- A wholly owned subsidiary is a separate Indian company under the automatic FDI route — it can do anything its sector permits, is taxed at domestic rates and ring-fences the parent's liability.
- A liaison office may only represent and promote; it cannot earn income in India, needs RBI approval through a bank, and requires a profitable three-year track record and net worth of at least USD 50,000.
- A branch office can trade and provide services but not manufacture; it needs RBI approval, a five-year track record and USD 100,000 net worth, and is taxed as a foreign company at a higher rate.
- For technology, services and captive operations, the subsidiary is the default; branch and liaison offices suit short-term, exploratory or project-bound presence.
The four options
| Wholly owned subsidiary | Branch office | Project office | Liaison office | |
|---|---|---|---|---|
| Legal status | Separate Indian company | Extension of the foreign company | Extension, for one project | Extension, representation only |
| Permitted activities | Anything permitted in the sector | Export/import, professional and consultancy services, research, IT and software, technical support for parent's products; no manufacturing or retail trading | Executing a specific contract awarded by an Indian company | Liaison, promotion, communication; no commercial activity, no income |
| Approval | None (automatic route) in most sectors; reporting only | RBI approval via AD bank; Government for restricted sectors or certain countries | General permission if the contract meets conditions; otherwise RBI | RBI approval via AD bank; Government for certain sectors/countries |
| Parent eligibility | None | Profit-making record in 5 preceding years; net worth ≥ USD 100,000 | Secured contract; funding from abroad or Indian bank | Profit-making record in 3 preceding years; net worth ≥ USD 50,000 |
| Income tax | Domestic company rate (25.17% for most under the concessional regime) | Foreign company rate (35% plus surcharge and cess) on Indian profits | Foreign company rate | No income; but risk of being treated as a PE if activities exceed liaison |
| Repatriation | Dividend (withholding), fees, royalty, buy-back | Profits remitted after tax; no dividend tax | Surplus remitted on completion | Only closure of funds |
| Liability | Limited to the subsidiary | Parent fully liable | Parent fully liable | Parent fully liable |
| Compliance | Companies Act, FEMA (FC-GPR, FLA), tax, GST, TP | Annual activity certificate; foreign company filings under Companies Act (FC-1 to FC-4); tax; GST | AAC; FC filings; tax | AAC; FC filings; no GST registration generally |
| Duration | Perpetual | Until closed | Project tenure | 3 years (renewable; 2 for NBFC/construction) |
Why the subsidiary wins for operating businesses
Three reasons. Tax rate: a branch pays the foreign-company rate on its Indian profits, materially higher than the domestic rate a subsidiary pays — although the subsidiary's dividend carries withholding, a cost-plus captive with modest profit is still cheaper as a company. Liability and contracting: Indian customers, landlords, employees and banks prefer to deal with an Indian company; a branch exposes the parent's global assets to Indian claims. Flexibility: a subsidiary can hire at scale, hold IP, raise local debt, sell to Indian customers and be sold; a branch's activities are confined to the RBI's permitted list and it cannot be transferred.
Against that, a subsidiary brings transfer pricing on every transaction with the parent, a resident-director requirement, and the full Companies Act regime — all manageable with the structure described across this hub.
When a liaison office makes sense
A liaison office is a listening post: market research, promoting the parent's products, acting as a communication channel. It cannot invoice, negotiate contracts to conclusion or deliver services. Its costs are funded entirely from abroad. The parent must show three years of profits and USD 50,000 net worth (or a comfort letter from a parent that does). It suits a company testing the market for a year or two before committing. The trap is scope creep: a liaison office whose staff start closing deals or supporting customers becomes a permanent establishment of the parent, with the parent's Indian profits taxable — and in breach of its RBI permission.
When a branch or project office fits
Branch offices suit foreign banks, airlines, shipping lines, and professional firms whose business model is inherently a branch network, and companies providing after-sales support for products sold into India. Project offices suit engineering and construction contractors executing a defined Indian contract — the office opens with the contract and closes with it. Both are taxed as a foreign company, file foreign-company returns with the Registrar, and remit after tax without dividend withholding; both leave the parent directly exposed.
Converting later
Liaison and branch offices are routinely converted to subsidiaries once the business commits: the office is closed with the RBI, assets and employees are transferred to the newly incorporated company, and the foreign company's Indian presence is wound down. Plan the conversion before signing long leases or large customer contracts in the branch's name.
Frequently asked questions
Can a liaison office earn income in India?
No. It may only represent the parent, promote exports and imports, and act as a communication channel. Any income-earning activity breaches its RBI permission and creates a taxable permanent establishment.
What are the eligibility conditions for a branch office?
A profit-making track record in the immediately preceding five financial years in the home country and net worth of at least USD 100,000 (or a comfort letter from a parent that meets the criteria), plus RBI approval through a bank.
How is a branch office taxed compared with a subsidiary?
A branch is taxed as a foreign company on its Indian profits at the higher foreign-company rate; a subsidiary is taxed as a domestic company at the lower domestic rate, with withholding on dividends when profits are repatriated.
Does a subsidiary need RBI approval?
Not in sectors under the automatic route. The investment is reported after the event in Form FC-GPR within 30 days of allotment, and the FLA return is filed annually.
How long does each take to set up?
A subsidiary typically two to six weeks (document legalisation is the main variable). Liaison and branch offices take longer because of the RBI approval through the bank, commonly two to three months.
Can a branch office be converted into a subsidiary?
Yes, by incorporating the subsidiary, transferring the business and closing the branch with the RBI and the Registrar. Tax on transfer of assets and employee transfer formalities apply.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- FEMA notifications — Reserve Bank of India
- RBI Master Directions — Reporting under FEMA; External Commercial Borrowings; Overseas Investment; Export of Goods and Services; LRS
- Consolidated FDI Policy and Press Notes — DPIIT
- Companies Act, 2013 and rules — Ministry of Corporate Affairs
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
Last reviewed on 1 November 2026 by Suchit Jhunjhunwala, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
