Build the European holding under your Indian company, not personally: the ODI rules leave founders little choice. India has no CFC rules, so profits can wait in Europe, but the holding must be run from Europe or India will treat it as Indian-resident. The Netherlands is usually the lighter base and the only one that protects a later sale of Indian shares; Luxembourg wins when funds or co-investors join.
Why Indian groups put a holding in Europe
An Indian group buying or building companies in Europe soon has subsidiaries in several countries. Holding each one directly from India means separate dividend routes, separate exit taxes and separate paperwork with the bank for every move. One European holding above them gives a single company to own, finance and sell the European business, with access to the EU directives that remove withholding tax between EU companies.
Luxembourg and the Netherlands are the usual choices. Both exempt dividends and gains from subsidiaries, both pay dividends to an Indian parent without withholding tax when the conditions are met, and both have long treaties with India. The differences are in the details: the stake you need, how long you must hold it, and what happens if the holding ever sells Indian shares.
Indian parent company
Makes the overseas direct investment and receives the dividends.
European holding
Owns, finances and sells the European subsidiaries.
Operating companies
Sales, services, production, acquisitions.
The Indian side comes first
India's overseas investment framework, in force since 2022, decides who can build the structure before any European question arises.
- The holding sits under an Indian company. An Indian company can invest abroad under the automatic route up to 400% of its net worth. Resident individuals invest under the Liberalised Remittance Scheme, capped at USD 250,000 a year, and may only invest in operating companies: they cannot control a foreign company that has subsidiaries. In practice founders build the EU holding through their Indian company, not personally.
- Two layers if you invest back into India. A structure that invests back into India is allowed only with no more than two layers of subsidiaries. An EU holding that owns Indian shares counts, so the chart has to be drawn with this limit in mind.
- Reporting never stops. Form FC through your bank for each investment, an Annual Performance Report by 31 December for every foreign entity, and disinvestments reported within 30 days. Missed filings block new investments until they are regularised.
How India taxes the European profits
| Question | The answer in 2026 |
|---|---|
| Are EU profits taxed in India before they are paid out? | No. India has no CFC rules, so profits can stay in the EU holding until distributed. |
| Dividends received by the Indian parent | Taxed at normal rates. The 15% concessional rate for foreign subsidiary dividends ended in 2022. |
| Passing them on to Indian shareholders | The parent can deduct dividends it pays on, up to what it received (section 80M, now section 148 of the Income-tax Act 2025). |
| What if the EU holding is run from India? | It can become Indian-resident under the place-of-effective-management rules and pay Indian tax on its worldwide income. |
| General anti-avoidance | India's GAAR applies above INR 3 crore of tax benefit and can override treaties. |
The Income-tax Act 2025 replaced the 1961 Act from 1 April 2026 and renumbered the sections. The substance described here is unchanged.
An EU holding managed from Mumbai is an Indian company with a European address. Decide in Europe, or do not build it.
Luxembourg or the Netherlands?
| Luxembourg | Netherlands | |
|---|---|---|
| Stake for tax-free dividends and gains | 10%, or EUR 1.2m (dividends) / EUR 6m (gains) | 5% |
| Minimum holding period | 12 months | None |
| Dividend withholding to the Indian parent | 0% if the conditions are met; treaty rate 10% | 0% if the conditions are met; treaty rate 10% |
| India's withholding on dividends to the holding | 10% under the treaty | 10% under the treaty (the Nestlé ruling ended the 5% MFN claim) |
| Sale of shares in an Indian company | India can tax the gain | Exempt in India unless the stake is 10%+ and the buyer is Indian-resident |
| Low-tax withholding traps | None for India | 25.8% conditional tax does not apply: India is not on the list |
| Corporate tax | 23.87% (Luxembourg City) | 19% / 25.8% |
| Fund and co-investor vehicles | SCSp, RAIF, SIF | Few |
Put simply: the Netherlands is usually the lighter holding for a corporate group, and the better one if the holding may ever own and sell Indian shares. Luxembourg earns its place when outside investors or a fund come in at the European level.
Plan your route
Answer five questions and see where the holding should sit and which Indian rules shape it.
Plan your Indian route into Europe
Five questions. You see the likely country, the Indian rules that apply and what to fix first.
What makes it hold up
Both treaties with India carry the principal purpose test through the multilateral instrument, and the Luxembourg treaty has its own anti-abuse article. A holding that exists only to reach a treaty rate will not keep it.
Decisions in Europe
A board that meets in Luxembourg or the Netherlands and actually decides; minutes that prove it.
A real address and books
Registered office, accounts and records kept locally.
A business reason
Acquisitions, co-investors, financing or regional management, written down.
Clean Indian paperwork
ODI filings, APRs and valuations that match the European books.
Individuals cannot control a foreign holding with subsidiaries under ODI.
Profits can wait in Europe, as long as the board decides there.
Its treaty protects exits from Indian companies in most sales.
Both countries can pay the Indian parent without withholding tax.