This is the first decision a foreign parent makes in India and the one that is hardest to undo. It is usually made on setup cost, which is the least important factor, and not on tax rate, which differs by more than fifteen percentage points between the options.
A wholly-owned subsidiary is a separate Indian company taxed at around 25% and can do any lawful business. A branch office is an extension of the foreign parent, needs RBI approval, is limited to specified activities and is taxed as a foreign company at roughly 41% to 44%. A liaison office cannot earn income at all. For almost any foreign company that will actually trade or employ people in India, the subsidiary is the default.
Deciding how to enter India? WhatsApp us what the India operation will actually do.
Quick Summary
| Subsidiary (Pvt Ltd) | Branch Office | Liaison Office | |
| Legal status | Separate Indian company | Extension of the parent | Extension of the parent |
| What it may do | Any lawful business in its objects | Eight specified categories only | Representation only — no revenue |
| Approval | Automatic route for most sectors, via MCA | RBI, through an AD Category-I bank | RBI, through an AD Category-I bank |
| Registration | Companies Act, 2013 | Also RoC under Section 380 | Also RoC under Section 380 |
| Corporate tax | ~25.17% under the concessional regime | ~41.6% to 43.68% as a foreign company | Nil — no income |
| Counts as FDI | Yes | No | No |
| Repatriation | Dividends, after withholding | Post-tax profits, remittable | Nothing to repatriate |
| Liability | Ring-fenced in the Indian company | Parent is exposed | Parent is exposed |
💡 TaxKitab Tip Decide on what the India operation will do in year three, not year one. Companies pick a liaison office because it is cheap and light, then find in month eight that someone has signed a contract or raised an invoice — and a liaison office that earns income is not a liaison office, it is an unapproved branch with a tax problem attached. Converting later means closing one structure and opening another, with the gap in between falling on whoever is running the India team. The subsidiary costs more to start and almost always costs less over three years.
Wholly-Owned Subsidiary
An Indian private limited company owned by the foreign parent. Separate legal person, separate books, separate liability.
Permitted activity: anything within its memorandum of association, subject to sectoral FDI rules.
Route: automatic for most sectors, incorporated through the MCA’s SPICe+ process. Share allotment to the foreign parent is reported to the RBI in Form FC-GPR within 30 days, under the FEMA (Non-debt Instruments) Rules, 2019.
Tax: around 25.17% effective under the concessional domestic-company regime, which was Section 115BAA under the 1961 Act and carries forward under the Income-tax Act, 2025.
Why it wins most comparisons: lowest tax rate, widest permitted activity, liability ring-fenced, and it can hold IP, sign Indian contracts, hire directly and take on local customers.
What it costs: full Indian company compliance — ROC annual filings, statutory audit, board meetings, income tax return — and those apply even in a year with no revenue, as set out in the India entity that files even with no revenue.
Branch Office
Not a separate company. The foreign parent itself, operating in India.
Permitted activity: restricted to specified categories — broadly export and import of goods, professional or consultancy services, research, technical or financial collaboration work, representing the parent as buying or selling agent, IT and software development, technical support for parent-supplied products, and acting for a foreign airline or shipping company. Retail trading and manufacturing are generally outside it.
Route: RBI approval through an AD Category-I bank under the Master Direction on Establishment of Branch, Liaison and Project Offices, then registration with the RoC under Section 380 of the Companies Act, 2013.
Tax: as a foreign company, roughly 41.6% to 43.68% including surcharge and cess. That is the number that decides most cases.
Where it fits: a parent that genuinely wants to operate in its own name — often for regulatory, licensing or contractual reasons — and accepts the tax cost. Profits are remittable after tax without the dividend step.
What it exposes: the parent, directly. There is no Indian company between the Indian operation and the parent balance sheet.
Liaison Office
A representative presence and nothing more.
Permitted activity: representing the parent, promoting exports and imports, promoting technical and financial collaboration, and acting as a communication channel. It may not earn income in India, invoice, or enter into commercial contracts. It is funded entirely by inward remittances from the parent.
Tax: nil, because there is no income — but see the permanent establishment warning below.
Where it fits: genuine market exploration before committing, or a representative function for a parent that sells into India from abroad.
The trap: a liaison office whose people negotiate deals, hold stock, or do anything that looks like carrying on business can create a permanent establishment for the parent, which brings Indian tax on attributable profits and removes the point of the structure. The tests are set out in when your India team becomes a taxable presence.
Project Office and LLP
Project office is a time-limited structure for executing a specific contract in India, approved through the AD bank route. Useful for contractors with a defined project; not a general operating vehicle.
LLP can take FDI — 100% under the automatic route, subject to conditions, which in practice restricts it to sectors where 100% FDI is allowed without performance-linked conditions. It suits professional services partnerships more than foreign corporate groups, and it does not access the concessional company tax rate.
How the Decision Usually Goes
Will the India operation earn revenue in India, employ people, or sign contracts? Then subsidiary, in almost every case.
Must the parent contract in its own name for regulatory reasons? Branch, accepting the tax rate.
Only exploring, with no income and no contracts? Liaison office, with a firm internal rule about what the team may not do.
One defined contract, fixed duration? Project office.
Once the subsidiary is chosen, the operating questions follow quickly — how the parent charges it, what reporting it sends back, and how the two sets of books reconcile. Those are in who files what, and where, for a US company with an India team and two sets of books for an India subsidiary. The ongoing cost is in what it costs to run an India subsidiary, and if the answer is that you are not ready for an entity at all, EOR versus subsidiary covers the alternative.
Frequently Asked Questions
Can a liaison office be converted to a subsidiary? Not converted. You incorporate a company and close the liaison office through the AD bank. Plan the overlap, because the closure takes time.
Does a branch office pay dividend withholding? No. A branch is the parent, so post-tax profits are remitted rather than distributed. That partly offsets the higher rate, though rarely enough to close a fifteen-point gap.
How long does a subsidiary take to set up? Typically a few weeks once documents are apostilled, which is usually the slow part for a foreign parent.
Can the foreign parent own 100%? In most sectors yes, under the automatic route. Sectoral caps and conditions apply in some industries — check the current consolidated FDI policy rather than an older summary.
Do we need an Indian resident director? A private limited company must have at least one director resident in India. That is a real constraint worth solving before incorporation rather than after.
Which structure is easiest to close? The subsidiary, through voluntary strike off, provided liabilities are cleared — the process is in closing an India entity. Branch and liaison offices close through the AD bank and RBI.
References
- Companies Act, 2013 — Sections 2(42) and 380 (foreign company and RoC registration)
- Foreign Exchange Management Act, 1999; FEMA (Non-debt Instruments) Rules, 2019; RBI Master Direction on Establishment of Branch Office, Liaison Office and Project Office in India
- Income-tax Act, 2025 — concessional domestic company regime (Section 115BAA under the 1961 Act) and foreign company rates
- Form FC-GPR reporting on the RBI FIRMS portal
⚠️ Tax rates, FDI caps and permitted activities change, and the figures above come from secondary summaries. Confirm the current consolidated FDI policy, the RBI Master Direction and the applicable rates with your Indian advisers before choosing a structure.
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