Expanding a business into a new country is a big step. For foreign companies planning to enter India, there are several options to set up a presence: Branch Office, Liaison Office, or Foreign Subsidiary. Each structure has its own purpose, benefits, and limitations. Choosing the right one depends on your long-term business goals, compliance needs, and investment plans.
In this blog, we will explain these three options in simple words so you can decide which one is best for your company.
1. What is a Branch Office?
A Branch Office is an extension of a foreign company in India. It is not a separate legal entity, which means it works as part of the parent company. The branch office can earn income, undertake commercial activities, and sign contracts in India, but it must follow the guidelines set by the Reserve Bank of India (RBI).
Key Features of a Branch Office:
- Can conduct trading, consulting, research, and professional services.
- Can invoice clients and generate revenue in India.
- Cannot engage in retail trading or manufacturing directly.
- Must obtain approval from RBI and register with the Ministry of Corporate Affairs (MCA).
- Liabilities are linked to the parent company.
When to Choose a Branch Office:
A Branch Office is suitable for companies that want to:
- Expand operations in India without creating a separate legal entity.
- Explore the Indian market by providing services and generating income.
- Maintain control directly under the parent company.
2. What is a Liaison Office?
A Liaison Office is a representative office of a foreign company. Unlike a branch office, it cannot carry out commercial activities. Its main role is to act as a communication channel between the parent company abroad and stakeholders in India.
Key Features of a Liaison Office:
- Cannot generate income or carry out business operations.
- Can only promote the parent company’s products, conduct market research, and build networks.
- Expenses must be funded entirely by the parent company.
- Requires RBI approval for setup.
- Functions as a cost center, not a profit center.
3. When to Choose a Liaison Office:
A Liaison Office is suitable for companies that want to:
- Test the Indian market before making bigger investments.
- Build relationships with potential clients, partners, or government authorities.
- Gather market intelligence and promote the parent company’s products or services.
What is a Foreign Subsidiary?
A Foreign Subsidiary is a company incorporated in India but owned fully or partly by a foreign company. It is a separate legal entity governed under the Companies Act, 2013.
Key Features:
- Can carry out all legal business activities as per Indian law.
- Can be 100% owned by a foreign company (except in restricted sectors).
- Liabilities are limited to the subsidiary itself, not the parent company.
- Taxed as an Indian company.
Pros of a Foreign Subsidiary:
- A wide range of business activities is allowed.
- Strong credibility with Indian clients and government authorities.
- Liability protection for the parent company.
- Easier to raise capital locally.
Cons of a Foreign Subsidiary:
- Higher cost and time needed for incorporation.
- Requires strict compliance with Indian corporate laws.
4. Key Differences Between Branch Office, Liaison Office, and Foreign Subsidiary.
| Factor | Branch Office | Liaison Office | Foreign Subsidiary |
|---|---|---|---|
| Legal Status | Companies testing the market or building networks | Representative office | Separate legal entity |
| Commercial Activities | Allowed (limited scope) | Not allowed | Fully allowed |
| Income Generation | Yes | No | Yes |
| Liability | Parent company holds liability | Parent company holds liability | Liability limited to shares |
| Approval Needed | RBI + MCA | RBI | MCA (Companies Act) |
| Best For | Companies wanting to provide services in India | Companies testing market or building networks | Companies planning long-term business in India |
5. Choosing the Right Structure for Your Business Goals
Now that you know the basics, let’s match these options with common business goals:
- If you want to test the market first, → Choose a Liaison Office.
- If you want to provide services and earn revenue without creating a new company, → Choose a Branch Office.
- If you want long-term growth and independence in India, → Choose a Foreign Subsidiary.
6. Compliance Considerations
No matter which option you choose, compliance is very important in India. Here are a few points to remember:
- Branch Office & Liaison Office → Both require RBI approval before starting operations.
- Foreign Subsidiary → Needs to be registered under the Companies Act and follow all corporate compliances.
- Taxation → Subsidiaries are taxed as Indian companies, while Branch Offices are taxed as foreign companies (higher tax rate). Liaison Offices do not pay income tax as they cannot earn income.
- Annual Filings → All three entities must file annual reports with RBI/MCA as per requirements.
Which Structure Should You Choose?
Choosing between a Branch Office, Liaison Office, or Foreign Subsidiary depends on your company’s strategy. If your goal is only to explore and research, a Liaison Office is enough. If you want to provide services and earn revenue but still remain linked directly to the parent company, a Branch Office works best. However, if your company wants to establish a strong and independent base in India, then a Subsidiary is the right choice.
Careful planning and professional guidance are important, as each structure involves regulatory approvals and compliance obligations.
Expanding into a new market is a big decision, and the right business structure will make your journey smooth. With the right support, you can match your business goals with the right setup.
For expert guidance on company formation and compliance in India, many businesses consult reliable professionals. One trusted name in this space is Groom Tax, known for helping companies choose the right path for expansion.
