A foreign company that intends to sell, invoice customers, hire a substantial local team and build a long-term Indian business will usually need the flexibility of an Indian subsidiary, subject to India's FDI rules.
A branch office is more suitable where the foreign parent wants to conduct specified business activities directly in India while remaining legally responsible for the Indian operation. A liaison office is appropriate only for representation, promotion and communication: it cannot undertake commercial, trading or industrial activity or earn business income in India.
The correct structure therefore depends less on incorporation convenience and more on what the Indian operation will actually do.
What is the difference between a subsidiary, branch office and liaison office in India?
The fundamental difference is legal identity.
An Indian subsidiary is a separate Indian company incorporated under the Companies Act, 2013. The foreign shareholder owns the subsidiary, but the subsidiary itself enters contracts, employs staff, owns assets and carries on business.
A branch office (BO) is not a separate Indian company. It is an Indian establishment of the foreign entity and may conduct only the activities permitted under the applicable FEMA framework.
A liaison office (LO) is also an extension of the foreign entity, but its permitted role is much narrower. RBI regulations define an LO as a communication channel between the foreign head office and Indian entities that does not undertake commercial, trading or industrial activity, directly or indirectly, and is funded through inward remittances.
RBI Master Direction on Branch, Liaison and Project Offices
Quick comparison
Issue
Indian subsidiary
Branch office
Liaison office
Separate legal entity
Yes
No
No
Can earn Indian business revenue?
Generally yes, subject to FDI/sector law
Yes, but only from permitted activities
No commercial revenue activity
Can invoice Indian customers?
Yes
Yes, within permitted activities
Not for commercial sales/services
Parent's liability
Generally ring-fenced by subsidiary structure, subject to guarantees and legal exceptions
Foreign parent is directly exposed
Foreign parent is directly exposed
Permitted activities
Generally those available to an Indian company, subject to FDI and licensing restrictions
Restricted to RBI-permitted activities
Representation, promotion and communication only
FEMA route
Foreign investment into Indian company
BO establishment framework
LO establishment framework
RBI financial eligibility test
No general BO/LO-style track-record test
5-year profit track record + USD 100,000 net worth
3-year profit track record + USD 50,000 net worth
Standard validity
Continues until lawfully closed
Subject to approval/compliance
Generally 3 years, subject to renewal rules
Main use
Long-term Indian operating business
Direct extension of foreign business
Non-commercial representative presence
The choice should therefore start with one question:
Will the Indian operation itself conduct business and earn revenue?
If the answer is no, an LO may be sufficient. If yes, the real comparison is usually between a subsidiary and a BO.
When should a foreign company choose an Indian subsidiary?
A subsidiary is normally the most flexible structure where India is intended to become a genuine operating market rather than merely a representative location.
An Indian subsidiary can generally:
contract directly with customers and suppliers;
invoice and collect Indian revenue;
employ staff;
lease or acquire assets subject to applicable law;
obtain licences in its own name;
hold intellectual property;
raise permitted Indian or foreign capital;
build its own balance sheet; and
continue independently even if the foreign parent reorganises its international operations.
The subsidiary remains subject to sector-specific FDI restrictions, licences and other applicable Indian laws.
Can a foreign company own 100% of an Indian subsidiary?
In many sectors, yes, but not automatically in every business.
Foreign investment into an Indian company is governed principally by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, the applicable FDI policy and sector-specific regulations. Depending on the activity, foreign investment may be allowed up to 100%, restricted by a sectoral cap, subject to conditions, or require prior Government approval.
Foreign investors should therefore check four matters before incorporation:
the permitted foreign-ownership percentage;
whether investment is under the automatic or Government route;
any sector-specific conditions; and
whether separate regulatory licences are required.
An additional restriction applies where the investor is an entity or citizen of a country sharing a land border with India, where the beneficial owner of an investment into India is a citizen of such a country, or where the beneficial ownership of the investment is vested in such a country. Under Press Note 2 of 2026, implemented through the Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2026, such cases are subject to the Government route in accordance with the current beneficial-ownership and control tests.
Accordingly, “100% FDI permitted” should never be read as meaning that every foreign investor can incorporate without checking ownership and approval requirements.
Is the foreign parent's liability limited when it uses a subsidiary?
Generally, the subsidiary creates a separate corporate liability boundary.
For a company limited by shares, members' liability is ordinarily limited to the unpaid amount on their shares. This can materially reduce direct exposure of the foreign parent compared with operating through its own branch.
But the protection is not absolute.
The parent may still assume exposure through:
parent-company guarantees;
indemnities;
letters of comfort;
direct contractual undertakings;
statutory obligations;
fraudulent conduct; or
exceptional circumstances in which corporate separateness may not protect the parent.
The practical point is that a subsidiary provides a corporate risk ring-fence, while a BO or LO does not create a new corporate person merely because it has an Indian office.
When is a branch office suitable?
A branch office is appropriate where the foreign company wants to carry on business directly as the foreign company, without forming a separately owned Indian operating company.
Under RBI's current framework, a BO may undertake specified activities including:
export or import of goods;
professional or consultancy services, subject to restrictions;
research connected with the foreign parent's business;
promotion of technical or financial collaboration;
representing the parent in India and acting as a buying or selling agent;
information-technology and software-development services;
technical support for products supplied by the parent or group companies; and
representing foreign airlines or shipping companies.
Activities outside the permitted list require specific consideration and, where applicable, approval.
A standard BO is therefore not equivalent to an unrestricted Indian company.
Can a branch office manufacture goods in India?
Not ordinarily under the standard BO activity list.
There is, however, a special framework allowing foreign companies to establish branch offices in Special Economic Zones for manufacturing and service activities without separate RBI approval where prescribed conditions are met, including that the relevant sector permits 100% FDI and the branch operates on a stand-alone basis. RBI's current Master Direction records this exception.
A foreign manufacturer planning ordinary Indian manufacturing outside that framework should therefore generally assess an Indian subsidiary rather than assume a conventional BO will suffice.
What are the eligibility requirements for a branch office?
The RBI framework imposes financial eligibility criteria on the foreign applicant.
For a standard BO, the foreign entity must generally have:
a profit-making track record during the immediately preceding five financial years in its home country; and
net worth of at least USD 100,000 or equivalent.
For this purpose, RBI's framework defines net worth by reference to paid-up capital and free reserves less intangible assets, based on the latest audited accounts.
Where the applicant itself does not satisfy the financial criteria, the RBI framework permits specified cases to be supported through a Letter of Comfort from a qualifying parent or group company that meets the criteria.
This eligibility condition is one of the most important differences between a BO and an Indian subsidiary.
A start-up foreign company may be perfectly capable of incorporating an Indian subsidiary in a permitted FDI sector but may fail the BO's five-year track-record test.
When should a foreign company choose a liaison office?
A liaison office should be used where the company wants an Indian presence without carrying on business in India.
RBI permits an LO to undertake limited activities such as:
representing the foreign parent or group companies in India;
promoting export from or import into India;
promoting technical or financial collaborations between group companies and Indian businesses; and
acting as a communication channel between the foreign head office and Indian companies.
The crucial restriction is that an LO cannot undertake commercial, trading or industrial activity directly or indirectly. It must meet its Indian expenses from permitted inward remittances rather than local operating revenue.
An LO may therefore suit a company that wants to:
build relationships with prospective Indian counterparties;
represent the parent at industry meetings;
promote the group's products without completing Indian commercial transactions through the LO; or
coordinate communication between India and the overseas head office.
An LO is not the right structure if the India office needs to:
sell products itself;
charge consulting fees;
invoice Indian customers;
receive commission income;
operate a revenue-generating service business; or
conduct trading or industrial activity.
The business model should determine the structure—not the desire to use whichever registration appears easiest.
What are the eligibility requirements for a liaison office?
A standard LO applicant must generally have:
a profit-making track record during the immediately preceding three financial years in its home country; and
net worth of at least USD 50,000 or equivalent.
As with a BO, a qualifying parent or group company may in appropriate circumstances support an applicant through the RBI-prescribed Letter of Comfort mechanism.
An LO is generally approved for three years at a time. Certain businesses, including specified NBFC and construction/development entities, are subject to a shorter two-year framework and restrictions on extension under the RBI rules.
Does a branch or liaison office require RBI approval?
Applications for BOs and LOs operate through India's FEMA framework and the Authorised Dealer Category-I bank system.
The foreign company generally submits Form FNC and supporting documents through a designated AD Category-I bank. The bank undertakes due diligence and processes cases that fall within the delegated RBI framework.
Certain applications must instead receive prior RBI approval in consultation with the Government.
These include specified circumstances involving:
entities or citizens connected with certain jurisdictions;
businesses in sensitive sectors including defence, telecom, private security and information and broadcasting; and
specified foreign-government bodies, NGOs and non-profit organisations.
RBI's framework should therefore be checked against both the applicant's country and its business sector before an application is prepared.
Where permission is granted, the approved office ordinarily needs to be established within six months. The AD bank may provide a further six-month extension within the RBI framework; further delay can require RBI consideration.
Does an Indian subsidiary need RBI approval?
Not necessarily.
For an Indian subsidiary, the central FEMA question is usually not permission to “open an office”, but whether the foreign investment into the Indian company complies with the Non-Debt Instruments Rules and FDI policy.
Where the investment falls entirely within an automatic-route sector and satisfies all conditions, prior Government approval may not be necessary.
Where the business, ownership or investor falls within the Government route, approval must be obtained before making the investment as required.
The subsidiary route therefore involves an FDI analysis, while the BO/LO routes involve the FEMA establishment-of-place-of-business framework.
They are related, but they are not the same approval process.
How is an Indian subsidiary incorporated?
A foreign-owned Indian private company is incorporated through the MCA's SPICe+ system.
Foreign subscriber documentation can require notarisation, apostille or consular authentication depending on the country in which the overseas subscriber is located. MCA's incorporation guidance specifically addresses these authentication requirements.
MCA SPICe+ incorporation guidance
The incorporation process typically requires corporate and subscriber information, constitutional documents, registered-office information, proposed directors and foreign shareholder authorisations.
An Indian private company must also satisfy the Companies Act requirements regarding membership, directors and at least one director who meets India's statutory residency requirement.
Foreign investors should build document legalisation time into the incorporation schedule, particularly where board resolutions, constitutional documents and powers of attorney must be executed abroad.
What FEMA filings follow investment in an Indian subsidiary?
Incorporation is not the end of the foreign-investment compliance process.
Where an Indian company issues equity instruments to a person resident outside India and the issue qualifies as FDI, Form FC-GPR must generally be filed within 30 days from the date the equity instruments are issued.
An Indian company that has received FDI must also generally file the annual Foreign Liabilities and Assets (FLA) return by 15 July for the relevant reporting year.
These reporting obligations are separate from ordinary MCA annual filings.
What Companies Act filings apply to a branch or liaison office?
Because a BO or LO establishes a place of business of the foreign company in India, the foreign company can fall within the foreign company provisions of Chapter XXII of the Companies Act, 2013.
Section 380 requires a foreign company, within 30 days of establishing its place of business in India, to deliver prescribed information to the Registrar, including its constitutional documents, overseas registered-office details, directors and secretary particulars, an India-based person authorised to accept service, and details of the Indian office.
Section 380, Companies Act 2013 — India Code
This is generally implemented through Form FC-1 and associated requirements.
Foreign companies also have continuing Companies Act obligations. MCA's current FC-4 instructions require a foreign company to file its annual return within 60 days from the close of its financial year.
A BO or LO is therefore not “compliance free” merely because no Indian subsidiary has been incorporated.
Which structure creates the greatest parent-company liability?
The difference is significant.
With a subsidiary, contracts are normally entered into by the Indian company. The foreign parent is the shareholder rather than automatically the contractual counterparty.
With a branch, the branch is the foreign company operating in India. The liabilities of that Indian operation are therefore liabilities of the foreign enterprise itself.
A liaison office is likewise not a separate incorporated entity.
If liability isolation is important—for example because the Indian business involves employees, customers, leases, product exposure or substantial contractual obligations—the corporate separation offered by a subsidiary can be an important factor.
That does not mean a subsidiary eliminates risk. Parent guarantees and other direct undertakings can reintroduce parent-level exposure.
How are a subsidiary and branch office taxed differently?
Tax should be modelled before choosing the legal structure.
An Indian subsidiary is an Indian domestic company for tax purposes, whereas a BO forms part of the foreign company and ordinarily represents an Indian taxable presence of that foreign company.
The distinction can materially affect applicable tax rates, profit repatriation and treaty analysis.
India's new Income-tax Act, 2025 took effect from 1 April 2026, replacing the 1961 Act for tax years beginning on or after that date, subject to transitional provisions for earlier years.
For current modelling, foreign companies and domestic companies are subject to different rate frameworks. The foreign-company base rate on ordinary income is presently materially different from the concessional domestic-company regime available subject to applicable conditions; surcharge and health and education cess must also be considered.
A legal-structure decision should therefore model:
operating profit taxation;
transfer pricing;
withholding taxes;
royalties and service fees;
dividend distributions;
branch profit remittances;
applicable tax treaties; and
exit taxation.
Do not select a BO simply because it avoids incorporating another company without comparing the overall tax consequences.
Is a liaison office tax-free?
Not automatically.
An LO is not permitted under FEMA to conduct revenue-generating commercial activity. That does not, by itself, make every tax question disappear.
Whether a foreign enterprise has a taxable permanent establishment (PE) in India can depend on its actual activities and the applicable double-tax treaty.
In Union of India v. U.A.E. Exchange Centre, (2020) 9 SCC 329, the Supreme Court held on the particular facts and under the India-UAE treaty that the liaison-office activities in question were preparatory or auxiliary and did not constitute a PE. The decision turned on the actual restricted activities being conducted; it should not be read as a universal exemption for every LO. The Supreme Court subsequently described that principle in a 2025 judgment.
The practical rule is:
An LO should remain strictly within its RBI-approved activities.
If employees in India begin negotiating or concluding commercial transactions, performing core services or otherwise going beyond the permitted liaison function, both FEMA and tax risks can arise.
Can profits be sent back overseas?
Yes, but the mechanism differs.
Indian subsidiary
A subsidiary can distribute profits to its foreign shareholder through dividends, subject to Indian corporate law, taxation, withholding and FEMA requirements. Capital can also be repatriated through permitted share transfers, buy-backs, reductions or liquidation mechanisms subject to applicable law.
Branch office
RBI permits a BO to remit its profits outside India net of applicable Indian taxes, subject to prescribed documentation including audited financial statements and a chartered accountant's certification.
Liaison office
An LO should not generate business profits in the first place. It is ordinarily funded through inward remittances from the overseas head office.
Which structure is easier to close?
The answer depends on what has happened during the life of the operation.
A BO or LO can be closed through the designated AD Category-I bank, subject to RBI-prescribed closure documents, including auditor certification, confirmation concerning legal proceedings and applicable tax/ROC compliance.
A subsidiary has a more complete corporate exit process because the Indian company itself must be dealt with. Depending on circumstances, exit may involve:
selling the subsidiary;
transferring shares;
striking off an eligible dormant/inactive company;
liquidation or winding up; or
corporate restructuring.
The subsidiary therefore involves more corporate infrastructure, but it also gives the foreign investor a transferable Indian business rather than merely an overseas company's office.
Which structure costs less to establish?
There is no useful universal rupee figure.
Actual costs depend on authorised capital, state stamp duty, overseas document legalisation, professional fees, regulatory permissions, office requirements, sector licences and tax registrations.
A liaison office may appear operationally simpler because its activities are restricted, but it still involves FEMA approval, banking, foreign-company registration, accounting, audit and continuing regulatory compliance.
A branch similarly avoids incorporating a new shareholder-owned company but carries substantial FEMA, tax and Companies Act compliance.
The right comparison is therefore total compliance and business cost, not merely incorporation fees.
Practical decision framework: which structure should you choose?
Choose an Indian subsidiary where:
the Indian business will regularly sell goods or services;
local customers need Indian invoices and contracts;
you expect a significant Indian workforce;
the operation will hold assets or IP;
India is intended to become a long-term market;
you may bring in other investors later;
you want greater separation between Indian operating liabilities and the foreign parent; or
the proposed business does not fit within the narrow RBI BO activity list.
Consider a branch office where:
the parent wants to conduct permitted activities directly;
the foreign company satisfies RBI's five-year track-record and USD 100,000 net-worth requirements;
the parent is comfortable assuming direct Indian business liabilities;
the proposed activity falls within RBI's BO list; and
the tax consequences of a foreign-company Indian presence have been modelled.
Consider a liaison office where:
the objective is strictly representation, promotion and communication;
the India office will not generate revenue;
Indian customers will contract with the foreign head office rather than receive services from the LO;
the foreign company satisfies the three-year track-record and USD 50,000 net-worth requirements; and
the business can maintain clear internal controls preventing Indian staff from drifting into commercial activity.
What if the foreign company's only purpose is to execute one Indian project?
A subsidiary, BO and LO are not the only available structures.
Where a foreign company has secured a particular Indian project, a Project Office may sometimes be the more appropriate FEMA structure, subject to the RBI framework.
Foreign companies should therefore avoid forcing a project-specific arrangement into a BO simply because they are familiar with the term “branch office.”
What are the biggest mistakes foreign companies make when entering India?
The first is choosing an LO because it appears cheaper and then allowing the Indian team to perform commercial functions.
The second is choosing a BO without confirming that the proposed activity actually appears within RBI's permitted list.
The third is incorporating a subsidiary before checking the applicable FDI cap, entry route, beneficial-ownership restrictions and sector licence.
The fourth is ignoring tax structure until after the entity has been established.
The fifth is assuming BOs and LOs avoid MCA compliance. Foreign-company filings under Chapter XXII still apply once the foreign company establishes its Indian place of business.
The sixth is looking only at entry. A structure that is convenient in year one may become restrictive when the company needs to hire 100 employees, sign customer contracts, raise capital or transfer the Indian business.
Pre-entry checklist for a foreign company
Before choosing the structure, answer these questions:
Will the India operation earn revenue?
Who will sign Indian customer contracts?
Will the India office invoice customers?
What exact products or services will it provide?
Is 100% foreign ownership permitted in that sector?
Is FDI automatic or Government-route?
Do land-border beneficial-ownership restrictions apply?
Does the foreign company meet BO/LO track-record and net-worth criteria?
How many employees will work in India?
Does the parent want its liabilities ring-fenced?
What will the Indian and treaty tax consequences be?
How will profits or capital be repatriated?
What licences will the business require?
Is this a permanent Indian business or merely a representative/project presence?
How will the structure eventually be sold or closed?
The answer usually becomes much clearer once these questions are addressed.
FAQs on Subsidiary, Branch Office and Liaison Office in India
Can a liaison office invoice customers in India?
No. An LO cannot undertake commercial, trading or industrial activity directly or indirectly. It is intended for representation, promotion and communication and is funded through inward remittances.
Can a branch office earn revenue in India?
Yes, but only from activities it is permitted to undertake under the FEMA/RBI framework. A BO does not have the unrestricted business scope of an ordinary Indian company.
Does a foreign company need five years of operating history to open an Indian subsidiary?
There is no general subsidiary-incorporation rule equivalent to the RBI BO requirement for a five-year profit-making track record. Sector-specific FDI, licensing or capital requirements may nevertheless apply.
What minimum net worth is required for a branch office?
Under the current RBI framework, a standard BO applicant generally requires net worth of at least USD 100,000 or equivalent, together with a five-year profit-making track record.
What minimum net worth is required for a liaison office?
A standard LO applicant generally requires net worth of at least USD 50,000 or equivalent and a three-year profit-making track record.
Can a foreign company own its Indian subsidiary completely?
Foreign ownership can reach 100% in many sectors, but the applicable sectoral cap, entry route, conditions and investor/beneficial-owner restrictions must be checked before investment.
Is a branch office a separate legal entity?
No. A BO is an establishment of the foreign company in India rather than a separately incorporated Indian company. This is an important distinction for liability and taxation.
How long can a liaison office remain in India?
Standard LO approvals are generally valid for three years, with extensions subject to the RBI framework. Certain sectors have different rules.
Does a branch office have to register with MCA?
A foreign company establishing a place of business in India is subject to the foreign-company provisions of the Companies Act. Section 380 requires prescribed information to be filed with the Registrar within 30 days of establishing that place of business.
Which structure is most suitable for a foreign company planning a permanent Indian business?
Where the company expects substantial revenue-generating operations, employees, customer contracts and long-term growth, a subsidiary generally provides greater operating flexibility. The final choice should still be made after reviewing FDI, tax, liability and sector-specific considerations.
