Canadian manufacturers, engineering firms and software companies in Toronto, Calgary and Vancouver increasingly look to India for production, development talent and customers. A Canadian company entering India has to satisfy Indian foreign-exchange and company law, manage tax on both sides of the border, and report the foreign operation at home. This guide covers those steps, with the treaty rules that decide how much tax applies to dividends, fees and project work, and the surplus rules that can make profits from an Indian subsidiary tax-free in Canada. It reflects October 2026 sources. Indian provisions are summarized at overview level, and your Chartered Accountant and Canadian CPA confirm the details.
How does the Indian foreign investment framework work?
The RBI's Master Direction on Foreign Investment in India, updated through June 15, 2026, describes two routes. Under the automatic route a non-resident may invest without prior government approval; under the government route prior approval is needed, and applications go through DPIIT's Foreign Investment Facilitation Portal. Investment up to 100% is allowed under the automatic route in sectors that are not listed in Schedule I of the Non-Debt Instruments Rules and not prohibited, subject to applicable laws. Sectoral caps include indirect foreign investment, and the RBI follows the principle that what cannot be done directly cannot be done indirectly through a downstream investment.
One rule matters for Canadian groups with international shareholders. An entity or citizen of a country that shares a land border with India, or an investment whose beneficial owner is a citizen of such a country, invests only under the government route. Canada has no such border, but the test looks through to the beneficial owner of the Canadian investor.
How can a Canadian company entering India choose a structure?
| Option | Who approves it | Tax and exit points | Best for |
|---|---|---|---|
| Wholly owned private limited company | RBI reporting; MCA incorporation | Indian corporate tax, dividends with TDS | Manufacturing, services and sales |
| Branch office | Authorised dealer bank (Form FNC), RBI approval in listed cases | Profit remitted net of Indian taxes with audited accounts and a CA certificate | Group activity such as trading or consultancy |
| Liaison office | Same | No income; funded by the head office; one bank account | Market research and representation |
| Project office | Same | Intermittent remittances with an auditor's certificate | One contract, such as a plant installation |
| Joint venture with an Indian partner | RBI reporting for the shares | Depends on the agreement | Local market access |
For a branch office the RBI direction requires a profit-making track record over the preceding five financial years in the home country and a net worth of at least USD 100,000; a liaison office requires three years and USD 50,000. Our India entity options guide and the structures for India-Canada trade compare these in more detail.
How to enter India, step by step
- Confirm the sector route and any cap, and document who the beneficial owners of the Canadian parent are.
- Choose and set up the vehicle. For a company, reserve the name and incorporate with the Ministry of Corporate Affairs; for an office, file Form FNC with an authorised dealer bank.
- Send the subscription money by banking channels, priced at or above fair value under the NDI rules.
- Watch the clocks. Shares must be issued within sixty days of receipt of the money, or the amount is refunded; the company files Form FC-GPR within thirty days of issue on the RBI's FIRMS portal. See FC-GPR and annual reporting.
- Register for PAN, TAN, GST and employee laws as needed.
- Set Canadian reporting in motion: the foreign affiliate return and surplus records described below.
- Review people and payroll. A Canadian employee sent to India stays covered by CPP under the Canada-India social security agreement for up to 60 months if the conditions are met, per CRA's archived page; confirm current rules and apply for a certificate of coverage.
What does the Canada-India agreement say about tax in India?
| Item | Treaty rule |
|---|---|
| Dividends | 15% where the beneficial owner is a company controlling at least 10% of the voting power; 25% otherwise |
| Interest | 15% |
| Royalties and fees for included services | 15%; 10% for equipment-type royalties |
| Building site or project | Permanent establishment if more than 120 days in any 12 months |
| Services through employees | Permanent establishment if more than 90 days in any 12 months, or services for a related enterprise |
| Canadian relief for Indian tax | Tax payable in India is deducted from Canadian tax on that income |
| Dividends from an Indian affiliate | Deduction for dividends paid out of exempt surplus, subject to Canadian surplus rules |
India's domestic TDS rate on dividends to non-residents is 20% plus surcharge and cess, according to the Income Tax Department's TDS chart as amended by the Finance Act, 2026, and the treaty rate applies if more beneficial. A tax residency certificate and Form 10F support the claim (treaties, TRC and Form 10F). The Income-tax Act, 2025 applies from tax year 2026-27 and the 1961 Act before that. Our India-Canada treaty guide explains the articles further.
What does the Canadian parent report at home?
A Canadian company with a controlled or non-controlled foreign affiliate in India files the foreign affiliate information return and keeps surplus and tax-credit records so that each dividend can be matched to exempt surplus or the other surplus pools. The detail belongs to your Canadian CPA; see T1134 and other international forms and the corporate annual returns guide. Transfer pricing documentation should cover management fees, royalties and loans between the Canadian parent and Indian company.
If a US citizen owns the Canadian company
Many Canadian owner-managers are also US citizens or green card holders living in Calgary, Mississauga or Surrey. For them, the US reports every foreign corporation in the chain: Form 5471 for the Canadian company and, because of ownership attribution, generally for the Indian subsidiary, plus FBAR and Form 8938 for foreign accounts. The Form 5471 penalty is $10,000 per foreign corporation per year, with additional penalties after IRS notice up to $50,000. We handle this US layer and coordinate with your Canadian CPA and Indian Chartered Accountant. See forms 5471, 8858 and 8865.
Documents and information you need
- Canadian certificate of status, articles and recent financial statements
- Board approval, ownership chart and beneficial owner details
- Indian incorporation papers or the Form FNC package
- Valuation report for the share price, where applicable
- Intercompany agreements and a staffing plan with expected days in India
- Tax residency certificate for the Canadian company
A worked example
Prairie Instruments Ltd. of Calgary forms a wholly owned private limited company in Chennai and invests C$600,000 for shares through its bank. It receives its shares within sixty days and files FC-GPR within thirty days after issue. In year three, the Chennai company pays the parent a dividend equal to C$80,000. India withholds at the treaty rate of 15%, or C$12,000 equivalent, on presentation of the tax residency certificate and Form 10F. The Canadian CPA treats the dividend as paid from exempt surplus of the Indian affiliate, so it can be deducted in computing Canadian taxable income, and claims credit for the Indian tax where it applies. The company also files its foreign affiliate return. All numbers are hypothetical.
Mistakes to avoid
- Wiring funds before the Indian sector route is checked.
- Missing the sixty-day share issue and thirty-day FC-GPR deadlines.
- Sending a team for a project longer than 90 days without a permanent establishment review.
- Treating every dividend from India as exempt without the surplus records.
- Forgetting the US layer when a shareholder is a US person.
How we can help
We handle the US side and coordinate with your Canadian CPA and Indian Chartered Accountant so the three filings agree. We do not prepare Canadian or Indian returns and are not licensed in either country. Our firm is based in the Aurora, Illinois area and works with families and companies connected to India, Canada and the USA. See cross-border tax, foreign account and asset reporting and business formation and registrations.
Frequently asked questions
Does a Canadian company need approval to invest in India?
In many sectors, no prior approval is needed under the automatic route, but reporting is required. Some sectors need government approval, and beneficial ownership by citizens of land-border countries triggers the government route.
What is the Indian withholding rate on dividends paid to a Canadian parent?
The domestic TDS rate is 20% plus surcharge and cess. The treaty caps tax at 15% for a company controlling at least 10% of the voting power, otherwise 25%, with the right paperwork.
Can dividends from an Indian subsidiary be tax-free in Canada?
Potentially, if they are paid out of exempt surplus of the foreign affiliate under Canada's rules. Your Canadian CPA confirms the surplus accounts.
What is the difference between a liaison office and a branch?
A liaison office represents the parent and earns no income, while a branch can carry out permitted commercial activity. Both need approval through an authorised dealer bank.
What if I am also a US citizen?
You may have US forms for the foreign corporations in your ownership chain. We handle that US layer.
Official sources
- RBI: Master Direction - Foreign Investment in India (updated up to June 15, 2026)
- RBI: Master Direction - Establishment of Branch Office, Liaison Office, Project Office in India by foreign entities
- Agreement between Canada and India for the Avoidance of Double Taxation (1996)
- Income Tax Department of India: TDS rates (as amended by Finance Act, 2026)
- CRA (archived): Take advantage of the agreement between Canada and India (CPP)
- IRS: Instructions for Form 5471
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.