Subsidiary, branch office or liaison office: which should a foreign company use in India?

Sending profit home narrows that gap: India also taxes the subsidiary's dividends.

Subsidiary, branch office or liaison office: what is the difference?

A branch office and a liaison office are your company's own places of business in India. Section 2(42) of the Companies Act 2013 treats a company incorporated outside India that has a place of business in India as a foreign company, and RBI's 2016 regulations on these offices define a branch office as any establishment a company describes as such. A subsidiary is a separate company, incorporated in India and limited by shares, in which your company controls the composition of the board or more than half of the voting power.

What can each one do in India?

A liaison office may do four things under RBI's Master Direction on branch, liaison and project offices: represent the parent or group companies in India, promote exports from and imports into India, promote technical or financial collaborations between the group and companies in India, and act as a communication channel between the parent and Indian companies. Under RBI's 2016 regulations it may not undertake any commercial, trading or industrial activity, directly or indirectly, and it maintains itself out of money remitted from abroad. It may keep one bank account without RBI's permission, fed only by head-office funds for its expenses, refunds of security deposits and taxes, and the sale of its own assets, and used only for local expenses. With those limits, a liaison office earns no income in India.

A branch office may carry on only the eight activities on RBI's list, and no other activity unless RBI specifically permits it:

1. export and import of goods;
2. professional or consultancy services, other than the practice of law;
3. research in the field in which the parent company works;
4. promoting technical or financial collaborations between Indian companies and the parent or its group;
5. representing the parent in India and acting as its buying or selling agent;
6. information technology services and software development in India;
7. technical support for products supplied by the parent or group companies;
8. representing a foreign airline or shipping company.

A branch's bank account may take any legitimate receivables from its business, and the branch may send its profit home, so a branch earns in India. Manufacturing and retail trade are not on the list. A branch in a Special Economic Zone (SEZ) is the exception: it may manufacture and provide services without approval, in sectors open to 100% foreign investment, on a stand-alone basis. RBI's guidance adds that a branch should normally carry on the activity its parent is engaged in.

A subsidiary may carry on any business its sector allows. The Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (the NDI Rules) permit foreign investment up to 100% on the automatic route in any sector they neither list nor prohibit, most financial services excepted, subject to applicable laws and to security and other conditions.

A foreign company that holds a contract from an Indian company to execute a project in India has a fourth option, the project office. RBI gives it general permission, subject to the project's funding and clearance conditions, and the office lasts for the tenure of the project.

Who approves each one, and what must the parent show?

Your company applies in Form FNC to its AD Category-I bank, a bank authorised to deal in foreign exchange. The bank decides under RBI's Master Direction and issues the approval letter once RBI has allotted the office a Unique Identification Number (UIN). RBI's own prior approval, processed with the Government of India, is needed only where the applicant:

• is from Pakistan;
• is from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and wants an office in Jammu and Kashmir, the North East or the Andaman and Nicobar Islands;
• has its principal business in defence, telecom, private security or information and broadcasting, unless it already holds a Government approval or licence;
• is a non-government organisation, a non-profit organisation or a body, agency or department of a foreign government.

More than four offices also need RBI's prior approval and a justification for the additional ones; RBI reckons four as one in each of the East, West, North and South zones.

The financial test sits in regulation 4 of RBI's 2016 regulations: for a branch, a profit-making record in the home country over the immediately preceding five financial years and net worth of at least USD 100,000; for a liaison office, three years and USD 50,000. A company that falls short and is itself the subsidiary of another company may file a Letter of Comfort from its parent or a group company that meets the test. If neither your company nor such a parent or group company passes, the office routes are closed, and the subsidiary, which has no such test, is the route.

These rules are in force: the 2016 regulations, last amended on 21 January 2019, and the Master Direction, updated as on 18 May 2021. RBI's draft regulations of 3 October 2025 propose to relax the eligibility criteria, move to a principle-based framework and simplify the closure of non-compliant and inactive offices. The draft takes effect only on publication in the Official Gazette, and RBI has not yet notified it, so plan on today's test.

The approval is cancelled if no office opens within six months of the approval letter, though the bank may allow one further six months for reasons beyond your company's control. Registering a branch or liaison office with the Registrar of Companies follows: under section 380 of the Companies Act 2013, your company delivers its documents to the RoC within thirty days of establishing its place of business in India, naming one or more persons resident in India authorised to accept service of process and notices for it.

A liaison office's approval runs for three years. The AD bank may extend it three years at a time if the office has filed its Annual Activity Certificates and run its bank account within the approval's terms, and must decide within one month of the request. A liaison office of a non-banking finance company (NBFC) or of a construction and development business, other than an infrastructure development company, gets two years with no extension, after which it must close or give way to a joint venture or wholly owned subsidiary under India's foreign direct investment (FDI) policy. Every branch and liaison office files an Annual Activity Certificate as at 31 March, with audited financial statements, by 30 September, with its AD bank and with the Director General of Income Tax (International Taxation) in New Delhi.

A subsidiary in a sector on the automatic route needs no approval before your company invests, and one in a sector on the Government route needs the Government's. The Government route also applies when the investor is an entity or citizen of a country sharing a land border with India, or when a citizen of such a country is the investment's beneficial owner. Since Press Note 2 (2026 Series) of 15 March 2026, beneficial ownership is judged by the thresholds of India's anti-money-laundering rules, which the NDI Rules now carry.

Every Indian company needs at least one director who stays in India for a total of 182 days or more in the financial year, applied proportionately in the year it is incorporated (section 149(3) of the Companies Act 2013). The Act no longer sets a Rs 1 lakh (100,000 rupees) minimum paid-up capital for a private company: the words were removed from section 2(68) with effect from 29 May 2015.

How is each one taxed, and how does the money get home?

Income earned from 1 April 2026 falls in tax year 2026-27 under the Income-tax Act 2025; income of FY 2025-26 stays under the Income-tax Act 1961, and the Finance Act 2026 sets the same company rates for both years.

A branch is taxed as part of your company. The Finance Act 2026 charges a company other than a domestic company 35%, plus a surcharge of 2% where total income exceeds Rs 1 crore (ten million rupees) and 5% where it exceeds Rs 10 crore, and 4% cess. If you have seen 40% quoted for a branch, that rate predates the cut to 35% announced in the Budget of 23 July 2024. Article 14(2) of the India-US tax treaty expressly lets India tax a US company at a rate higher than domestic companies pay, within the existing difference of 15 percentage points.

An Indian subsidiary is a domestic company and may opt for 22% under section 200 of the Income-tax Act 2025 from tax year 2026-27, or under section 115BAA of the Income-tax Act 1961 for FY 2025-26, with a 10% surcharge and 4% cess. Once exercised, the option cannot be withdrawn for that or any other tax year. Otherwise the company pays 25% if its turnover or gross receipts in 2024-25 did not exceed Rs 400 crore and 30% if they did, plus a surcharge of 7% where total income exceeds Rs 1 crore and 12% where it exceeds Rs 10 crore, and 4% cess. The 15% rate for new manufacturing companies, now section 201, requires manufacturing to have begun on or before 31 March 2024, so a subsidiary formed now cannot use it.

Built from those rates, before marginal relief, a subsidiary under section 200 pays 25.168% all in: 22%, plus the 10% surcharge, plus 4% cess. A branch pays 36.4% (35% plus cess) where total income is Rs 1 crore or less, 37.128% with the 2% surcharge above Rs 1 crore and 38.22% with the 5% surcharge above Rs 10 crore.

A liaison office files a yearly statement of its activities with its Assessing Officer, the income-tax officer with jurisdiction over it: Form 162 under section 505 of the Income-tax Act 2025 from tax year 2026-27, due within 8 months of the end of the tax year, and Form 49C under section 285 of the Income-tax Act 1961 for FY 2025-26.

A branch sends home its profit net of Indian taxes, against audited accounts and a chartered accountant's certificate showing how the remittable profit was arrived at, that all of it was earned from the permitted activities and that it includes no profit from revaluing the branch's assets. As reported on 27 July 2026, the Delhi High Court affirmed, in a ruling for one taxpayer, the tax officer's view that no tax is deducted at source under section 195 of the Income-tax Act 1961 on remittances from the Indian branch of United Airlines Inc. to its US head office, because a branch and its head office are not separate payer and payee.

A subsidiary pays your company dividends, which India taxes at 20% under section 207 of the Income-tax Act 2025, or at no more than 15% under Article 10 of the India-US tax treaty where a US company beneficially owns them and holds at least 10% of the subsidiary's voting stock. Royalty and fees for technical services that the subsidiary pays its foreign parent are taxed at 20% each under section 207(2), before any treaty relief, where the agreement meets that section's conditions. The subsidiary's lower rate therefore counts most on profit it keeps in India.

Who is liable for what each one does?

A branch or liaison office is your company itself, operating from a place of business in India, so its obligations in India are your company's own. Where an office was approved on a Letter of Comfort, the parent or group company that gave it has also undertaken in writing to meet any liability arising from the office's functioning that the office cannot meet (Annex A to the Master Direction).

A subsidiary is a separate company limited by shares, so your company's liability as shareholder is limited to any amount unpaid on its shares (section 2(22) of the Companies Act 2013).

How hard is each one to close?

An office closes through its AD bank, and a subsidiary has to leave the register of companies.

Your company closes a branch or liaison office by applying to its AD bank, under the 2016 regulations, with:

• the office's approval;
• an auditor's certificate stating the amount to be remitted, with a statement of the office's assets and liabilities, and confirming that every liability in India, including arrears of gratuity and other employee benefits, has been met or provided for and that no income from outside India, export proceeds included, remains unrepatriated;
• your company's confirmation that no legal proceedings against the office are pending in any court in India and that no legal impediment stands in the way of the remittance;
• a report from the RoC on the office's compliance with the Companies Act 2013, where one applies;
• every Annual Activity Certificate, which the bank must check has been filed.

Closing by intimation to the bank, subject to tax and other laws, appears only in RBI's draft regulations, which are not in force.

A subsidiary can apply to the Registrar to have its name struck off under section 248(2) of the Companies Act 2013 only after it has extinguished all its liabilities, by special resolution or with the consent of members holding 75% of the paid-up share capital, and only on a ground in section 248(1), such as not carrying on any business or operation for the two immediately preceding financial years. A subsidiary that is still operating cannot use strike-off; its route out is liquidation.

Which one should a foreign company choose?

Decide from what the business must do in India in its first years, then check your company's record against RBI's test.

• To represent your company, with no income in India: a liaison office, for a company that wants to promote its trade or collaborations and keep a channel open to Indian companies while it tests the market.
• To earn from one of RBI's eight activities and send the profit home: a branch, for a company that will earn from consultancy, IT and software services, the import and export of goods or another listed activity, and that accepts the branch's obligations as its own.
• To run any other business, or to reinvest profit in India: a subsidiary, for a company that will manufacture outside an SEZ, trade at retail or carry on a business off RBI's lists, or that wants limited liability. The 22% option counts most for a company that keeps its Indian profit in India, and a subsidiary is the route for a company that cannot pass RBI's test directly or through a Letter of Comfort.
• To execute one contract for an Indian company: a project office, which lasts for the tenure of the project.

You can also change course later. RBI may permit a liaison office to upgrade into a branch, which keeps its Permanent Account Number (PAN) and bank accounts. To move from an office to a subsidiary, your company closes the office, and the office's assets may be sold to the new joint venture or wholly owned subsidiary only on closure, at no more than book value.

When the subsidiary is the route, LegalJini sets up a foreign company's Indian subsidiary for a one-time fee of USD 1,500, which includes the FDI and Foreign Exchange Management Act (FEMA) filings, and ongoing compliance costs USD 1,000 a month, which includes LegalJini's resident director at USD 500 a month. The resident director is appointed in India and handles the work on the ground, so no one from your company needs to visit India. For the details, see setting up an Indian subsidiary with LegalJini and the step-by-step incorporation of a wholly owned subsidiary.

Before you write, settle three points: what the business will do in India in its first years, whether your company or a group company passes RBI's profit and net worth test, and whether any beneficial owner of your company is a citizen of a country sharing a land border with India. Send those answers to LegalJini by email or through the callback form on the website; LegalJini replies to every enquiry within 12 hours.

Frequently asked questions

How does RBI measure a parent company's net worth for a branch or liaison office?

The Reserve Bank of India (RBI) takes net worth as the total of paid-up capital and free reserves, less intangible assets, from the company's latest audited balance sheet or from an account statement certified by a Certified Public Accountant or any registered accounts practitioner.

Does a branch or liaison office need its own Indian tax number?

Yes. A branch office or liaison office obtains a Permanent Account Number (PAN) from the Income Tax authorities when it sets up in India, and reports that number in its Annual Activity Certificates.