Does my Indian subsidiary charge GST when billing its foreign parent company?

Many SaaS startups are structured with a US parent (often a Delaware company) and an Indian subsidiary that employs the engineers, designers and support team. The subsidiary bills the parent for development or support services every month. Whether that invoice carries GST is one of the first questions a founder asks.

Why can a subsidiary's invoice to its parent be an export?

A subsidiary's invoice can be an export because the subsidiary and the parent are different legal persons. Condition (v) of section 2(6) of the IGST Act excludes supplies where the supplier and recipient are "merely establishments of a distinct person".² CBIC Circular No. 161/17/2021-GST (20 September 2021) clarifies that a subsidiary, sister concern or group concern of a foreign company, incorporated in India under the Companies Act, 2013, is a separate person and a separate legal entity from the foreign company.¹ So condition (v) does not block the export.

The other four conditions still apply: the subsidiary is located in India, the parent is located outside India, the place of supply is outside India, and payment arrives in convertible foreign exchange or rupees where the RBI permits.²

How is this different from a branch abroad?

A branch is not a separate legal person. The same circular says a supply by a company incorporated in India to its branch, agency or representational office in another country, not incorporated there, is a supply between establishments of distinct persons and cannot be treated as an export of services.¹

The table applies paras 4.3 and 5.2 of Circular 161/17/2021-GST.¹

What does the subsidiary need to do?

A registered Indian subsidiary should:

1. File a Letter of Undertaking (LUT) for each financial year before the first invoice to the parent, so it can invoice without IGST.³ See how to file an LUT.
2. Issue export invoices with the required endorsement; see the export invoice format.
3. Make sure the parent actually pays, in a permitted form, within the period the rules set.

Because the services are zero-rated rather than exempt, the subsidiary can claim credit for GST on its Indian costs, such as office rent and software, and seek a refund of unutilised credit.³ See refund of ITC on zero-rated supplies.

Transfer pricing, permanent establishment and the intercompany agreement raise separate questions. Have a chartered accountant (CA) review the structure.