Most foreign companies default to establishing a wholly owned subsidiary and are right to do so. This guide explains the four structures available under Indian law for the entities that should not.
Before executing any incorporation or lease in India, a foreign parent must select the correct corporate structure under the Foreign Exchange Management Act (FEMA) and the Companies Act, 2013. Selecting the wrong vehicle leads to severe regulatory restrictions, higher tax rates, or permanent establishment (PE) exposure.
| Feature | Wholly Owned Subsidiary | Branch Office (BO) | Liaison Office (LO) | Project Office (PO) |
|---|---|---|---|---|
| Legal Entity | Separate Indian Domestic Company | Extension of Foreign Parent | Extension of Foreign Parent | Temporary Project Presence |
| RBI / Government Approval | Automatic Route in most sectors | Prior RBI approval via AD Bank | Prior RBI approval via AD Bank | General Permission (contract based) |
| Can Earn Indian Income? | Yes — Full commercial freedom | Yes — Permitted activities only | NO — Zero commercial revenue | Yes — Contract specific |
| Corporate Tax Rate | Domestic Company Rate (~22% + surcharge) | Foreign Company Rate (~35% + surcharge) | N/A (No taxable income) | Foreign Company Rate (~35% + surcharge) |
Incorporated as an Indian private limited company under SPICe+ with the Ministry of Corporate Affairs. The subsidiary acts as a separate legal entity, shielding the parent from direct liability in India. Read complete details on our Wholly Owned Subsidiary pillar guide.
Established under the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office) Regulations, 2016. Permitted activities are strictly restricted to export/import, consultancy services, IT support, and technical services for parent products. Manufacturing on its own account is strictly prohibited for a Branch Office.
Acts as a representative observation post. A Liaison Office cannot issue invoices, sign commercial contracts, or earn any income in India. All operational expenses must be funded 100% via inward foreign exchange remittances from head office.
A Branch Office is classified as a foreign company for income tax purposes and is taxed at the higher foreign company rate (35% plus applicable surcharge and cess). In contrast, an Indian Subsidiary is a domestic company eligible for concessional tax regimes under Section 115BAA (~25.17% effective rate). Over a multi-year operation, this tax savings far outweighs initial incorporation costs.
A Branch Office automatically constitutes a Permanent Establishment (PE) of the foreign parent under Article 5 of Double Taxation Avoidance Agreements (DTAA). A Liaison Office that exceeds its representational scope risks being recharacterized as a PE, exposing head office global profits to Indian tax audits. A Subsidiary provides a distinct corporate veil.
Our CA & Secretarial team evaluates your proposed business activities, sector limits, tax impact, and exit options before you file.
