A foreign company can operate in India through a liaison office, a branch office, a project office or an Indian subsidiary. A liaison office cannot earn income. A branch office can carry on specified activities but not manufacturing or retail. A project office exists for one contract. A subsidiary is a separate Indian company and can do any business open to foreign investment.
Comparison at a glance
| Liaison office | Branch office | Project office | Wholly owned subsidiary | |
|---|---|---|---|---|
| What it is | An office that represents the foreign parent. Not a separate legal entity. | An extension of the foreign company doing business in India. Not a separate legal entity. | A site presence to execute one specific project in India. Not a separate legal entity. | A company incorporated in India whose shares are held by the foreign parent. A separate legal entity. |
| Can it earn income in India? | No | Yes, from permitted activities | Yes, from the project | Yes |
| Permitted activities | Representing the parent, promoting exports and imports, promoting technical or financial collaboration, acting as a communication channel | Export and import of goods, professional or consultancy services, research, technical and financial collaborations, buying and selling agency, IT and software services, technical support for the parent's products. No manufacturing or processing in India directly and no retail trading. | Activities relating to and incidental to the execution of the project | Any business permitted under the foreign investment rules for that sector |
| Eligibility | Profit-making track record in the home country for the preceding 3 financial years and net worth of at least USD 50,000 | Profit-making track record in the home country for the preceding 5 financial years and net worth of at least USD 100,000 | A contract from an Indian company to execute a project, funded by inward remittance or by an international financing agency, or cleared by the appropriate authority, or financed by a term loan from a bank or public financial institution in India | At least two shareholders and two directors for a private limited company, one director resident in India |
| Approval | Application in Form FNC through an authorised dealer bank. Prior RBI approval for certain countries and sectors. | Application in Form FNC through an authorised dealer bank. Prior RBI approval for certain countries and sectors. | General permission if the conditions are met | No prior approval in sectors under the automatic route. Government approval in specified sectors and for investors from countries sharing a land border with India. |
| Validity | Generally 3 years, extendable | No fixed term | Tenure of the project | Perpetual |
| Funding | Only by inward remittance from the head office | Inward remittance and income from operations in India | Inward remittance and project receipts | Share capital, permitted borrowings and business income |
| Income tax base rate | No taxable income in the usual case | 35% as a foreign company, plus surcharge and cess | 35% as a foreign company, plus surcharge and cess | 22% under the concessional regime for domestic companies, or 25% or 30% under the regular regime, plus surcharge and cess |
| Sending profits abroad | Not applicable | Net profits can be remitted to the head office after tax, with a chartered accountant's certificate | Surplus can be remitted on completion of the project, and intermittently subject to conditions | By dividend. Tax is withheld on dividends at the domestic law rate or the tax treaty rate, whichever is more favourable to the shareholder. |
| Registration under company law | Form FC-1 with the Registrar of Companies within 30 days of establishing a place of business | Form FC-1 within 30 days | Form FC-1 within 30 days | Incorporation under the Companies Act, 2013 |
| Key annual filings | Annual Activity Certificate by 30 September, Form FC-3, Form FC-4, annual statement to the income-tax department | Annual Activity Certificate by 30 September, Form FC-3, Form FC-4, income tax return, tax audit and transfer pricing report where applicable | Annual Activity Certificate, Form FC-3, Form FC-4, income tax return | Statutory audit, Form AOC-4, Form MGT-7, income tax return, FLA return by 15 July, transfer pricing report where applicable |
| Usually suits | Market study and relationship building before committing capital | Trading, services or after-sales support without forming a company | Engineering, construction and installation contracts | Any long-term operating business, hiring and local contracting |
How do you choose between the four?
Start with what the Indian presence will actually do in its first two years.
- Only market research and liaison: a liaison office is enough, and no Indian income tax arises in the usual case.
- One contract with a defined end date: a project office is the natural fit and closes when the project ends.
- Sales, services or support with no plan to manufacture: a branch office works, at the cost of the higher foreign company tax rate.
- Hiring a team, manufacturing, or building a long-term business: a wholly owned subsidiary gives the widest freedom, the lower tax rate and limited liability for the parent.
A limited liability partnership is a fifth option. Foreign investment in an LLP is permitted in sectors where 100% foreign investment is allowed under the automatic route without performance conditions.
Which law governs each structure?
- Liaison, branch and project offices: s.6(6) of the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. These offices are also foreign companies under Chapter XXII of the Companies Act, 2013.
- Subsidiary: the Companies Act, 2013 for incorporation, and the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 for the foreign investment.
What happens after a subsidiary is incorporated?
- The parent remits the share capital to the company's bank account in India.
- The company allots shares within 60 days of receiving the money.
- The company files Form FC-GPR within 30 days of allotment, through its authorised dealer bank.
- From then on the company files the FLA return by 15 July each year.
See the FEMA reporting deadlines guide for the full list of forms.
Frequently asked questions
Which is better for a foreign company in India: a branch office or a subsidiary?
For most operating businesses a subsidiary is the better choice. It can carry on any activity open to foreign investment, is taxed at domestic company rates and limits the parent's liability. A branch office suits a foreign company that wants to trade, provide services or support its products in India without forming a separate company, and accepts tax at the foreign company rate.
Can a liaison office sign contracts or raise invoices in India?
No. A liaison office is restricted to representing the parent, promoting exports and imports, promoting collaborations and acting as a communication channel. It cannot earn income in India.
How long is a liaison office approval valid?
A liaison office is generally permitted for three years under the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. The authorised dealer bank can extend the validity.
Does a project office need RBI approval?
Not in the usual case. A foreign company that has secured a contract from an Indian company to execute a project in India has general permission to open a project office, provided the project meets one of the funding or clearance conditions in the 2016 Regulations.
What are the annual filings for a branch, liaison or project office?
The main filings are the Annual Activity Certificate from a chartered accountant, due by 30 September, and the foreign company filings with the Registrar of Companies: financial statements in Form FC-3 and the annual return in Form FC-4. Income tax and, where applicable, GST and TDS compliance apply as well.