You Just Set Up an Indian Subsidiary. Does HMRC Now Want to Tax Its Profits?

Most UK founders and CFOs approach India incorporation as a one-country compliance exercise. Get the SPICe+ filing done, get the resident director sorted, keep the FEMA reporting current — and the India side is handled.

It isn't. Not entirely.

The moment a UK-resident individual or a UK company becomes a shareholder in an Indian private limited company, a parallel set of obligations activates on the HMRC side — governed by UK tax law, with its own forms, its own deadlines, and its own consequences for getting it wrong. These rules have nothing to do with the MCA or the RBI. They operate entirely independently, and they apply from the day of India online company registration, not from the day the subsidiary first makes a profit.

This article explains exactly what HMRC requires from UK founders and companies with Indian subsidiaries — covering the CFC charge under Part 9A TIOPA 2010, the SA106 reporting obligation for individuals, the India-UK Double Tax Treaty, and what the April 2025 abolition of the remittance basis means for your Indian income going forward.

The UK Is a Territorial Tax System — But CFC Rules Fill the Gap

The UK operates a broadly territorial corporate tax system. UK companies are generally not taxed on dividends received from foreign subsidiaries, and profits earned in foreign branches are often exempt under the foreign branch exemption. This is why the UK is an attractive jurisdiction from which to hold international operations — profits can accumulate in an Indian subsidiary, and the UK parent does not automatically face a UK tax bill on those undistributed profits.

But "automatically" is the operative word. The UK's Controlled Foreign Company (CFC) rules under Part 9A TIOPA 2010 are specifically designed to prevent UK companies from diverting profits into low-tax overseas subsidiaries and leaving them there indefinitely without UK tax consequence. When those rules apply, a CFC charge arises — meaning the UK parent company is taxed on a proportion of the overseas subsidiary's profits, even if no dividend has ever been paid.

For Indian subsidiaries, the critical question is whether the CFC rules apply, and whether any of the statutory exemptions are available. The answer for most genuine commercial GCCs and operating subsidiaries is that an exemption will be available — but that answer requires a structured analysis, not an assumption.

Is Your Indian Company a CFC Under UK Law?

An Indian private limited company controlled by UK residents is a Controlled Foreign Company for UK CFC purposes. Control is determined broadly — by legal shareholding, economic entitlement to profits, or consolidation in the UK parent's group accounts. A foreign corporation is a CFC if it is resident outside the UK but controlled by UK residents. "Control" for these purposes is shareholding control and the profits of a CFC are attributed to UK companies in accordance with their interest in the CFC.

The critical threshold: an attribution is only required if the UK company has an interest of at least 25% in the subsidiary.  A UK company holding less than 25% of an Indian entity does not face a CFC charge on that entity, regardless of its overall control position.

For most UK parent companies holding a wholly owned Indian subsidiary, this threshold is clearly met. The Indian company is a CFC. The question then moves to whether a CFC charge actually arises — and this is where the gateway analysis and the exemptions become critical.

The Gateway Analysis — Why Most Commercial Indian Subsidiaries Don't Generate a CFC Charge

The UK CFC regime does not automatically tax all profits of every CFC. Business profits arising in a foreign subsidiary are only subject to the regime if they are derived from UK activities that relate to the assets or risks of the foreign subsidiary. The regime applies a series of charge gateways to determine whether profits are chargeable.

For most genuine commercial Indian subsidiaries — particularly GCCs providing IT services, engineering, operations, or customer support to their UK parent — the gateway analysis is favourable. The trading profits exemption applies where no assets or risks are managed by connected parties in the UK, or where any UK management of assets and risks could be replaced by unconnected third parties. A genuine India-based GCC, where the work is done in India by Indian employees making day-to-day operational decisions, should comfortably satisfy this test.

Even before the gateway analysis is applied, four entity-level exemptions can exempt the Indian subsidiary entirely:

The Low Profit Margin Exemption: This exemption applies where accounting profits are less than 10% of operating expenditure. This exemption will typically apply to low-risk overseas subsidiaries, such as those providing services to other group companies which are charged on a cost-plus basis. For a captive GCC earning a 7-10% cost-plus markup on its intercompany transactions, this exemption is frequently available and should be the first exemption tested.

The High Tax Exemption: The exemption applies if the local tax paid is at least 75% of the UK corporation tax which would have been paid on the same profits.  India's corporate tax rate for domestic companies under the concessional regime is 22% (25.17% effective). UK corporation tax is currently 25%. At 22% Indian tax, the subsidiary is paying approximately 88% of what it would have paid under UK tax — comfortably above the 75% threshold. This means most standard Indian subsidiaries that are actually paying Indian corporate tax qualify for the high tax exemption.

The Excluded Territories Exemption: India is not on HMRC's excluded territories list, so this exemption does not apply to Indian subsidiaries.

The Exempt Period: A newly incorporated Indian subsidiary is automatically exempt for its first 12 months of existence as a CFC. This gives the UK parent time to assess the position before the first chargeable period closes.

The practical conclusion for most UK-owned Indian operating subsidiaries: between the low profit margin exemption (for captive cost-plus GCCs) and the high tax exemption (for entities paying standard Indian corporate tax), the CFC charge will typically not apply. But this conclusion should be documented — not assumed. HMRC expects the analysis to be recorded, and a CT600 supplementary page (CT600B) must be completed where the company has CFC interests and is reporting on their status.

When the CFC Charge Does Apply — What Gets Attributed to the UK Parent

Where neither the gateway nor an exemption prevents a CFC charge, the UK parent faces corporation tax on the attributed profits of the Indian subsidiary, calculated at the UK's 25% corporation tax rate. A credit is available for the proportion of Indian tax paid by the subsidiary that relates to the attributed profits — so the charge is on the net of UK tax over Indian tax paid, not on the gross profit.

For an Indian subsidiary earning ₹10 crore in profits, paying 25.17% Indian corporate tax, the available Indian tax credit would substantially offset the UK CFC charge, leaving a relatively small incremental UK liability. The maths here are company-specific and require a formal calculation, but the point is that the CFC charge is not a full double-taxation event — the India-UK DTAA credit mechanism ensures that Indian tax paid is credited against the UK liability arising from the same profits.

The Individual Position — When a UK Founder Holds Indian Shares Personally

Everything discussed above relates to UK companies holding Indian subsidiary shares. The position for UK individuals holding shares personally is different and in some respects more straightforward — though it carries its own compliance obligations.

A UK individual who is a shareholder in an Indian company receives dividends as foreign income. Under UK tax law, those dividends are taxable in the UK as foreign dividends, with a credit available for the Indian withholding tax deducted at source. The India-UK DTAA (the 1993 Convention, amended by the 2012 Protocol) provides for a maximum withholding rate of 15% on dividends paid from an Indian company to a UK resident. Investment income: dividends, interest, and royalties often face 10-15% withholding in India under Articles 10-12. UK residents must disclose these to HMRC and claim credit for Indian tax paid.

The reporting mechanism for individual UK shareholders is SA106 — the Foreign supplementary pages of the Self Assessment tax return. Every UK individual who receives a dividend from an Indian company must report it on SA106, declare the Indian withholding tax paid, and claim Foreign Tax Credit Relief (FTCR) to avoid double taxation. SA106 is filed alongside the main SA100 return, with the 31 January online filing deadline applying to the tax year ending 5 April.

One important practical point: even where Indian withholding tax exceeds the UK's dividend tax liability on the same income — meaning no additional UK tax is due — the SA106 reporting obligation still exists. Disclosure is not conditional on a tax liability arising. Failure to report foreign income because "the tax credit covers it" is a Self Assessment error that HMRC can and does challenge.

What Changed on 6 April 2025 — The Remittance Basis Abolition

Before 6 April 2025, UK residents who were domiciled outside the UK could elect to be taxed on the remittance basis — meaning foreign income was only taxable in the UK if and when it was brought into the UK. This was used extensively by non-UK domiciled founders and executives who held Indian company shares in their personal capacity and kept Indian dividends in India, deferring UK tax indefinitely.

From 6 April 2025, the remittance basis of taxation has been abolished, with the concept of domicile as a relevant connecting factor in the tax system having been replaced by a system based on tax residence. From this date, all UK residents are taxed on the arising basis of assessment on their worldwide income and gains.

This is a material change for any UK-resident individual with an Indian shareholding who was previously using the remittance basis. From the 2025-26 tax year, Indian dividends and capital gains on Indian shares are taxable in the UK as they arise — not only when remitted. The obligation to report them on SA106 applies regardless of whether the money ever reaches the UK.

A new Foreign Income and Gains (FIG) regime was introduced simultaneously on 6 April 2025, which allows qualifying new UK residents — those returning to the UK after at least 10 consecutive years abroad — to exempt foreign income for their first four years of UK residence. For Indian founders who recently relocated to the UK and hold Indian company stakes, the FIG regime is potentially valuable and worth evaluating formally before the first Self Assessment return is filed.

The India-UK DTAA — Getting the Credit Claim Right

The India-UK Double Taxation Avoidance Agreement (1993, amended 2012) is the treaty framework that prevents the same income being taxed twice — once in India and once in the UK. For UK shareholders of Indian companies, the treaty is relevant at three levels:

Dividends: Maximum withholding tax of 15% for portfolio investors, reduced to 10% where the UK company holds at least 10% of the Indian company. The withholding tax is creditable in the UK against the UK's dividend tax liability under the DTAA.

Management and service fees: Payments from an Indian subsidiary to a UK parent for management services are subject to Indian TDS at applicable rates. The DTAA limits the taxing rights and provides credit relief in the UK. These flows need to be properly documented in the intercompany service agreement and reflected consistently in the Indian subsidiary's Form 3CEB and the UK parent's transfer pricing documentation.

Capital gains on sale of Indian shares: Where a UK company or individual sells shares in an Indian company, the DTAA allocates taxing rights. For shares deriving their value substantially from Indian immovable property, India has primary taxing rights. For operating subsidiaries, the position is more nuanced and treaty-specific.

The DTAA credit mechanism means that careful structuring — ensuring that Indian taxes are formally documented and claimed as credits in the UK filing — significantly reduces the real cost of operating through an Indian subsidiary from a UK base.

The Filing Checklist for UK Founders and Companies With Indian Subsidiaries

For UK companies:

- CT600 + CT600B supplementary pages filed with HMRC annually (corporation tax return)

- CFC analysis documented — gateway assessment and applicable exemption recorded in writing

- Transfer pricing documentation for intercompany transactions between UK parent and Indian subsidiary

- Dividend receipt from Indian subsidiary declared in CT600 (generally exempt from UK corporation tax under the dividend exemption, but must still be disclosed)

For UK individuals:

- SA100 Self Assessment return filed by 31 January following the tax year ending 5 April

- SA106 Foreign supplementary pages completed for each year Indian dividends, interest, or other income are received

- DTAA credit claimed under FTCR for Indian withholding tax deducted at source

- From 2025-26: FIG regime election available for qualifying new residents

The Connection to Your Indian Compliance

The compliance obligations described in this article operate in parallel with — not instead of — the Indian compliance obligations of the subsidiary itself. The Indian subsidiary still files its ITR-6, its Form 3CEB, its GSTR returns, its APR, and its MCA filings independently. The UK parent's CFC analysis and HMRC reporting are separate exercises that draw on the same underlying facts.

The connection point that matters most practically: the Indian subsidiary's financials, tax returns, and intercompany agreements are the primary evidence base for the UK-side compliance. A well-structured Indian subsidiary — with clean Form 3CEB documentation, audited accounts, and a properly drafted intercompany service agreement — is also a well-evidenced UK CFC position. A subsidiary with gaps in its Indian compliance creates gaps in the UK reporting that are harder to defend on both sides simultaneously.

How Accorp Partners Helps UK-Based Clients

Accorp Partners works with UK founders, CFOs, and companies on company formation in india and the ongoing compliance that follows — including the coordination between the Indian subsidiary's annual filings and the UK parent's CFC and transfer pricing position.

For UK companies setting up an Indian subsidiary or GCC, Accorp provides the Indian incorporation, FEMA reporting, and transfer pricing documentation that forms the foundation for a clean UK CFC analysis. For individual UK founders holding Indian shares, Accorp coordinates the Indian subsidiary's annual compliance to produce the financial statements and withholding tax documentation needed for the UK Self Assessment SA106 filing.

Learn more: https://accorppartners.com/services/incorporation/india-incorporation

The Bottom Line

Online registration of company in India is day one of a two-jurisdiction compliance obligation for UK founders and companies. The Indian side — MCA, FEMA, Income Tax, GST — is well documented. The UK side — CFC analysis, CT600B, SA106, DTAA credit claims, and now the post-remittance-basis world — is less understood but equally important.

The good news for most genuine commercial Indian subsidiaries is that the UK CFC charge will not apply, thanks to the low profit margin exemption or the high tax exemption. But that conclusion needs to be documented annually, not assumed. And for UK individuals holding Indian shares directly, the 2025-26 tax year is the first year in which the arising basis applies in full — meaning Indian income that may have been deferred under the remittance basis is now reportable from day one.

Get both sides right from the start. The Indian registration and the UK reporting are the same transaction seen from two different tax authorities' perspectives.