For an overseas business entering India, the first legal decision is not what to sell but how to be present. A liaison office, a branch, a project office and an Indian subsidiary each decide what the business may do in India, which regulators it answers to and how it is taxed.
For a foreign company, opening an office in India is the easy part. Living with the wrong kind of office is not. However, under Indian law, the question "how do we set up in India?" does not have one answer. It has four, i.e., a liaison office, a branch office, a project office or a subsidiary incorporated in India, and each carries its own permissions, filings and tax consequences. The first three are, in substance, extensions of the foreign company itself and are governed largely by the foreign exchange regime administered by the Reserve Bank of India ("RBI"). The fourth is a separate Indian company, governed by the Companies Act, 2013 and India's foreign direct investment ("FDI") policy. This article examines the implications of each route, the factors which should guide the choice, and how India compares with China.
The Legal And Compliance Framework
A foreign company wishing to establish a branch, liaison or project office in India must do so under the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other Place of Business) Regulations, 2016, read with the RBI's Master Direction on the subject. The application is made in Form FNC through an Authorised Dealer Category-I bank ("AD bank"), which in most cases grants the approval itself, and the RBI allots a Unique Identification Number to the office. Prior RBI approval is required in certain cases, i.e., applicants from Pakistan, businesses in defence, telecom, private security or information and broadcasting (unless already licensed by the relevant ministry), non-governmental organisations and bodies of foreign governments. Applicants from China, Hong Kong, Macau, Bangladesh, Sri Lanka, Afghanistan and Iran face additional scrutiny, including registration with the State police.
The regulations also set a financial threshold. A branch office is available only to a foreign company that has made profits in each of the five preceding financial years in its home country and has a net worth of at least USD 100,000. A liaison office requires a profit-making record of three years and a net worth of at least USD 50,000. A group company which does not meet these criteria may rely on a letter of comfort from its parent.
Approval under foreign exchange law is only the first step. Once a foreign company establishes a place of business in India, Section 380 of the Companies Act, 2013 requires it to register with the Registrar of Companies within 30 days by filing Form FC-1, and thereafter to file its accounts and an annual return every year. The office must also obtain a Permanent Account Number, and branch and liaison offices must submit an Annual Activity Certificate, as at 31 March each year, to the AD bank and to the Director General of Income Tax (International Taxation), confirming that they have kept within their permitted activities.
A subsidiary follows a different path. It is incorporated as an Indian company and the foreign parent invests in it as FDI, either under the automatic route or, in sectors which require it, with government approval. The issue of shares to the parent must be reported to the RBI in Form FC-GPR within 30 days of allotment, and the company must file an annual return on foreign liabilities and assets by 15 July each year. It is also subject to the full range of compliance under the Companies Act, 2013, including the requirement under Section 149(3) that at least one director must have stayed in India for at least 182 days in the financial year.
Tax treatment differs as well. Since 1 April 2026, income tax has been governed by the Income-tax Act, 2025, which replaced the Income-tax Act, 1961, and Budget 2026 left corporate tax rates unchanged. A branch or project office, being part of a foreign company, is taxed at the foreign company rate of 35 per cent before surcharge and cess. A subsidiary is taxed as a domestic company and may opt for the concessional rate of 22 per cent, subject to giving up certain deductions and incentives. Dealings between a subsidiary and its parent are subject to transfer pricing rules, and dividends to the parent attract withholding tax, subject to treaty relief.
The Four Options In Brief
Liaison office. The most limited form of presence, a liaison office may represent the parent in India, promote exports and imports, promote technical and financial collaborations and act as a channel of communication between the parent and Indian companies. It cannot undertake any commercial activity, and its expenses must be met through remittances from its head office. Approval is ordinarily granted for three years, or two years for non-banking financial companies and construction and development businesses.
Branch office. A branch can earn income in India, but only from a defined list of activities, i.e., export and import of goods, professional or consultancy services (other than legal practice), research in the parent's field, promoting collaborations, acting as buying or selling agent for the parent, IT and software development, technical support for the group's products and representing a foreign airline or shipping company. Manufacturing is permitted only for branches set up in Special Economic Zones, and retail trading is not among the permitted activities. A branch may remit its profits abroad net of Indian taxes.
Project office. A project office is tied to a specific contract. A foreign company that has secured a contract from an Indian company to execute a project in India may open one under general permission, provided the project has the necessary regulatory clearances and is funded by inward remittance, by a bilateral or multilateral financing agency, or by a term loan from an Indian bank or public financial institution. Its life is the life of the project.
Subsidiary. A subsidiary is a separate Indian company and may carry on any business permitted under India's FDI policy, subject to sectoral caps and conditions. The parent's liability is limited to its investment. This is not the case with a branch, liaison or project office, which are not separate legal persons, and the foreign company remains answerable for their obligations.
What Should Guide The Choice
The choice between these options is less a matter of preference than of fit. From on overlooking view, the following factors should guide it:
- Nature of the activity. If the business only needs to understand the market or maintain relationships, a liaison office is sufficient. If it needs to earn revenue from activities within the permitted list, a branch may serve. Anything beyond that list, including manufacturing outside a Special Economic Zone, requires a subsidiary.
- Duration. A project office suits a single contract with a fixed end date, whereas a long-term commitment to the Indian market is better served by a subsidiary.
- Liability. A branch exposes the parent's balance sheet to its Indian obligations. Hence, businesses in sectors where claims are likely tend to prefer the separation that a subsidiary provides.
- Tax. The gap between the 35 per cent foreign company rate and the 22 per cent concessional domestic rate is significant, although any comparison must also account for withholding tax on dividends and treaty relief.
- Origin of the investor. Since 2020, investment from countries sharing a land border with India has required government approval. Amendments approved by the Union Cabinet on 10 March 2026 now allow non-controlling beneficial ownership of up to 10 per cent through the automatic route and set a 60-day timeline for processing proposals.
- Compliance capacity. A subsidiary carries the heaviest burden, with board meetings, statutory audits, annual filings and FEMA reporting, while a liaison office carries the lightest.
How Does China Compare?
China competes with India for the same foreign investment and has recently overhauled its own rules. Since its Foreign Investment Law came into force on 1 January 2020, foreign-invested enterprises have been organised under the general Company Law, and the five-year transition for older joint ventures and wholly foreign-owned enterprises ended on 31 December 2024. Access is governed by a negative list. Outside the sectors on that list, foreign investors are in principle treated as domestic ones, and since 1 November 2024 the list has contained no restrictions on manufacturing.
The similarities are striking. China's representative office is, in substance, India's liaison office. It is not a legal person, it cannot engage in profit-making activities except where an international treaty permits it, and it is confined to market research, promotion and liaison work for its parent, which must have existed for more than two years. Similarly, the wholly foreign-owned enterprise is China's equivalent of the Indian subsidiary and is the form most foreign businesses use for commercial operations there.
The differences lie mainly in the middle. Chinese company law does provide for branches of foreign companies, but subject to approval, and a branch has no separate legal personality, so the foreign company bears its liabilities. In practice, a foreign business that wants to earn revenue in China ordinarily incorporates a wholly foreign-owned company. India, on the other hand, offers a genuine middle path in its branch office, which allows a foreign company to earn income and remit profits without incorporating, although only within the permitted list, along with a dedicated project office route for contract-based work. China's revised Company Law, effective 1 July 2024, also requires shareholders of a limited liability company to pay their subscribed capital within five years. Thus, India offers more choice of structure, while China's model is simpler but channels most serious investors into incorporation.
Conclusion
The choice of entry structure is not a formality. It determines what the business may do in India, how its profits are taxed and how much of the parent's balance sheet is exposed. Hence, an overseas business should decide on its structure only after it has clearly identified what it intends to do in India over the next few years, and not merely in the first year.
India has made the process considerably easier over the last decade. Most branch and liaison office approvals are now granted at the AD bank level, incorporation is handled through the integrated SPICe+ form, and FDI reporting has moved online to the RBI's FIRMS portal. However, a foreign business still deals separately with the RBI, the Registrar of Companies and the tax authorities, often providing the same information more than once. Therefore, a single filing that serves all three regulators, published timelines for the approvals that still require the RBI or the government, and clearer guidance on where a branch's permitted activities end would do more to support foreign businesses than any further change in the rules themselves. For overseas businesses, the lesson is simple, i.e., the structure should follow the business plan, and not the other way round.
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