US to India · Software and SaaS
Setting Up an Indian Subsidiary for a US SaaS Company
A US software or SaaS company may look at India for product engineering, customer support, sales, or a combination of these activities. The right setup depends on whether the Indian team will build for the US parent, serve Indian customers, or do both. Those choices affect contracts, intellectual property, tax, GST, hiring and the subsidiary's ongoing work.
Quick answer
What should a US SaaS company plan before setting up an Indian subsidiary?
Start with the operating model, not just the incorporation form. Decide what the Indian team will do, who will employ it, which entity will contract with customers, how software and other intellectual property will be owned, how the parent and subsidiary will transact, and what tax, GST, foreign-investment and company-law obligations may apply. Then select the legal structure and prepare the agreements and compliance plan around those decisions.
1. Decide what the Indian team will do
A software business may use India in several ways. The entity and tax arrangements should reflect the actual work rather than a label used in the business plan.
| Operating model | Typical activities | Questions to resolve |
|---|---|---|
| Product engineering | Developing, testing and maintaining the parent’s software | IP assignment, service scope, cost allocation and transfer pricing |
| Support or operations | Customer support, implementation, finance or internal operations | Employment setup, service agreements, data access and cost recharge |
| Indian customer business | Local sales, customer contracts, invoicing or delivery | Commercial authority, GST, local registrations and customer terms |
| Mixed model | Engineering for the group and sales or service for Indian customers | Separate functions, contracts, revenue flows and pricing support |
A Global Capability Centre (GCC) usually describes a captive team that supports the wider group. It is an operating model, not a substitute for choosing the legal entity. If you are planning a wider captive operation, read our guide to setting up a Global Capability Centre in India. If the Indian business will also sell to customers, the operating model and contracts need to reflect that activity.
2. Choose a suitable legal structure
For many foreign-owned software businesses, a private limited company is one structure to assess. It can provide a separate Indian legal entity for employment, contracts and local operations, subject to the activities and registrations involved. An LLP or another route may suit some situations, but ownership, fundraising, employee incentives and operating plans should be considered before choosing.
Foreign investment rules are activity-specific and can change. Do not rely on a broad statement that all software-related activity is automatically permitted. Check the current FDI policy, investor ownership and any regulated features in the product. Fintech, lending, insurance, payments or other regulated functions may require separate analysis.
For the incorporation sequence and parent-company documents, see our company registration guide for US businesses and subsidiary document checklist.
3. Decide how the parent and subsidiary will work together
Before the first cross-border charge, describe the relationship between the two companies. The agreements should match the real arrangement and explain what each company does, who is responsible for deliverables, how costs or fees are calculated, how risks are managed and how records will be maintained.
Depending on the model, documents may include:
- An intercompany services agreement describing engineering, support, management or other services.
- A cost-allocation or recharge policy supported by records.
- Software development, IP assignment or licence terms where relevant.
- Data-processing and confidentiality terms that reflect the data being accessed or transferred.
- Customer, reseller or distribution agreements if the Indian entity serves customers.
Do not use a template without checking whether it reflects the functions actually performed by the US parent and Indian subsidiary.
4. Address software ownership and intellectual property
Software companies should agree early on who owns existing product IP, new code, technical documentation, inventions, designs and improvements. If the parent is intended to own work created by the India team, that intention should be reflected in appropriate employee and intercompany documents. A contract clause alone may not solve every issue; review the applicable law, chain of title and any third-party or open-source software obligations.
Also consider whether the Indian entity needs a licence to use the parent’s software, trademarks, tools or other IP for its work. If there is an IP licence or other related-party transaction, assess the tax and transfer-pricing consequences before implementing it.
5. Review GST and cross-border service treatment
A software company may make supplies to Indian customers, provide services to its foreign parent, or do both. GST treatment depends on the nature of the supply and the facts, including whether the conditions for export of services are met. A cross-border invoice is not, by itself, proof that a supply qualifies as an export.
Before issuing invoices, review the contract, place-of-supply treatment, registration requirements, invoicing, return obligations and whether a Letter of Undertaking or other export procedure is relevant. The correct treatment may differ between software access, implementation, support, development services, licensing and other arrangements. See our GST compliance guide for an Indian subsidiary of a US company for a wider checklist.
6. Plan transfer pricing from the beginning
Where the US parent and Indian subsidiary are associated enterprises, cross-border transactions may fall within Indian transfer-pricing rules. Common areas to review include engineering services, support services, management charges, cost recharges, software or IP licensing, loans and guarantees.
The appropriate pricing method and documentation depend on the actual functions, assets, risks and transactions. Do not adopt a standard markup simply because another software company uses it. Assess the facts, available comparable data, current rules and the documentation and reporting requirements that apply to the group.
Our US parent–India subsidiary transfer-pricing guide explains the main issues to consider. Tax treatment in the United States may also need review with the group's US tax adviser.
7. Prepare for hiring and ongoing compliance
Incorporation is only one part of the setup. Before the first employee starts, plan the employment documents, payroll, applicable registrations, benefits, policies, data access and IP provisions. The subsidiary also needs a process for accounting, statutory records, board and shareholder matters, tax filings and any foreign-investment reporting that applies.
Set up a calendar with the responsible person, evidence required and review date for each recurring obligation. Requirements depend on the entity, transactions, employees, location and current law. Use our post-incorporation compliance checklist as a starting point.
8. Questions to settle before incorporation
- Will the India team develop software for the parent, serve Indian customers, or do both?
- Which entity will sign customer and intercompany contracts?
- Who will own existing software and new work created by the India team?
- What services or licences will be charged between related entities?
- What GST treatment and registrations may apply to each type of supply?
- What foreign-investment reporting and company-law obligations will apply?
- Who will own payroll, accounting, tax and recurring compliance after launch?
Frequently asked questions
Can a US SaaS company own 100% of an Indian subsidiary?
Foreign ownership depends on the sector, activity, investor and applicable foreign-investment rules. Software and IT activities may be eligible for automatic-route foreign investment, but the proposed business activities and ownership chain should be checked against the current policy before funds are committed.
Should a US SaaS company set up an Indian subsidiary or a GCC?
A Global Capability Centre (GCC) is an operating model, not a separate legal form. A company may use an Indian subsidiary to run a captive engineering or support centre, but the structure and intercompany arrangements should match what the India team will actually do.
Who should own software developed by the Indian team?
The intended ownership should be clearly set out in employment documents and relevant intercompany agreements. If the US parent is meant to own the software, confirm that assignment, confidentiality, invention and licensing provisions are suitable and enforceable for the facts.
Does software exported from India automatically qualify for GST zero-rating?
Not every cross-border software or service transaction automatically qualifies. GST treatment depends on the type of supply and the applicable export-of-services conditions. Review the contract, customer location, place-of-supply rules, payment and other relevant facts before deciding the treatment.
Does an Indian subsidiary need transfer pricing documentation?
Transactions between related entities across borders may be subject to Indian transfer pricing rules. The obligations depend on the transactions, applicable thresholds and current law. Identify intercompany services, cost recharges, licensing, loans and other dealings early, then document and price them appropriately.
What should be prepared before the first India employee starts?
Plan the legal employer, payroll and applicable registrations, employment contracts, IP and confidentiality terms, workplace arrangements, accounting, intercompany agreements and a compliance calendar. The exact steps depend on the operating model and state-specific requirements.
How AU Corporate can help
AU Corporate supports foreign businesses planning an Indian entity, including incorporation coordination and ongoing corporate, tax and compliance work. For a software or SaaS business, the first step is to understand the intended activities and the relationship between the US parent and Indian entity, then identify which specialist reviews and agreements are needed.
Start with our India incorporation support for US businesses or explore the US-to-India entry guides.
Official resources
- Ministry of Corporate Affairs — company incorporation and corporate-law resources.
- Department for Promotion of Industry and Internal Trade — foreign-investment policy resources.
- Reserve Bank of India — foreign-investment and foreign-exchange reporting.
- GST Portal — GST registration and compliance resources.
- Income Tax Department — Indian tax resources.