Indian Subsidiary vs Branch Office vs Liaison Office: Which Should a Foreign Company Choose?
One of the first decisions a foreign company faces when entering India is choosing the right legal vehicle. The three most common options are an Indian subsidiary, a branch office, and a liaison office. Each has a different purpose, a different approval pathway, and very different tax and compliance consequences. This guide compares the three so you can pick the structure that fits your business goals.
The Three Entry Options at a Glance
- Subsidiary (Private Limited Company): A separate Indian company that can carry on full commercial activity and earn revenue.
- Branch Office (BO): An extension of the foreign company, allowed to undertake specified activities such as exports/imports and consultancy.
- Liaison Office (LO): A representative office that can only act as a communication channel — it cannot earn income in India.
Indian Subsidiary
A subsidiary is incorporated under the Companies Act, 2013, usually as a private limited company. It is the most flexible option: it can manufacture, trade, provide services, raise invoices, hire employees, and repatriate profits. In most sectors it can be a 100% wholly owned subsidiary under the automatic route.
Best for: Companies that want a permanent, revenue-generating presence with full control. Read the complete foreign subsidiary setup guide.
Branch Office
A branch office is set up with prior RBI approval (routed through an authorised dealer bank) and is suitable for foreign companies engaged in manufacturing or trading. Permitted activities include export/import of goods, professional or consultancy services, research, and representing the parent. A branch cannot undertake retail trading or manufacturing directly (manufacturing is allowed only in SEZs), and its income is taxed in India at the higher rate applicable to foreign companies.
Best for: Established foreign companies wanting a presence for specific approved activities without forming a separate Indian company.
Liaison Office
A liaison (representative) office is the most limited structure. It can only promote the parent’s business, gather market information, and act as a communication link. It cannot earn any income in India and must be funded entirely by inward remittances from the parent. RBI approval is required, typically valid for three years and renewable.
Best for: Companies testing the Indian market before committing to operations.
Comparison Table
| Feature | Subsidiary | Branch Office | Liaison Office |
|---|---|---|---|
| Legal status | Separate Indian company | Extension of parent | Extension of parent |
| Can earn income | Yes | Yes (approved activities) | No |
| Approval | ROC incorporation | RBI / AD bank | RBI / AD bank |
| Liability of parent | Limited | Unlimited | Unlimited |
| Taxation | Domestic company rate | Foreign company rate | Not applicable (no income) |
| Typical use | Full operations | Specific activities | Market presence only |
Which Structure Should You Choose?
If your goal is to do business, generate revenue, and scale in India, a subsidiary is almost always the right choice because of limited liability and commercial freedom. A branch office suits foreign companies that want to undertake a narrow set of approved activities under their existing identity. A liaison office is a low-commitment way to explore the market. The decision also affects FDI reporting, transfer pricing, and exit, so professional advice pays off.
Frequently Asked Questions
Which option has the lowest compliance burden?
A liaison office has limited activity but still requires RBI reporting and annual filings. A subsidiary has more compliance but also far more commercial freedom.
Can a liaison office be converted into a subsidiary later?
You cannot directly convert it, but you can close the LO and incorporate a subsidiary when you are ready to operate.
Is a branch office taxed more than a subsidiary?
Generally yes — a branch is taxed at the foreign-company rate, which is higher than the domestic-company rate applicable to a subsidiary.
Do all three need a resident presence in India?
Each needs a registered/local address and an authorised representative in India; a subsidiary additionally needs a resident director.
Choose the Right India Entry Structure
S. Choudhary & Co. advises foreign companies on the most tax-efficient and compliant way to enter India and handles the full setup. Explore our incorporation services and FDI & ECB management, or call +91 90248 28295 · sushil@sushilchoudhary.com.
