations are far simpler with a US entity. States can require sales tax registration from remote sellers once sales cross their thresholds, as we explain in when remote revenue triggers local obligations.

US subsidiary, branch or no entity: which is right for an Indian company?

A subsidiary is the right answer for most Indian companies with a real US sales or delivery plan. A branch or no entity can work only in narrow cases.

The LLC row surprises many founders, because LLCs are popular with individual non-residents. For an individual, as our guide to the US LLC for Indian residents shows, pass-through treatment can make sense. For an Indian company, a default disregarded LLC means the Indian parent has to file US federal returns itself and its US business profits are taxed as if earned by a branch. A C corporation keeps the US tax inside the US entity. An LLC can elect to be taxed as a corporation, but at that point a C corporation is usually simpler.

Why Delaware?

Delaware is the default for companies that may raise US capital or be acquired, because investors and their lawyers know its corporate law. It is not a tax choice. A Delaware corporation that operates in Texas or California still registers and pays tax there. If you will never raise US money and operate in one state, incorporating directly in that state saves a second registration. The Delaware Division of Corporations sets the annual franchise tax for corporations at a minimum of $175 under the authorised shares method or $400 under the assumed par value capital method, plus a $50 annual report fee, due by 1 March each year. Missing the annual report costs a $200 penalty, and unpaid tax carries interest at 1.5% a month.

How do you set up a US subsidiary from India, step by step?

The order matters more than any single step. Under FEMA, the Indian investment must be reported before or at the time of the first remittance, so Indian paperwork starts before US money moves.

1. Board approval in India. The Indian company's board approves the investment, the amount, the entity and the authorised signatories. Check the investment fits within the financial commitment limit, which under the Overseas Investment Rules, 2022 is 400% of the Indian entity's net worth as per its last audited balance sheet for the automatic route.
2. Decide the US structure. State of incorporation, share capital, directors and officers, and whether you need a US registered agent and a US business address (you need a registered agent in the state of incorporation in all cases).
3. Incorporate the US corporation. File the certificate of incorporation, adopt bylaws, appoint directors and issue shares to the Indian parent.
4. Get an EIN. A foreign-owned corporation applies to the IRS on Form SS-4. Without an EIN you cannot open a bank account, run payroll or file tax returns.
5. File Form FC with your AD bank in India. The RBI Master Direction on Overseas Investment (updated as on 1 April 2026) requires the Indian entity to report through Form FC on or before making the initial investment, which generates the Unique Identification Number for the foreign entity. Our explainer on ODI rules covers the documents banks ask for.
6. Open the US bank account and remit capital. Remit through the same AD bank against the UIN. Keep the share certificate, as it must be submitted to the bank.
7. Register for state taxes and payroll. Register in each state where you have employees or offices, and for sales tax where your sales create an obligation.
8. Sign intercompany agreements on day one. Services, reseller or distribution, cost-sharing and IP licence agreements between the Indian parent and the US subsidiary, with pricing supported by a transfer pricing analysis.

One more FEMA point: if the US subsidiary will itself invest back into India, check the structure against the RBI rule that a financial commitment in a foreign entity that invests into India must not result in a structure with more than two layers of subsidiaries.

How is a US subsidiary of an Indian company taxed?

The subsidiary is a US taxpayer in its own right, and money moving between it and the Indian parent is taxed in both countries under the India-US tax treaty.

In the US

• Federal corporate income tax at a flat 21% on the subsidiary's taxable income, reported on Form 1120.
• State corporate income or franchise tax in each state where the subsidiary has nexus. Rates and bases differ by state, so model this per state rather than using one figure.
• Sales tax on taxable sales in states where you are registered or have crossed an economic nexus threshold.
• Payroll taxes for US employees.

Between the US and India

Which of these flows you use is a design choice, not an accident. Our article on dividend vs service fee vs royalty sets out how to choose.

What must a US subsidiary of an Indian company file every year?

A typical year has filings on both sides. Missing any of them is costly, and the US penalties are fixed rather than proportional to the tax involved.

Form 5472 is the filing Indian groups most often get wrong, because it is an attachment rather than a separate return. The IRS instructions for Form 5472 apply to any 25% foreign-owned US corporation that has reportable transactions with a related party, which covers almost every Indian-owned subsidiary from its first capital injection. Our Form 5472 filing guide walks through the form line by line.

One filing has gone away. FinCEN confirms that US-formed companies are exempt from beneficial ownership information reporting, under its final rule of August 2026, so a Delaware subsidiary no longer files a BOI report. Banks still collect ownership details under their own know-your-customer rules.

How should transfer pricing work between the Indian parent and the US subsidiary?

Every transaction between the two companies must be priced as if they were unrelated, and both the IRS and the Indian tax department can challenge the price. The usual models are:

• US subsidiary as a limited-risk distributor or sales agent: the subsidiary sells the parent's software or services and earns a modest, stable margin, while the Indian parent keeps the residual profit.
• Indian parent as a service provider to the US subsidiary: common where the US company contracts with customers and subcontracts delivery to India, paying cost plus a mark-up.
• Full-risk US subsidiary: fits only where the US entity has the people who make the key decisions, and then it should earn the residual profit.

The model has to match where people actually sit and decide. A US entity with two salespeople that books all the profit, or an Indian company that does all the work but receives cost plus 5%, invites adjustments on one side or the other. Our guide to transfer pricing services in India explains the documentation the Indian parent needs.

Worked example: a Pune engineering services company goes to Texas

Take a Pune engineering services company with turnover of Rs 150 crore and net worth of Rs 60 crore. It has three US clients billed from India and wants a US subsidiary with two US hires in Houston and a USD 500,000 initial investment.

• ODI limit: 400% of Rs 60 crore is Rs 240 crore, so a USD 500,000 commitment sits well inside the automatic route.
• Entity: a Delaware C corporation registered to do business in Texas, because the board may later bring in a US strategic investor. If not, a Texas corporation would avoid the Delaware layer.
• Sequence: board resolution, Delaware incorporation, EIN, Form FC filing with the AD bank, US bank account, remittance, Texas registration, payroll setup, then intercompany agreements.
• Operating model: new US contracts are signed by the US subsidiary, which subcontracts engineering work to the Pune company on a cost-plus basis. The Pune company invoices in US dollars and zero-rates the export under GST.
• Year-one calendar: Delaware report by 1 March, Form 1120 with Form 5472, Texas franchise tax report, FLA return by 15 July, APR by 31 December, and Form 3CEB with the Indian return.

The existing three clients are then novated to the US subsidiary or kept on Indian contracts, a decision that should be taken deliberately with the transfer pricing model in mind, not left to whichever team happens to sign the renewal.

Common mistakes Indian companies make with a US subsidiary

• Remitting money to the US before filing Form FC, which is a reporting contravention that has to be regularised.
• Forming a single-member LLC because a formation website suggested it, then discovering the Indian parent itself has US filing obligations.
• Treating Form 5472 as optional for a loss-making or dormant subsidiary. It is required whenever there are reportable related-party transactions, including the capital contribution.
• Missing the APR because the US company had no revenue. The APR is due regardless.
• No intercompany agreement, so the US subsidiary pays Indian invoices with no contract or pricing basis.
• Ignoring state registration in the state where US employees actually work.
• Letting Indian directors sign US customer contracts in the parent's name after the subsidiary exists.

When should an Indian company not set up a US subsidiary?

Do not set one up just to look American. If you have a handful of US clients, no US staff and contracts signed from India, the subsidiary adds two sets of annual compliance and a transfer pricing file for little commercial gain. It is also the wrong tool if the real goal is a US-domiciled parent for venture fundraising. That is a flip, with very different FEMA and tax consequences, and if you are already flipped and thinking of coming back, our guide to the reverse flip to India covers that route. Equally, if your next market is the UK or the Gulf rather than the US, compare the UK subsidiary and UAE subsidiary routes first.

The Greenwolf view

A US subsidiary is a commercial decision first. Decide what the US entity will actually do: sell, deliver, hold contracts, employ people or raise money. The entity type, the transfer pricing model and the way profits come home follow from that answer. The groups that run into trouble usually built the paperwork first and the operating model later, so the US entity ends up with profits it cannot justify, or the Indian parent ends up with US tax exposure it never planned for.

Greenwolf Advisors sets up and runs US subsidiaries for Indian companies end to end: ODI filings, US incorporation, EIN and bank account, intercompany agreements, transfer pricing and the annual compliance calendar in both countries. Speak to Team Greenwolf before the first remittance leaves India.

This article is general information, not advice for a specific case. US federal and state rules and Indian FEMA rules change: confirm current requirements with the IRS, the relevant state, RBI and your advisers before you act.