A UK parent with an Indian subsidiary should plan for five things: dividends are normally exempt but Indian withholding is a cost; the controlled foreign company (CFC) rules can attribute profits only where they are artificially diverted from the UK; Indian tax on interest, royalties and fees can be credited; UK transfer pricing and Pillar Two may apply by size; and the UK Bribery Act and the new failure-to-prevent-fraud offence can reach what the Indian team does. Your UK adviser confirms each; this page tells you what to ask.
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Key facts
| Dividends from the subsidiary | Normally exempt under the distribution exemption (Part 9A, Corporation Tax Act 2009); Indian withholding of up to 10% is the cost |
|---|---|
| CFC regime | Part 9A, Taxation (International and Other Provisions) Act 2010: charge only for profits artificially diverted from the UK; several exemptions |
| Foreign tax credit | Part 2, TIOPA 2010: credit for Indian tax on income taxed in the UK, limited to the UK tax on it |
| UK transfer pricing | Part 4, TIOPA 2010; small and medium-sized enterprises are generally outside it for dealings with treaty territories |
| Large groups | Country-by-country reporting and UK multinational top-up tax at consolidated revenue of EUR 750 million or more |
| Criminal-law reach | Bribery Act 2010 (failure to prevent bribery) and Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud, from 1 September 2025) |
| Accounting | Indian subsidiary consolidated in group accounts under UK-adopted IFRS or FRS 102; Indian accounts follow Ind AS or the Companies Act schedules |
Dividends: exempt in the UK, taxed once in India
A UK company that owns a controlling interest in the Indian subsidiary will normally fall within an exempt class of the distribution exemption (Part 9A, Corporation Tax Act 2009), so a dividend is not UK taxable income. The Indian withholding at up to 10% under the treaty is therefore usually the only tax on the dividend. Where an exempt class is not met, or a dividend is part of arrangements designed to reduce tax, the exemption can fail, so check the conditions at the time of payment. Compare dividends with other routes in getting money out of India.
CFC rules: when Indian profits can be attributed to the UK
The UK charges a UK company on the profits of a foreign company it controls only if those profits are, in broad terms, artificially diverted from the UK and the company does not fall into an exemption. An Indian services subsidiary doing real work for the group is a normal case, but the test turns on facts.
- Gateways: profits come into charge only if they pass a gateway, which looks at where the important decisions, risk management and asset control are exercised. If the "significant people functions" for the assets and risks sit in the UK, the profits may be treated as UK-derived.
- Tax exemption: where the Indian tax paid is at least 75% of what UK tax would have been, the CFC charge is generally switched off. India's corporate tax on a domestic company is well above that threshold.
- Low profits and low profit margin: small profits, or accounting profits of no more than 10% of operating expenses, are also exempt.
- Exempt period and excluded territories are further routes. Check whether India appears on the current excluded-territories list, because that decides how much work the other exemptions need to do.
- Action: document who controls the Indian entity's strategy, risk and IP, and keep the board and management minutes consistent with that.
Foreign tax credit relief for Indian withholding
Interest, royalties and service fees paid by the Indian subsidiary are taxable in the UK. The Indian Withholding Tax can be credited against UK corporation tax on the same income, up to the UK tax on that income and limited to the treaty rate. A UK parent that did not claim the treaty rate in India may find the excess is not creditable, and the unrelieved amount can be a deduction instead. Keep the Indian Withholding Tax certificate for each payment, along with the invoice and the treaty documents.
UK transfer pricing and the Indian side
UK transfer pricing (Part 4 of the Taxation (International and Other Provisions) Act 2010) requires arm's length terms between connected companies, but small and medium-sized enterprises are normally exempt for dealings with companies in territories that have a treaty with a non-discrimination article, and India qualifies. The surprise is that India has no such exemption. The Indian subsidiary needs a transfer pricing study and Form 48 even where the UK parent does not, and the two sets of papers must agree. See transfer pricing.
Large groups: Pillar Two, country-by-country reports and interest limits
- UK multinational top-up tax (Pillar Two): applies to groups with consolidated revenue of EUR 750 million or more in at least two of the previous four years. India's corporate tax is generally above 15%, but the calculation is done at jurisdiction level and the India figures must feed it.
- Country-by-country report: filed by the UK ultimate parent in the UK, with India requiring a notification of the reporting entity. See the compliance calendar.
- Corporate Interest Restriction: limits net interest deductions above GBP 2 million a year for the UK group; the interest the UK parent earns from an Indian loan is part of the calculation.
- Controlled foreign company reporting: disclose CFC positions in the company tax return where required.
The UK criminal-law reach: bribery and failure to prevent fraud
These two UK laws matter because the Indian team's conduct can become a UK parent's problem.
- Bribery Act 2010, section 7: a UK commercial organisation is guilty if a person associated with it, including a subsidiary or agent anywhere in the world, bribes to win business for it, unless it had adequate procedures. Licensing, customs and tax officials make India a place to design controls carefully.
- Failure to prevent fraud (Economic Crime and Corporate Transparency Act 2023): from 1 September 2025, a large organisation can be liable where an associated person, which includes a subsidiary and its employees, commits a specified fraud intending to benefit the organisation, and there is a UK link. A "large" organisation meets two of three tests: more than 250 employees, more than GBP 36 million turnover, more than GBP 18 million balance sheet. The defence is reasonable fraud-prevention procedures.
- Practical set-up: a group anti-bribery and fraud policy translated into the Indian subsidiary, training, third-party due diligence on Indian agents, a whistleblowing line and an annual review.
Accounts, governance and the group calendar
The Indian subsidiary prepares statutory accounts for the year ending 31 March, which is also the usual year end for UK groups. That helps consolidation, but the Indian accounts follow the Companies Act and Ind AS, so a UK adjustment bridge to UK-adopted IFRS or FRS 102 is needed. For premium-listed groups, the UK Corporate Governance Code's internal-controls declaration also pulls material subsidiaries into scope. Indian company law also requires the subsidiary's Auditor to report on internal financial controls. Keep a list of dates that both sides depend on, such as the Indian audit sign-off and the UK group reporting timetable.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, HMRC, Companies House and the UK legalisation service for apostilles.
Frequently asked questions
Are dividends from an Indian subsidiary taxed in the UK?
Normally not. A UK company parent usually falls within an exempt class of the distribution exemption in Part 9A of the Corporation Tax Act 2009. The Indian withholding of up to 10% under the treaty is then the cost.
Does a UK parent have to report its Indian subsidiary to HMRC?
The subsidiary's results can be relevant to the UK return through the CFC rules, transfer pricing, foreign tax credit claims and group disclosures. The exact forms depend on the size of the group and the facts, so confirm them with your UK tax adviser.
Do the UK CFC rules apply to an Indian subsidiary?
They can, but a charge arises only if profits are artificially diverted from the UK and no exemption applies. The tax exemption (Indian tax of at least 75% of the UK equivalent), low profits and low profit margin tests often switch the charge off for an operating subsidiary.
Does a small UK company need UK transfer pricing for India?
Generally no, because small and medium-sized enterprises are exempt for dealings with territories that have a suitable treaty. India has no such exemption, so the Indian subsidiary still needs transfer pricing documentation and Form 48.
Can the UK Bribery Act apply to our Indian subsidiary?
Yes. A UK commercial organisation can be liable if a person associated with it, which can include a foreign subsidiary, bribes to obtain or keep business for the group, unless it had adequate procedures to prevent it.
What is the failure to prevent fraud offence for a UK parent with an Indian subsidiary?
From 1 September 2025 a large organisation can be liable if an associated person, which includes a subsidiary and its employees, commits a specified fraud to benefit the organisation, where there is a UK link. Reasonable prevention procedures are the defence.
Related guides
The India-UK Tax Treaty (DTAA), Article by Article: India as Source State, the UK as Residence State
The India-UK double taxation convention explained article by article from the UK parent's point of view: rates table, permanent establishment, royalties and fees, gains, employees, relief and how to claim.
Read the guide →Getting Money Out of India: How a UK Parent Receives Dividends, Service Fees, Royalties and Loan Repayments
The routes a UK parent has for taking money out of its Indian subsidiary, with the Indian tax, UK tax, forms and timing for each route.
Read the guide →Transfer Pricing in India for UK-Owned Subsidiaries: What the Indian Rules Require and How They Differ from the UK
How Indian transfer pricing applies to an Indian subsidiary of a UK group: arm's length pricing, Form 48, documentation, methods, safe harbours, audits and how it differs from the UK regime.
Read the guide →The Compliance Calendar for a UK-Owned Indian Subsidiary, Month by Month, with the UK Parent's Dates Beside It
A month-by-month compliance calendar for an Indian subsidiary: GST, TDS, provident fund, advance tax, AGM, ROC and RBI filings, mapped against the UK parent's Companies House and HMRC dates.
Read the guide →Sources
Last updated 19 October 2026. General information only, not legal or tax advice. Indian and UK rules change often; confirm current requirements before acting.