Indian Subsidiary vs Liaison Office vs Branch Office: India Entry Options Compared
Subsidiary vs liaison office vs branch office: RBI eligibility (USD 50,000 or 100,000 net worth), permitted activities and tax for foreign firms.
Short answer
A wholly owned subsidiary is the most flexible India entry route: it can do any permitted business, is taxed as a domestic company, and needs no RBI approval in automatic-route sectors. A liaison office suits market research and representation only, with no income. A branch office suits limited activities like export, consultancy or support, but is taxed at foreign company rates.
- LO eligibility
- 3-year profit record, net worth at least USD 50,000
- BO eligibility
- 5-year profit record, net worth at least USD 100,000
- LO validity
- 3 years, extendable
- Annual activity certificate
- By 30 April each year (LO and BO)
- Subsidiary FDI reporting
- FC-GPR within 30 days of allotment
- Approval route
- AD bank and RBI for LO/BO; automatic route for most subsidiaries
What are the three options?
A foreign company can enter India by incorporating a subsidiary under the Companies Act 2013, or by opening a liaison office or branch office under FEMA rules and the RBI Master Direction on establishment of offices. A subsidiary is an Indian company. A liaison or branch office is an extension of the foreign parent and has no separate legal identity in India.
Offices are approved through an Authorised Dealer Category-I bank, with RBI's Foreign Exchange Department involved. They must also register with the Registrar of Companies as a foreign company carrying on business in India.
Side-by-side comparison
The table summarises eligibility, permitted activities and tax treatment for each option. Office eligibility follows the RBI Master Direction, and subsidiary rules follow the consolidated FDI policy and FEMA rules.
| Factor | Wholly owned subsidiary | Liaison office | Branch office |
|---|---|---|---|
| Legal status | Indian company | Extension of parent | Extension of parent |
| Eligibility | Sector FDI rules | 3 years' profit, net worth USD 50,000 | 5 years' profit, net worth USD 100,000 |
| Can earn income in India | Yes | No | Yes, for permitted activities |
| Permitted activities | Any activity allowed under FDI policy | Liaison, representation, promotion | Export-import, consultancy, research, IT services, buying or selling agent, technical support |
| Manufacturing or retail | Allowed subject to FDI policy | No | No |
| Funding | Equity, debt under ECB rules | Inward remittances for expenses only | Parent funding and Indian earnings |
| Validity | Perpetual | 3 years, extension possible | Generally no fixed term |
| Income-tax | Domestic company rates, 22% option | Not taxable if no income, PE risk applies | Foreign company rate, 35% base |
| Annual reporting | ROC filings, audit, FC-GPR/FLA as applicable | Annual activity certificate, ROC foreign company filings | Annual activity certificate, ROC foreign company filings |
How does tax differ?
A subsidiary pays tax as a domestic company and can choose the 22% base rate under section 200 of the Income-tax Act 2025, about 25.17% effective. Dividends paid to the foreign parent are taxed in India, often at a reduced treaty rate. A branch office is taxed as part of the foreign company at the foreign company base rate of 35% plus surcharge and cess, with profits remittable after tax.
A liaison office should earn nothing in India. If it goes beyond liaison activity, tax authorities may treat it as a permanent establishment and tax attributable profits, so its activities must stay strictly within the approval.
Which should you choose?
Match the vehicle to what the business will actually do in India over the next few years, not just at launch, because switching from an office to a subsidiary later means a fresh setup.
- Testing the market, meeting partners, no sales yet: liaison office.
- Exporting from India, providing consultancy or IT support for the parent: branch office may work.
- Selling to Indian customers, hiring at scale, manufacturing or raising local funds: wholly owned subsidiary.
- Parent lacks the profit track record for an office: subsidiary, or an office backed by a parent letter of comfort where permitted.
- Investor from a country sharing a land border with India: government approval is needed for FDI, so plan longer timelines.
What are the setup steps for a subsidiary?
A subsidiary needs at least two shareholders (the parent and a nominee), at least two directors with one resident in India, a registered office in India, and capital brought in through banking channels. After share allotment, the company reports the inflow in Form FC-GPR on the FIRMS portal within 30 days, and files the annual return on foreign liabilities and assets where applicable.
Related services
Sources
- RBI Master Direction: establishment of branch, liaison and project offices in India
- Liaison office vs branch office in India (Setindiabiz)
- Section 200, Income-tax Act 2025: tax on income of certain domestic companies (EZTax)
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Can a liaison office sign contracts or invoice customers in India?
No. A liaison office cannot undertake any business or earn income in India. Its expenses must be met from inward remittances from the parent.
Is a branch office taxed more than a subsidiary?
Usually yes. A branch is taxed at the foreign company base rate of 35%, while a subsidiary can opt for a 22% base rate, though dividend tax on repatriation must be added to the subsidiary's cost.
Does a subsidiary need RBI approval?
Not in sectors under the 100% automatic route. It only needs to report the investment. Government approval is required in approval-route sectors and for investors from land-border countries.
How long is a liaison office approval valid?
Initially three years. An AD bank can extend it if annual activity certificates have been filed, except for certain categories such as construction and development entities and NBFCs.