Setting Up an Indian Subsidiary for a US Engineering Company

Prepared by AU Corporate's CA-led advisory team · Published 12 October 2026 · General guidance; confirm the rules for the specific activity and transactions.

A US engineering business may use India for product development, mechanical or electrical engineering, software embedded in products, testing, technical support or a wider research and development function. Before forming an Indian company, define the team's role and how it will work with the US parent.

1. Define the work the India team will perform

“Engineering” can cover different functions, from design and testing to product development, technical documentation, manufacturing support or customer implementation. Write down the work, who directs it, who approves deliverables, where the key decisions are made and which entity contracts with customers.

• Product and software development, including code repositories and release approvals.
• Mechanical, electrical, civil or industrial engineering services.
• Testing, validation, quality assurance and technical documentation.
• Technical support, implementation, maintenance or customer-facing engineering.
• Research and development involving prototypes, patents, data or confidential designs.

The actual activity matters for the structure, foreign-investment review, contracts, tax and any sector-specific requirements. A broad business description should not replace a clear activity map.

2. Compare the possible India structures

A private limited subsidiary is worth evaluating when the US parent wants a separate Indian entity to employ engineers, hold contracts, pay local expenses and build a long-term operation. An LLP, branch office or other arrangement may be relevant in some cases, but each has different eligibility, activity and governance conditions.

Compare ownership, liability, ability to raise capital, client contracts, employee incentives, decision-making and future expansion. Check current foreign-investment rules for the proposed activity before deciding on ownership or transferring funds.

3. Agree how engineering services will be delivered

If the Indian team works for the US parent, record the scope of services, deliverables, review process, responsibility for project decisions, service fees or cost allocation, confidentiality and termination arrangements. The agreement should reflect the way the two companies actually work together.

Keep practical evidence alongside the agreement: project plans, tickets, timesheets where appropriate, technical deliverables, approvals, invoices and cost calculations. A contract alone may not explain the operating model if day-to-day practice is different.

4. Plan intellectual property and confidential information

Decide how to handle code, drawings, designs, inventions, documentation, test results, product improvements and third-party tools before employees start work. Review employment terms, contractor agreements, development contracts, licences and assignment clauses with legal advisers.

Also define access controls for source code and design systems, confidentiality obligations, data handling, open-source software review, use of third-party materials and the process for returning or deleting information when a person leaves. Confirm the intended ownership and enforceability under the relevant laws rather than relying on a generic clause.

5. Review transfer pricing and cross-border payments

Payments between a US parent and its Indian subsidiary may include engineering service fees, cost recharges, royalties, licences, reimbursements or funding. Related-party transactions may be subject to Indian transfer-pricing rules. Pricing should be supported by the functions performed, assets used, risks assumed and relevant records.

Map each expected payment flow before the first invoice. The Income Tax Department's transfer-pricing guidance is an official starting point; the correct treatment and documentation depend on the facts and current law.

6. Prepare for hiring and day-to-day operations

Choose the employing entity and prepare employment terms, confidentiality and IP provisions, payroll, benefits, applicable registrations and onboarding controls. Set up accounting, expense approval, procurement, IT access, insurance where relevant and a process for keeping employee and company records current.

If the India team will work at customer sites, handle controlled technical information, support regulated products or perform activities subject to special licences, check those requirements separately before work begins.

7. Build a first-year compliance calendar

Include company-law filings, board and shareholder actions, financial statements, statutory audit, tax and GST where applicable, payroll, withholding, foreign-investment reporting and transfer-pricing work. Exact obligations depend on the entity, transactions, turnover, employees and applicable rules.

For the incorporation process, start with our company registration guide for US businesses. Also review the post-incorporation checklist and annual compliance calendar.

Official starting points

• DPIIT for foreign-investment policy and sector conditions.
• Ministry of Corporate Affairs for company incorporation and corporate filings.
• Income Tax Department for transfer-pricing guidance.

These sources are starting points, not a substitute for checking the rules that apply to the specific activity and transaction.

Frequently asked questions