Steps involved in forming subsidiary or JV in USA owned by Indian residents or Indian entity /s  –

Bybhargav

I often get questions as to how do you form a US entity which is subsidiary of Indian entity or owned by resident individuals. Here’s the breakdown.

Steps involved in forming subsidiary or JV in USA owned by Indian residents or Indian entity /s  –

  1. Select type entity and state where you will form the entity. As a foreigner you have choice of LLC or Corporation. LLC is an unincorporated limited liability entity. Corporation is akin to our private limited company.
  2. On India side, you decide as to who will own the entity like individual owner/s or Indian entity will own or take stake in foreign entity. There are numerous considerations here under FEMA and Income Tax.
  3. Select names and appoint registered agent in the state of formation.
  4. File the incorporation with respective Secretary of State. In some state the formation is online and instant. In other states, formation may take few days.
  5. Once the entity is formed, apply for tax identification number from IRS. If the individual owner is having an SSN or ITIN, the process is simple and online and completed within minutes. If the owner is foreign and does not have a tax identification number, the application is made by fax and it can take 10 to 13 days to get an EIN (aka PAN number in India).
  6. Once EIN is in place, you can open a bank account. If you want to open it remotely, you can take help of online app like mercury.com
  7. Once bank account is in place, you need to send money from India under overseas direct investment regulations under FEMA. In fact, even before you start the formation of the US entity, you should submit to your Indian bank, proforma ODI application in form FC, giving details of the proposed entity and holding structure. Of late, banks and RBI is levying late submission fees if the information is not provided to the bank concurrently at the time of formation of the entity. This is absurd, but this super literal interpretation of the ODI regulations is causing trouble.
  8. Apply for ODI in prescribed form with all the documents. Reply to bank on queries if any. Once the UIN number is allotted by RBI, you can actually send money from the individual or the Indian entity’s (proposed shareholders) bank account as intended.
  9. File beneficial ownership information report with FinCEN IRS within 90 days of formation of the entity.
  10. Submit copy of share certificates issued by the US entity upon allotment of shares the Indian bank within six months of sending money.

While the process of forming a US subsidiary is complete, there are many decisions to be taken and considerations involved while following the above steps like –

  • what type of entity will you form;
  • which state;
  • whether Indian owner should be an individual or entity;
  • tax elections to be made or choices available with IRS;
  • future funding requirements;
  • induction of foreign partners, investors;
  • sales and use taxes, payroll and local tax consideration in US;
  • transfer pricing on India side for related party transactions, etc.
  • annual compliance under FEMA, income tax and transfer pricing.

These decisions can have long-term impacts on your business, both in the U.S. and India.

The journey to establishing a U.S. entity isn’t always straightforward, but with careful planning, it can open doors to incredible opportunities for your business and also save you from the hassles.

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