Subsidiary, branch or liaison office: which suits a foreign company in India? (2026)

Last updated: 21 October 2026

Quick Answer: A subsidiary suits selling and hiring in India, a branch office suits RBI-permitted work for the parent, and a liaison office suits representation only. Only the subsidiary is a separate Indian company. A branch office needs a five-year profit record and USD 100,000 net worth; a liaison office needs three years and USD 50,000, and cannot earn income.

A wholly owned subsidiary is an Indian company incorporated under the Companies Act, 2013, whose shares the foreign parent holds. Branch and liaison offices are places of business of the foreign company itself, approved under the Foreign Exchange Management Act, 1999 (FEMA). Deciding the subsidiary vs branch office vs liaison office in India question turns on the planned activity, the liability the parent accepts and the Reserve Bank of India (RBI) tests it can pass.

What can each structure legally do in India?

A subsidiary may carry on any activity the foreign direct investment (FDI) policy allows for its sector. A branch office may carry on only the activities in Annex C of the RBI Master Direction, and a liaison office may only represent the parent and communicate.

Annex C branch activities include:

• Export and import of goods.
• Professional or consultancy services, other than the practice of law.
• Research work in which the parent is engaged.
• Acting as buying or selling agent for the parent, and promoting technical or financial collaborations.
• Information technology services, software development and technical support for group products.

Manufacturing is not listed: a branch office may manufacture only inside a Special Economic Zone (SEZ), in a sector open to 100% FDI, as a stand-alone operation complying with Chapter XXII of the Companies Act, 2013.

A liaison office, also called a representative office, may represent the group, promote exports, imports and collaborations, and act as a communication channel. Its bank account pays only local expenses.

Under the RBI Master Direction on branch, liaison and project offices, a foreign company with a contract from an Indian company to execute a project in India may open a project office without separate approval. The project needs its regulatory clearances and funding by inward remittance, an international financing agency, or a term loan from an Indian public financial institution or bank to the awarding company.

How do the RBI eligibility rules differ?

A branch office needs a profit-making track record over the immediately preceding five financial years in its home country and net worth of at least USD 100,000; a liaison office needs three years and USD 50,000. A subsidiary that falls short may submit a Letter of Comfort from a parent or group company meeting both tests. Net worth is paid-up capital plus free reserves, less intangible assets, from the latest audited balance sheet.

A liaison office approval is generally valid for three years. For non-banking finance companies and entities in construction and development, it is two years, with no extension except for infrastructure development companies.

Both offices are regulated under section 6(6) of FEMA, read with Notification No. FEMA 22(R)/2016-RB of 31 March 2016.

How does the Form FNC route work?

The authorised dealer (AD) Category-I bank, not the RBI, approves most applications, after the RBI allots a Unique Identification Number (UIN). The route runs in four steps:

1. The foreign company files Form FNC with its chosen AD Category-I bank, with the listed documents.
2. The bank checks eligibility, promoters, activity, source of funds and know your customer (KYC) details.
3. It sends Form FNC and its proposed approval to the RBI for a UIN.
4. Once the UIN arrives, the bank issues the approval letter.

Prior RBI approval, processed with the Government of India, still applies to the cases in paragraph 1(ii) of the Master Direction. These cover applicants from Pakistan, and applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau seeking an office in Jammu and Kashmir, the North East region or the Andaman and Nicobar Islands. They also cover NGOs, non-profit organisations, foreign government bodies, and applicants whose principal business is defence, telecom, private security, or information and broadcasting, unless a Ministry or regulator has already approved them.

How does taxation differ: branch office vs subsidiary?

A branch office is taxed as part of a foreign company at 35%, while an Indian subsidiary is a domestic company taxed at 25% or 30%, or 22% under section 115BAA. The rates in the First Schedule to the Finance Act, 2026 apply to FY 2025-26 under the Income-tax Act, 1961 and to tax year 2026-27 under the Income-tax Act, 2025.

Turnover is tested in previous year 2023-24 for FY 2025-26 and in tax year 2024-25 for tax year 2026-27. For FY 2025-26, the Income Tax Department rate tables show a 22% option under section 115BAA of the Income-tax Act, 1961, with a flat 10% surcharge. Section 200 of the Income-tax Act, 2025 continues the 22% option from tax year 2026-27. Return filing for either form falls within direct and indirect tax advisory.

How do profits reach the parent from a branch or a subsidiary?

A branch office remits its profit, net of applicable Indian taxes, through its AD Category-I bank. A subsidiary pays dividends out of its profits under section 123 of the Companies Act, 2013; the dividend is taxed in India in the parent's hands, at the tax treaty rate where the parent qualifies for it. Liaison offices have no profit to send, and one that goes beyond its permitted activities risks being treated as a permanent establishment whose income India can tax.

For a branch remittance, the bank needs a certified copy of the audited accounts for the year. It also needs a chartered accountant's certificate on how the remittable profit was worked out, confirming that it came only from permitted activities and includes no profit from revaluing branch assets.

Which structure fits each India entry plan?

Choose a subsidiary for a lasting Indian business that sells, hires and invoices in its own name. Choose a branch office to provide Annex C services, such as consultancy or software work, in the name of the parent. Choose a liaison office to represent the parent and promote its trade and collaborations before either.

In the liaison office vs branch office decision, the test is income. A liaison office suits representation and promotion funded from abroad; a branch office suits contracts the parent signs and performs itself, at the 35% rate and with the parent fully liable.

Property separates them too. According to the RBI FAQs on branch, liaison and project offices, a branch or project office may buy property for its own use but not to let out. Entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal, Bhutan, China, Hong Kong and Macau first need RBI approval. Liaison offices may not buy property at all.

What compliance follows after set-up?

A branch or liaison office registers with the Registrar of Companies within 30 days where the Companies Act, 2013 requires it, and obtains a Permanent Account Number. Each year it files an Annual Activity Certificate, made up to 31 March, by 30 September with its AD bank and the Director General of Income Tax (International Taxation), New Delhi. A subsidiary carries the full Companies Act, 2013 calendar and the annual Foreign Liabilities and Assets (FLA) return to the RBI, due by 15 July.

Under section 2(42) of the Companies Act, 2013, a body corporate incorporated outside India with a place of business and business activity in India is a foreign company.

Rule 3(3) of the Companies (Registration of Foreign Companies) Rules, 2014 requires Form FC-1 within thirty days of establishing the place of business. It goes to the Registrar, Central Registration Centre, with the section 380(1) documents and an attested copy of the RBI approval. Section 381 adds annual accounts to the Registrar every calendar year.

A subsidiary takes on the board and governance duties of an Indian company, including statutory registers, annual returns and audit.

HSAG Consulting, which assists with incorporation of subsidiaries and foreign offices and supports branch, project and liaison offices with their annual filings and RBI reporting, is one option for this work. See its company and corporate services for foreign entities and corporate finance and compliance support.

Common Mistakes in Choosing an India Entry Structure

Five errors recur when foreign companies choose.

• Treating a liaison office as a sales office. Invoicing Indian customers is outside the four Annex C liaison activities.
• Planning manufacturing through a branch. Outside an SEZ, manufacturing is not an Annex C branch activity.
• Assuming a branch is separate from the parent. Its obligations sit with the foreign company, at the 35% rate.
• Missing the 30-day Registrar filing. Section 380(1) counts from the day the place of business is established.
• Remitting branch profit without the certificate. Audited accounts and a chartered accountant's certificate must reach the AD bank first.

Planning Your Company's Entry Into India?

Share the planned Indian activity and the financial record of the parent to send an enquiry about your India entry structure.