Subsidiary vs Branch vs Liaison Office in India: Which Entity for India Entry

Every foreign company entering India faces the same first decision: incorporate a subsidiary, register a branch, or open a liaison office. The choice fixes what you can do, how you are taxed, and who must approve you. Get it right once and everything downstream is simpler. Here is the comparison, in plain terms.

The four options at a glance

Three vehicles dominate the conversation — subsidiary, branch office (BO) and liaison office (LO) — with a fourth, the project office (PO), used for specific contracts. The table below is the short version. The rest of this guide explains each row.

	Subsidiary	Branch office	Liaison office	Project office
Legal status	Separate Indian company	Extension of the foreign parent	Extension of the foreign parent	Extension, tied to one project
Can earn revenue	Yes, freely	Yes, within permitted activities	No — none at all	Only from the awarded project
Manufacturing	Yes	No (except in an SEZ)	No	Project execution only
Income-tax rate (base)	22% (effective ~25.17%)	35%	Not taxable (no income)	35%
Approval	Automatic route, most sectors	AD bank under FEMA 22(R)	AD bank under FEMA 22(R)	AD bank under FEMA 22(R)
Parent's liability	Limited to shareholding	Unlimited — parent is liable	Unlimited — parent is liable	Unlimited — parent is liable

What each vehicle can and can't do

Subsidiary — the full-business vehicle

A subsidiary is an Indian private limited company in which the foreign parent holds shares — up to 100% in most sectors. It is a separate legal person. It can sell, manufacture, hire, borrow, own property and contract in its own name, and the parent's exposure is limited to its shareholding. It is the structure Indian banks, customers and investors understand best. The full setup journey is covered in our guide on how a foreign company opens a subsidiary in India.

Branch office — revenue without a separate company

A branch is not a separate entity; it is the foreign company itself, operating in India. It can invoice Indian customers within its permitted activities — typically export/import, professional and consultancy services, IT services and technical support for the parent's products. What it cannot do is manufacture in India (an exception exists for SEZ units) or carry on retail trading. Because the branch is the parent, every Indian liability of the branch is a liability of the parent.

Liaison office — presence without business

A liaison office is the lightest footprint and the most restricted. It may act only as a channel of communication: market research, promoting the parent's products, fostering technical and financial collaboration. It cannot earn a single rupee of income in India. All its expenses must be met by inward remittances from the parent. For a company that wants to study the market before committing, that constraint is the point — no revenue, and consequently no income to tax.

Project office — one contract, one office

A project office is a site office set up to execute a specific contract awarded by an Indian company. Its life and its permitted activity are tied to that project. Common in engineering, construction and infrastructure mandates.

The tax contrast — the number that decides many cases

Here is the comparison that often settles the debate. An Indian subsidiary is a domestic company. Opting for the concessional regime under section 115BAA of the 1961 Act (now section 200 of the Income-tax Act, 2025, in force from 1 April 2026), it pays 22% plus 10% surcharge and 4% cess — an effective ~25.17%, with no incentive deductions.

A branch or project office is taxed as a foreign company. The base rate is 35% — reduced from 40% by the Finance (No. 2) Act, 2024 — plus surcharge (2% above ₹1 crore of income, 5% above ₹10 crore) and 4% cess, giving an effective rate of roughly 36.4% to 38.22%.

That is a gap of around 11 to 13 percentage points on every rupee of profit. The branch's partial offset: its post-tax profits can be remitted to the parent without a further dividend layer, whereas a subsidiary's dividends are taxed in the shareholder's hands (often at a reduced treaty rate). For sustained, profitable operations, the subsidiary's lower rate usually still wins — but the comparison deserves a proper computation on your numbers, not a rule of thumb.

Who approves what

The approval paths differ in kind, not just in paperwork.

Subsidiary: in most sectors, foreign investment comes in under the automatic route — no prior approval from the RBI or the government. Approval is needed only for restricted sectors, or where the investor is from a country sharing a land border with India (Press Note 3 of 2020, still in force). The routes and sector caps are mapped in our guide to the FDI automatic and approval routes. After investment, the subsidiary reports the share issue to the RBI by filing Form FC-GPR within 30 days of allotment.

Branch, liaison and project offices: these are approved by an Authorised Dealer Category-I bank under the RBI's FEMA 22(R) framework. Prior RBI approval is required in specific cases — applicants from land-border countries, NGOs and entities in sensitive sectors. The AD bank also remains your reporting counterpart through the office's life.

Whichever vehicle you choose, an annual RBI compliance follows once foreign investment or a foreign presence exists — including the FLA return due each 15 July.

The ongoing compliance footprint

The vehicles also differ in what they ask of you every year after setup.

A subsidiary lives under the Companies Act: board meetings, statutory registers, annual ROC filings, statutory audit, and income-tax filings as a domestic company. Add the FEMA layer for as long as foreign investment is outstanding — FC-GPR on each allotment and the annual FLA return. It is the heaviest calendar of the three, but it is also entirely routine; thousands of foreign-owned subsidiaries run it without drama.

A branch or project office escapes the Companies Act's full machinery but answers to two masters of its own: the income-tax department, where it files as a foreign company and must defend the attribution of profits to India, and the AD bank, to which it reports annually on its activities. The attribution question deserves respect — a branch is, by definition, a permanent establishment of the parent, and how much of the parent's profit belongs to India is a recurring conversation with the tax officer.

A liaison office has the lightest year: annual reporting through the AD bank and tax filings that mostly demonstrate it earned nothing. The discipline that matters is staying inside the permitted activities. A liaison office that drifts into negotiating contracts or supporting sales is manufacturing a permanent-establishment problem for its parent — the costliest way to discover the line existed.

Switching and exit

Entry vehicles are not forever. Two patterns recur in practice:

• Liaison office → subsidiary. The market test succeeds, and the company incorporates a subsidiary to start selling. The liaison office is then closed through the AD bank. Plan the sequencing so the team and premises transfer cleanly.
• Branch → subsidiary. Less common and more involved, since a business is being moved between legal persons — contracts, employees and assets must be transferred, with tax consequences to manage. Companies that foresee scale usually skip the branch stage for this reason.

On exit, the asymmetry reverses: a liaison or project office winds up relatively quickly through the AD bank once its tax affairs are settled, while a subsidiary's closure — strike-off or winding up — is a longer statutory process. None of this should drive the decision by itself, but it belongs in the picture.

How to decide

Strip away the detail and the decision usually reads like this:

• You plan to sell, hire and grow in India → subsidiary. Full flexibility, the ~25.17% domestic rate, limited liability, and the structure investors expect. A resident director will be needed — plan for it early.
• You only want to study the market and build relationships → liaison office. No revenue, minimal tax surface, easy to wind up.
• You provide services or technical support and want to stay one legal entity globally → branch office. Accept the 35%-base tax rate and the parent's full liability as the price of simplicity.
• You have won a specific Indian contract → project office, for that project's duration.

Most entrants who expect to be in India in five years choose the subsidiary. The branch and liaison routes earn their keep in the narrower cases they were designed for.

Choosing an entry vehicle turns on your facts — sector, margins, treaty position and exit plans. If you would like to talk yours through, you can reach the firm here.