Setting Up a Global Capability Centre (GCC) in India: Legal and Regulatory Framework

Introduction

India has emerged as one of the world’s leading destinations for Global Capability Centres (GCCs), with multinational corporations increasingly establishing captive centres to manage global operations, technology development, research and development, finance, legal support, data analytics and business process management functions.

Over the years, GCCs have evolved from cost-focused back-office operations into strategic hubs that drive innovation, digital transformation and enterprise growth. Government initiatives aimed at improving ease of doing business, strengthening digital infrastructure, fostering a skilled workforce and liberalising foreign investment have further accelerated GCC growth across major cities such as Bengaluru, Hyderabad, Pune, Chennai, Gurugram and Mumbai.

However, setting up a Global Capability Centre in India requires careful navigation of a complex legal and regulatory landscape. Businesses must address corporate structuring, foreign investment regulations, employment laws, taxation, intellectual property protection and data privacy compliance before commencing operations.

Choosing the Appropriate Business Structure

One of the first decisions in establishing a GCC is selecting the appropriate legal structure. Most multinational corporations establish GCCs in India through a wholly owned subsidiary incorporated as a private limited company under the Companies Act, 2013. This structure offers a separate legal identity, limited liability protection, operational flexibility and greater ease in scaling operations.

In certain cases, businesses may also consider forming a Limited Liability Partnership (LLP), depending on operational requirements and regulatory considerations. Other structures such as branch offices, liaison offices and project offices may be available for specific business purposes, subject to Reserve Bank of India (RBI) regulations.

A private limited company remains the preferred model for most GCCs due to its flexibility, governance framework and ability to support long-term growth and expansion. Incorporation requires registration with the Registrar of Companies (RoC), obtaining a Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Goods and Services Tax (GST) registration where applicable and compliance with ongoing corporate governance requirements.

Foreign Investment and FEMA Compliance

Foreign investment in GCCs is principally governed by the Foreign Exchange Management Act, 1999 (FEMA), rules and regulations issued thereunder, and India’s Foreign Direct Investment (FDI) Policy.

Most sectors commonly associated with GCC operations including information technology services, software development, business process management, consulting, research and development and shared services, permit up to 100% foreign investment under the automatic route, subject to applicable conditions.

Where investment is made under the automatic route, prior government approval is generally not required. However, businesses must comply with mandatory reporting requirements prescribed by the Reserve Bank of India, including reporting of foreign investment through prescribed forms and filings.

If the proposed GCC undertakes activities within regulated sectors, additional approvals or sector-specific conditions may apply. Accordingly, foreign investment structuring should be evaluated at an early stage to ensure compliance with applicable FEMA regulations and sectoral requirements.

Data Protection, Cybersecurity and Cross-Border Data Transfers

Data protection has become one of the most significant legal considerations for GCCs, particularly because many centres process large volumes of employee, customer and business data originating from multiple jurisdictions.

The Digital Personal Data Protection Act, 2023 (DPDP Act) establishes India’s data protection framework and introduces obligations relating to consent management, lawful processing, data security safeguards, grievance redressal and breach notification.

GCCs processing personal data should implement robust privacy governance frameworks, internal policies and compliance mechanisms aligned with applicable legal requirements. Given the global nature of GCC operations, organisations must also carefully assess cross-border data transfer requirements and ensure compliance with both Indian and foreign regulatory obligations.

In addition, businesses must comply with cybersecurity directions issued by the Indian Computer Emergency Response Team (CERT-In) and any sector-specific cybersecurity requirements applicable to their operations.

As regulatory expectations continue to evolve, data governance and cybersecurity compliance should form an integral part of GCC planning and operational strategy.

Employment and Labour Law Compliance

Human capital is the foundation of any successful GCC. Consequently, compliance with India’s employment and labour laws is a critical aspect of establishing and operating a GCC.

Relevant legislation includes:

• Code on Wages, 2019;
• Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
• Employees’ State Insurance Act, 1948;
• Payment of Gratuity Act, 1972; and
• Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

While the Labour Codes have been enacted, businesses should monitor their phased implementation across jurisdictions and sectors.

GCCs should also ensure that employment agreements contain appropriate provisions relating to confidentiality, intellectual property ownership, non-disclosure obligations, data protection, restrictive covenants (where enforceable) and dispute resolution mechanisms.

Workplace policies relating to anti-harassment, employee conduct, whistleblower protections and information security should also be implemented to ensure legal compliance and organisational governance.

Intellectual Property Protection and Technology Ownership

Intellectual property considerations are particularly important for GCCs involved in technology development, software engineering, research and development, artificial intelligence and product innovation.

Businesses should ensure that intellectual property created by employees, contractors and consultants is appropriately assigned to the GCC or its parent entity through legally enforceable contractual arrangements.

Clear documentation regarding ownership of patents, copyrights, software code, trade secrets, databases and proprietary technology is essential to avoid future disputes.

Cross-border technology transfer arrangements should also be reviewed to ensure compliance with applicable tax, foreign exchange and intellectual property laws.

Given that many GCCs serve as innovation centres rather than purely operational support functions, a robust intellectual property strategy is often a key component of risk management.

Taxation and Transfer Pricing Considerations

Tax compliance remains one of the most critical aspects of GCC operations in India. GCCs are generally subject to the Income-tax Act, 1961 and the Goods and Services Tax regime, depending upon the nature of services provided.

Because GCCs frequently provide services exclusively or predominantly to overseas group entities, transfer pricing compliance assumes particular significance. Transactions between the GCC and its foreign affiliates must satisfy the arm’s length principle and be supported by appropriate transfer pricing documentation.

Another important consideration is Permanent Establishment (PE) risk. Multinational corporations must carefully structure GCC operations to avoid inadvertently creating a taxable presence for overseas entities in India beyond the intended operational framework.

Businesses should therefore evaluate transfer pricing policies, inter-company arrangements, service agreements and operational control structures at the planning stage.

While traditional tax incentives have reduced over time, organisations may still evaluate Special Economic Zone (SEZ) opportunities and state-level incentive schemes depending on their business objectives and location strategy.

Conclusion

India continues to strengthen its position as a preferred destination for Global Capability Centres due to its deep talent pool, mature technology ecosystem, strong digital infrastructure and business-friendly environment.

However, successfully establishing a GCC in India requires more than operational planning. Businesses must carefully navigate corporate structuring, foreign investment regulations, employment laws, intellectual property protection, tax considerations, data privacy obligations and cybersecurity requirements.

As regulatory expectations evolve, particularly in areas such as data protection, cross-border data transfers, labour compliance and transfer pricing, legal and regulatory compliance has become an essential component of GCC strategy.

A well-structured legal and compliance framework not only reduces regulatory risk but also enables multinational corporations to fully leverage India’s rapidly expanding GCC ecosystem in a sustainable and commercially efficient manner.

Last Updated on 15 June, 2026