By Manu Rao | Updated March 2026
The Scenario
A fintech startup in London has raised a Series A of GBP 4 million. Their burn rate is high, and they need to scale the engineering team from 8 to 40 people within 18 months. Hiring in London at current rates would consume most of the runway. The two co-founders — both British nationals with no Indian background — want to open a development center in Hyderabad. One founder visited the city twice and was impressed by the talent pool. They want a proper subsidiary, not a staffing arrangement.
Their budget for the India setup is roughly GBP 80,000 (about Rs 85 lakh), covering incorporation, first 6 months of office lease, and initial hiring costs.
Why India?
India produces about 1.5 million engineering graduates annually. Hyderabad specifically has become a fintech hub — with companies like Razorpay, PhonePe, and PayPal running major operations there. The cost of a mid-level backend engineer in Hyderabad runs roughly GBP 15,000-25,000 per year, compared to GBP 55,000-80,000 in London.
Beyond cost, there is a regulatory angle. India's fintech sandbox run by the RBI and the Account Aggregator framework have created a testing ground that the startup wants to eventually tap for the Indian market. Starting with a development center gives them optionality to launch products in India later.
The UK-India Free Trade Agreement negotiations (ongoing as of early 2026) may further ease cross-border business. But even without an FTA, the existing bilateral investment treaty framework provides protection.
Entity Choice
A Private Limited Company structured as a Wholly Owned Subsidiary (WOS) of the UK parent is the right approach. The WOS operates as an independent Indian entity, can hire employees directly, sign office leases, and open bank accounts — all while being 100% owned by the UK company.
They considered a Liaison Office, which is cheaper to set up but cannot earn revenue or hire more than a handful of staff. A liaison office can only act as a communication channel between the head office and Indian parties. For a 30-person team, this does not work.
A Branch Office was also discussed, but branch offices must remit profits to the head office and cannot retain earnings for Indian expansion. The WOS structure allows retained earnings to fund future growth in India.
FDI Route and Sector Rules
Software development and IT services are under 100% automatic route FDI per DPIIT FDI Policy. No government approval needed. The UK parent will subscribe to shares in the Indian subsidiary, and the company will file Form FC-GPR with RBI within 30 days.
Financial services and fintech have specific carve-outs. If the subsidiary ever develops products that involve lending, insurance, or payment processing in India, additional licenses (RBI NBFC license, IRDAI registration, or PPI authorization) will be required. But a pure development center writing code for the UK product does not trigger these requirements.
The UK is a Hague Apostille Convention member, so all documents can be apostilled through the UK Foreign, Commonwealth and Development Office (FCDO). This is faster and cheaper than embassy attestation.
Registration Process
- Board Resolution — The UK parent company's board passes a resolution to form a subsidiary in India, specifying the authorized capital and the directors.
- Apostille Documents — Directors' passport copies, address proofs, and the UK parent's Certificate of Incorporation and board resolution are apostilled through the UK FCDO.
- DSC for Directors — Both founders apply for Digital Signature Certificates.
- SPICe+ Filing — Name reservation followed by incorporation. The Memorandum of Association names the UK parent as subscriber.
- Post-Incorporation — PAN and TAN are generated during SPICe+. Bank account opened through AGILE-PRO-S mandate. The company then applies for professional tax registration in Telangana and Shops & Establishment Act registration in Hyderabad.
Timeline from London: about 3-4 weeks, including apostille processing (5-7 business days) and MCA processing (10-15 business days). The 5.5-hour time difference means documents submitted by noon London time reach the Indian team by close of business IST.
Tax Structure
The India-UK DTAA has been in force since 1994. Key withholding rates:
| Income Type | DTAA Rate | Domestic Rate |
|---|---|---|
| Dividends | 10% (15% if holding <10%) | 20% |
| Interest | 15% | 20% |
| Royalties/FTS | 15% | 20% |
The Indian subsidiary will pay the UK parent for any IP licensing or technical services under an inter-company agreement. These payments attract withholding tax at DTAA rates. The subsidiary itself pays 25% corporate tax (plus surcharge and cess) under Section 115BAA.
For the UK parent, UK corporation tax (currently 25% for profits above GBP 250,000) applies on worldwide income, but it can claim credit for Indian taxes paid. HMRC allows a unilateral credit if the DTAA credit is less favorable.
Transfer pricing is critical. The inter-company pricing for development services must follow arm's-length principles. A transfer pricing study (Section 92, Income Tax Act) is required annually for related-party transactions.
Ongoing Compliance
- Statutory audit — Mandatory for all Private Limited companies. Auditor appointed at the first AGM.
- Board meetings — 4 per year (Section 173, Companies Act 2013)
- Annual filings — MGT-7A (Annual Return) and AOC-4 (Financial Statements) with MCA
- Tax filings — Corporate income tax return, advance tax in quarterly installments, TDS returns (quarterly Form 26Q for salaries, 27Q for non-resident payments)
- GST — If the subsidiary charges the UK parent for services, these are treated as exports of services (zero-rated under GST with LUT)
- Employment compliance — EPF, ESI contributions for employees; professional tax in Telangana
- RBI FLA Return — Annual filing by July 15
Common Pitfalls
- Not appointing a resident director from day one — Section 149(3) requires at least one director who has been resident in India for 182+ days. The UK founders will need to appoint a trusted Indian resident as director. This can be a senior hire or a professional director.
- Underestimating employment law — Indian labor law is state-specific. Telangana has its own Shops & Establishment Act, and employee termination in India is more regulated than in the UK. Probation periods and notice requirements need to be built into offer letters correctly.
- Ignoring permanent establishment risk — If the UK founders spend too much time in India directing operations, the UK parent could be deemed to have a Permanent Establishment in India under the DTAA, triggering corporate tax on UK profits attributed to Indian activities. Track director travel days carefully.
- Using personal accounts for company funding — The UK parent must remit funds through proper banking channels (SWIFT transfer to the Indian subsidiary's current account) with purpose codes. Personal transfers will create FEMA compliance issues.
How Beacon Filing Helps
Beacon Filing sets up wholly owned subsidiaries for UK companies, handling the apostille process coordination, SPICe+ filing, and post-incorporation registrations specific to Hyderabad (or any other Indian city). We also help identify and vet resident director candidates.
Our compliance packages cover the full annual calendar — MCA filings, tax returns, GST, TDS, and RBI reporting — so the London team does not need a full-time finance hire in India from month one.