Foreign companies looking to establish a presence in India face a fundamental structural decision: branch office, liaison office, or subsidiary company. Each structure has distinct implications for taxation, repatriation, liability, permitted activities, and regulatory compliance. Getting this decision right at the outset determines your operational flexibility and tax efficiency for years to come.
Overview: Three Entry Structures Compared
Feature | Liaison Office | Branch Office | Wholly Owned Subsidiary |
|---|---|---|---|
Permitted activities | Representational only — no revenue | Limited commercial activities | Full business operations |
Can earn revenue in India? | No | Yes (subject to sector) | Yes |
Tax rate | No Indian tax (no income) | 40% + surcharge as foreign company | 22–25% as domestic company |
Repatriation | Expenses remitted from abroad | Profits repatriable after tax | Dividends repatriable after compliance |
RBI approval required? | Yes | Yes | No (FDI automatic route for most sectors) |
Liability | Parent fully liable | Parent fully liable | Limited to subsidiary |
Liaison Office
A liaison office (LO) can only act as a communication channel — conducting market research, promoting the parent company, and facilitating technical collaborations. It cannot undertake any commercial activity, earn any income in India, or sign contracts. LOs require RBI approval through an authorised dealer bank, valid for 3 years and renewable. An Annual Activity Certificate from a CA confirming no commercial activity is mandatory.
Best for: Companies in the exploratory phase wanting to understand the Indian market before committing to a commercial structure.
Branch Office
A branch office (BO) can conduct commercial activities in India but only in RBI-approved sectors — export/import, professional services, research, and acting as buying/selling agents. Manufacturing is not permitted. A branch office is taxed as a foreign company at 40% plus surcharge and cess on India-sourced profits — significantly higher than the 22% rate available to domestic companies. This tax differential makes the branch office uneconomical for most long-term operations.
Best for: Services, consulting, or trading companies wanting a direct Indian commercial presence without incorporating a separate legal entity, where the higher tax rate is acceptable.
Wholly Owned Subsidiary (WOS)
A WOS incorporated under the Companies Act, 2013 is a separate Indian legal entity that can engage in the full range of permitted business activities — manufacturing, sales, hiring, property ownership, local debt raising, and all sector-specific licences. Under Section 115BAA, it pays corporate tax at approximately 25.17% effective rate — versus 40%+ for a branch. New manufacturing companies can elect 15% under Section 115BAB.
Transactions between the WOS and its foreign parent are subject to Indian transfer pricing regulations. Arm's length pricing must be maintained and documented for all international transactions.
Best for: Most foreign companies with serious long-term India plans, particularly those requiring manufacturing, large workforces, local regulatory licences, or equity investment from Indian partners.
Decision Framework
If you want to... | Recommended Structure |
|---|---|
Test the market with minimal commitment | Liaison Office |
Provide services or trade goods directly | Branch Office |
Manufacture in India | WOS — branch offices cannot manufacture |
Minimise Indian tax burden | WOS (22% vs 40% for branch) |
Limit parent company liability | WOS |
Raise local Indian financing or investor capital | WOS |
How PGA & Co. Can Help
At PGA & Co. Chartered Accountants, we have assisted 30+ foreign companies from the USA, UK, UAE, Europe, and Singapore with India entry — from structure selection and RBI approvals to incorporation, transfer pricing compliance, and ongoing regulatory support.
📞 +91 86998-87200 | ✉ info@pgaca.in | Visit indiacompanysetup.com for our dedicated India entry portal
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