Setting Up a US or Overseas Subsidiary from Hyderabad: ODI Rules for Indian Startups

Your first US enterprise customer in Hitech City has asked for a signed contract with a US entity, and your investor wants a Delaware parent or a US subsidiary on the cap table plan. The incorporation is the easy part. The harder part is that money leaving your Indian company to fund that entity is regulated by the Reserve Bank of India (RBI), and the order of paperwork matters.

The short answer

An Indian company can fund a foreign subsidiary under the automatic route, meaning without prior RBI approval, if it follows the overseas investment framework. In practice that means: use one designated bank, file Form FC with that bank before the first remittance, keep total financial commitment within 400% of net worth, send share certificates (evidence of investment) within six months, and file an Annual Performance Report (APR) by 31 December each year. Prior approval is needed only in specific cases such as commitments above USD 1 billion in a financial year.

The law and who it covers

Three layers of instruments work together. Please check the latest versions before acting, because RBI keeps updating them.

The rules apply to a person resident in India investing outside India. This article is about a company (an "Indian entity") setting up or buying into a foreign subsidiary. It is not about an individual buying US shares; for that, see our note on investing in US stocks from Hyderabad. It is also the opposite direction to a foreign company setting up in India, covered in our foreign company subsidiary guide.

Key terms in plain English

• Overseas Direct Investment (ODI): equity in a foreign entity that gives you a significant stake or control. The APR instructions treat a stake below 10% without control as outside the annual filing, which hints at the working threshold (confirm the exact definition in Rule 2 before relying on it).
• Financial commitment: your ODI plus any debt you give that foreign entity, including non-fund-based support such as guarantees (Rule 2(f)).
• Equity versus debt: equity capital means equity shares, irredeemable capital, and fully and compulsorily convertible instruments. Redeemable, non-convertible or optionally convertible instruments are treated as debt (Master Direction, para 1).
• Net worth: as defined in the Companies Act, 2013, section 2(57), taken from your last audited balance sheet.
• AD bank: the Authorised Dealer bank, the bank through which every transaction for that investment must be routed. UIN: the Unique Identification Number RBI issues through the bank.

Step by step, in the right order

1. Choose one designated AD bank. All transactions for that foreign entity go through it; changing banks later needs a no-objection certificate from the existing bank (Master Direction, para 26).
2. Check the activity and structure. No investment in a foreign entity engaged in real estate activity (buying and selling, not construction for sale or lease), gambling, or rupee-linked financial products without RBI approval (Rule 19(1)). No structure with more than two layers of subsidiaries (Rule 19(3); Master Direction, para 20).
3. Test the limit. Total financial commitment across all foreign entities must not exceed 400% of net worth (Schedule I, para 3), excluding capitalised retained earnings.
4. File Form FC with the bank before the first remittance. The bank issues the UIN. Remittance towards the foreign entity is facilitated only after the UIN is obtained (Master Direction, para 16(3)). Form FC travels with the supporting documents and Form A-2 for the remittance (para 27(1)).
5. Price the shares properly. Issues and transfers must be at arm's length, and the bank considers a valuation under an internationally accepted method (Rule 16; Master Direction, para 12). Waivers exist only in narrow cases such as court-approved mergers.
6. Submit evidence of investment within six months of the remittance: share certificates or equivalent documents. If not, the remitted funds must be repatriated within that period (Regulation 9(1); Master Direction, para 16(2)).
7. File the APR by 31 December every year for each foreign entity, based on audited accounts, certified by the statutory auditor (or a Chartered Accountant where no statutory audit applies) (Regulation 10; RBI APR form instructions).
8. Keep reporting events. Disinvestment proceeds and restructuring are reportable within 30 days (Regulation 10). Dues from the foreign entity must be realised and repatriated within 90 days of falling due (Regulation 9(4)).

Restrictions founders miss

• Debt has conditions. An Indian entity can lend to, or invest in debt of, a foreign entity only if it is eligible for ODI, has already made ODI in that entity, and has control (Regulation 3; Master Direction, para 21 and 27(2)). It cannot lend directly to its overseas step-down subsidiary (a subsidiary of your subsidiary).
• Startup funding source. Para 9 of the Master Direction says ODI in startups under Rule 19(2) must not be made from funds borrowed from others, and the bank obtains an auditor or CA certificate on this. Whether your particular foreign entity falls in this category depends on the Rule 19(2) wording (confirm with your bank).
• Lender or investigation clearances. If your company has a non-performing account, a wilful-defaulter classification or a pending investigation, a no-objection from the lender or agency is needed first (Master Direction, para 6(1)).
• Round-tripping. The Rules do not ban a foreign subsidiary from ever investing back into India. They bar a financial commitment in a foreign entity that has invested or invests in India if the result is more than two layers of subsidiaries (Rule 19(3)). Whether a specific back-investment structure complies is a case-by-case view (confirm with counsel).
• Approval cases. Pakistan and other notified jurisdictions, strategic sectors above limits, and financial commitment above USD 1 billion in a financial year need government or RBI approval (Rules, Rule 9; Master Direction, paras 4 and 5).
• Financial services. If the foreign entity is in financial services, extra conditions apply, including net profits in the preceding three financial years (Schedule I, para 2). A SaaS subsidiary would normally not be in this bucket (confirm).

Worked example (illustrative only)

Assume a Hyderabad SaaS company has audited net worth of INR 2.5 crore, and plans to put INR 60 lakh of equity into a new US subsidiary. These are assumed numbers, not advice.

Now suppose Form FC was filed late in respect of that INR 60 lakh. The late submission fee matrix for Form FC is INR 7,500 plus 0.025% x A x n, where A is the amount involved and n is years of delay. For one year: 0.025% x INR 60,00,000 = INR 1,500, so INR 9,000 in total. The fee is available only up to three years from the due date, and until a delay is regularised the resident cannot make further financial commitments (Master Direction, para 18; Regulation 12). Fees can change, so check the current table.

Common mistakes

• Wiring money to the US account before Form FC and the UIN, treating it as a loan "to be papered later".
• Booking the funding as a parent loan to a step-down company, which is not allowed directly.
• Forgetting that a convertible note that is not fully and compulsorily convertible is treated as debt.
• Missing the APR because the US entity has no Indian-style audit. Unaudited accounts are acceptable only in narrow cases certified as such; look at the APR instructions.
• Treating the US entity's first customer prepayment as if it removed the need for Form FC; the parent's own remittance still needs the filing.
• Ignoring the Indian side after the US incorporation: Indian service-export reporting still applies (see export of services, LUT and FEMA).

Hyderabad context

Founders around Hitech City, Gachibowli and Nanakramguda often set up the US entity first for a customer or investor, and the Indian books catch up later. For finance teams in the Financial District, the clean sequence is board resolution, bank selection, Form FC, UIN, remittance, evidence of investment, then the APR placed on the startup compliance calendar. Your Indian parent's own filings continue as usual: annual ROC compliance.

Why work with ComplianceKart

Cross-border structuring touches company law, FEMA, tax and, often, contract drafting. Think of a multi-speciality hospital: the cardiologist, the radiologist and the physician work from one care plan rather than sending you between three clinics. ComplianceKart is "Virtual CA, CS, CFO and Advocate", a boutique practice bringing Chartered Accountants, Company Secretaries and advocates under one roof, so the Indian parent's books, the Form FC pack and the board papers move together. We can help you prepare the pack and coordinate with your bank; the bank and RBI decide on acceptance, and we cannot promise an outcome.

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FAQs

Do we need RBI approval to set up a US subsidiary? Generally not for an eligible Indian entity under the automatic route, but you must file Form FC with your designated AD bank before the first remittance. Approval is needed in specified cases, such as commitments above USD 1 billion in a financial year.

What is the investment limit? Total financial commitment in all foreign entities is capped at 400% of net worth as on the last audited balance sheet (Schedule I, para 3 of the Rules), subject to exclusions the Rules list.

When is the APR due? By 31 December every year for each foreign entity where you hold equity, subject to exemptions such as a stake below 10% without control and no other financial commitment.

Can we lend to the US subsidiary? Only if you are eligible for ODI, have made ODI in that entity and hold control, and within the same overall limit. You cannot lend directly to a step-down subsidiary.

What if we are late filing? A Late Submission Fee option exists for up to three years from the due date, but until regularised you cannot make further financial commitments. Speak to your bank before remitting more.

Sources opened

RBI Master Direction, Overseas Investment (FED MD 15/2024-25) | RBI Directions of 22 August 2022 | Overseas Investment Rules, 2022 | Overseas Investment Regulations, 2022 | RBI APR form and note

Conclusion

The rule of thumb is sequence: bank, Form FC, UIN, remittance, evidence within six months, APR every 31 December. A US subsidiary is a fine growth step, provided the Indian side of the paperwork is finished before the money moves. This article is general information as of 7 November 2026 and not advice on your facts; US and UAE or UK tax and corporate law are outside its scope.