Every foreign company entering India must choose a structure: Branch Office, wholly-owned Subsidiary, or Liaison Office. Each carries different regulatory approvals, tax treatment, liability exposure, and operational scope. The choice is driven by what the company intends to do in India, not what sounds simplest to set up.
The most common mistake is starting with a Liaison Office for simplicity and then discovering that the LO\'s restricted scope prevents the actual business activities the company needs to perform in India. Converting from an LO to a Branch Office or Subsidiary is possible but involves regulatory approvals and time. Starting with the right structure avoids this.
The Three-Structure Comparison
| Dimension | Branch Office | Subsidiary | Liaison Office |
|---|---|---|---|
| Legal Identity | Extension of foreign company — no separate legal identity | Separate Indian company — own legal personality | Extension of foreign company — no separate legal identity |
| Liability | Parent company bears full liability | Limited to share capital and reserves | Parent company bears full liability |
| Permitted Activities | Manufacturing, trading (with conditions), services, R&D, IT/BPO, consultancy | Full range of business activities permitted under its MOA | Liaison only — no commercial or trading activity |
| Revenue Earning | Yes — can earn revenue in India | Yes — can earn revenue in India | No — funded entirely by remittances from parent |
| Regulatory Approval | RBI approval required (AD Bank route) | FDI route (automatic or government approval) | RBI approval required (AD Bank route) |
| Tax Rate | 40% + surcharge + cess | 22% (Section 115BAA) or 25% + surcharge + cess | Nil (should not have taxable income) |
| Profit Repatriation | Free after tax (no dividend distribution) | Dividend to parent (no DDT post-2020; TDS under Section 195) | Not applicable (no profits) |
| GST Registration | Required if providing taxable services | Required if providing taxable goods/services | Generally not required (no commercial activity) |
| FEMA Compliance | Annual Activity Certificate from CA | Annual FDI reporting (FCGPR, FLA return) | Annual Activity Certificate from CA |
| PE Risk | Creates a Permanent Establishment by definition | Separate entity — PE risk only if subsidiary is a dependent agent | Should not create PE — but activities must stay within liaison scope |
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Frequently Asked Questions
What is the difference between a Branch Office and a Subsidiary in India?
A Branch Office is an extension of the foreign company — it has no separate legal identity and the parent bears full liability. A Subsidiary is a separate Indian company (private or public) with its own legal personality, limited liability, and is incorporated under the Companies Act, 2013. The subsidiary route provides liability insulation but requires compliance with Indian company law.
What can a Liaison Office do in India?
A Liaison Office (LO) has the narrowest scope. Under FEMA regulations, an LO can only undertake liaison activities: representing the parent, promoting exports/imports, promoting technical or financial collaborations, and acting as a communication channel. An LO cannot engage in commercial, trading, or industrial activity, and it cannot earn income in India.
Which structure requires RBI approval?
Both Branch Office and Liaison Office require RBI approval under FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any Other Place of Business) Regulations. A wholly-owned subsidiary follows the FDI route under the automatic or government approval route depending on the sector, and does not require separate RBI approval for establishment (though FDI reporting is required).
How is each structure taxed in India?
A Branch Office is taxed at 40% plus surcharge and cess on income attributable to operations in India. A subsidiary (domestic company) is taxed at 22% (Section 115BAA) or 25% plus surcharge and cess. A Liaison Office, being non-commercial, should not have taxable income — but the tax department may challenge this if the LO is found to be engaging in commercial activities.
Entering the Indian Market?
We advise on structure selection, manage the RBI/FEMA approval process, and handle the incorporation or registration. Start with the right structure from day one.
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