Liaison Office vs Branch Office vs Project Office vs Wholly Owned Subsidiary: The Complete Guide for Foreign Companies Entering India

Every foreign company that decides to enter India faces the same question within the first week of planning: what kind of entity do we set up? The answer is not one-size-fits-all. India gives foreign companies four distinct entry structures — Liaison Office, Branch Office, Project Office, and Wholly Owned Subsidiary. Each one is governed by a different law, permits a different scope of activity, carries a different tax consequence, and requires a different set of approvals.

Choosing the wrong one does not just create paperwork. It can mean operating outside your permitted activity scope, being taxed at the parent company level, or being locked into a structure that requires a full wind-down and restart when your India plans evolve. This guide breaks down all four structures, the key regulatory distinctions most foreign companies miss, and which structure fits which type of India entry.

THE GOVERNING FRAMEWORK: TWO DIFFERENT LAWS

Before comparing the structures, one distinction matters above everything else.

Liaison Offices, Branch Offices, and Project Offices are not Indian companies. They are extensions of the foreign parent company in India. They are governed by FEMA — specifically 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 — and require RBI approval to be established.

A Wholly Owned Subsidiary is an Indian company. It is incorporated under the Companies Act, 2013, with the foreign parent holding 100% of its shares. It is governed by the MCA, not the RBI. It does not need RBI permission to be formed — only an intimation after share allotment. Ongoing compliance follows Indian company law, GST, income tax, and ROC requirements exactly as an Indian-owned company would.

This distinction — incorporated entity vs unincorporated extension — is the single most important variable in the comparison.

LIAISON OFFICE: INDIA PRESENCE WITHOUT INDIA COMMERCE

A Liaison Office — sometimes called a Representative Office — is the lightest form of India presence a foreign company can establish. It is built for one purpose: to act as a communication channel between the foreign parent and the Indian market.

What it can do: It can conduct market research, explore business opportunities, coordinate with Indian customers and vendors, promote the parent company's products and services, and facilitate communication. That is the full permitted scope.

What it cannot do: It cannot sign commercial contracts on its own. It cannot invoice Indian customers. It cannot earn any income in India. Every rupee spent by the Liaison Office must come as an inward remittance from the foreign head office.

RBI eligibility: To establish a Liaison Office, the parent company must have a profit-making track record for the preceding 3 financial years and a minimum net worth of USD 100,000. If these conditions are not met, a Letter of Comfort from a parent or group company that meets the criteria is accepted.

Approval and tenure: RBI approval is required. The approval is granted for a period of 3 years, extendable further subject to activity review.

Tax position: A Liaison Office that stays within its permitted scope — no commercial activity, no income generation — has no Indian corporate tax liability. However, it must file an Annual Activity Certificate (AAC) with its AD Category I bank and the Director General of Income Tax (International Taxation) by September 30 each year along with audited financials.

When to choose it: A Liaison Office makes sense for a foreign company that wants to understand the Indian market before committing, maintain a physical presence for customer communication, or prepare the groundwork for a future larger investment. It is a test-run vehicle, not an operating one.

BRANCH OFFICE: OPERATIONS WITHOUT INCORPORATION

A Branch Office sits one level above a Liaison Office. It can generate income in India — but only from specific RBI-approved activities — and does so as an extension of the foreign company, not as a separate Indian entity.

What it can do: The RBI's permitted activities for a Branch Office include: import and export of goods, rendering professional or consultancy services, conducting research work where the parent company is engaged in research, carrying out technical or industrial collaboration, representing the parent company and acting as buying and selling agents, rendering services in IT and software development, providing technical support for products supplied by the parent, and foreign airline or shipping company operations.

What it cannot do: A Branch Office cannot engage in manufacturing or processing activities in India. It cannot engage in retail trading. It cannot expand into activities beyond what the RBI specifically approves.

RBI eligibility: The parent company must have a profit-making track record for the immediately preceding 5 years and a minimum net worth of USD 100,000. A Letter of Comfort from a qualifying parent or group company is accepted where this is not met.

Tax position: This is where the Branch Office creates significant exposure. A Branch Office is taxed in India as a foreign company — at 40% on Indian income, plus applicable surcharges and cess, resulting in an effective rate of approximately 42–43%. Because it is not a separate Indian legal entity, the parent company's global assets are technically exposed to the Indian liabilities of the branch.

When to choose it: A Branch Office is appropriate when the foreign company wants to operate in India without creating a local incorporated entity — particularly in sectors like IT services, consultancy, or export-import — but can tolerate the higher tax rate and the unlimited liability exposure that comes with it.

PROJECT OFFICE: BUILT FOR ONE JOB, CLOSED WHEN DONE

A Project Office is the most specific of the four structures. It is established for a single, defined purpose: to execute a specific project awarded to the foreign company in India.

What it can do: A Project Office can carry out all commercial and operational activities that are directly related to the project it was set up to execute. Unlike the Liaison Office, it can earn income — but only from that project.

RBI eligibility: The foreign company must have secured a contract from an Indian company to execute a project in India. The project must be funded by inward remittance from abroad, or by bilateral or multilateral international financing agencies, or the project must have been cleared by an appropriate authority. If these conditions are met, the Project Office can be set up under the general permission of the RBI — no prior approval required.

Closure: The Project Office is designed to be temporary. Once the project is complete, it winds down. The net proceeds after settling all Indian liabilities can be repatriated to the head office.

Tax position: A Project Office is taxed as a foreign company in India, similar to a Branch Office — at approximately 42–43% effective rate on Indian income.

When to choose it:

Construction companies, infrastructure contractors, engineering firms, and EPC (Engineering, Procurement, Construction) companies that win specific project contracts in India use the Project Office model. It is not designed for ongoing commercial operations.

WHOLLY OWNED SUBSIDIARY: THE STRUCTURE BUILT FOR LONG-TERM INDIA OPERATIONS

A Wholly Owned Subsidiary (WOS) is an Indian private limited company in which the foreign parent holds 100% of the equity shares. It is a fully independent legal entity — it can contract, hire, invoice, own assets, and operate entirely in its own name.

What it can do:

A WOS can undertake any activity that an Indian company can undertake, subject to FDI sectoral limits and conditions. For most sectors — IT, manufacturing, consulting, healthcare, retail, SaaS — 100% FDI under the automatic route is permitted, meaning no government approval is needed to incorporate.

Legal separation:

Unlike a Branch or Liaison Office, a WOS is a separate legal person from its parent. The parent's liability is limited to its shareholding in the subsidiary. Indian regulators, employees, and customers deal with an Indian company — not a foreign company's India office.

Incorporation process:

The WOS is incorporated through the SPICe+ form on the MCA portal. It requires a minimum of 2 directors, at least one of whom must be a resident of India for a minimum of 182 days in the preceding calendar year. There is no minimum paid-up capital requirement. PAN, TAN, and GST registration are issued along with the Certificate of Incorporation through the integrated SPICe+ process.

Tax position:

A WOS is taxed as a domestic Indian company. The base corporate tax rate under the standard regime is 25% for companies with turnover up to Rs. 400 crore, and 22% under the new concessional regime (Section 115BAA) for companies that forego exemptions and deductions. This is significantly lower than the 40% rate applicable to Branch and Project Offices.

Additionally, a WOS that is genuinely building a product or technology in India and qualifies as a startup can access Section 80-IAC — three consecutive years of complete income tax exemption, subject to DPIIT recognition and IMB certification. This option is entirely unavailable to Branch Offices, Project Offices, or Liaison Offices.

Annual compliance:

A WOS files annual ROC returns (MGT-7, AOC-4), holds statutory board meetings, appoints a statutory auditor, files GST returns, and complies with income tax. For Indian-owned subsidiaries of foreign companies, FEMA compliance also applies — including the FLA return filed with the RBI by July 15 each year, and FC-GPR reporting when shares are allotted to the foreign parent.

When to choose it:

For virtually any foreign company that plans to operate in India commercially, hire Indian employees, sign contracts with Indian customers, or scale over a multi-year horizon, the Wholly Owned Subsidiary is the right structure. It is the most flexible, the most tax-efficient, the most credible with Indian banks and customers, and the most aligned with how India's regulatory system is designed to interact with foreign investment.

SIDE BY SIDE: THE FOUR STRUCTURES AT A GLANCE

• Liaison Office:
  
  Legal status: Unincorporated extension of foreign company

• Can earn income in India: No

• RBI approval required: Yes

• Parent net worth required: USD 100,000 (3 years profitable)

• Tax rate in India: Nil (if no commercial activity)

• Liability: Unlimited (parent bears all)

• Duration: 3 years, renewable

• Best for: Market exploration, pre-entry presence
  

Branch Office:

• Legal status: Unincorporated extension of foreign company

• Can earn income in India: Yes (permitted activities only)

• RBI approval required: Yes

• Parent net worth required: USD 100,000 (5 years profitable)

• Tax rate in India: ~42–43%

• Liability: Unlimited (parent bears all)

• Duration: 3 years, renewable

• Best for: IT services, consultancy, export-import within RBI list

Project Office:

• Legal status: Unincorporated extension of foreign company

• Can earn income in India: Yes (project-specific only)

• RBI approval required: General permission if conditions met

• Tax rate in India: ~42–43%

• Liability: Unlimited

• Duration: Project lifetime

• Best for: Construction, EPC, infrastructure contracts
  

Wholly Owned Subsidiary:

• Legal status: Incorporated Indian company

• Can earn income in India: Yes (any permitted activity)

• RBI approval required: No (automatic route for most sectors)

• Capital requirement: None (no minimum)

• Tax rate in India: 22–25%

• Liability: Limited to parent's shareholding

• Duration: Perpetual

• Best for: Long-term commercial operations, hiring, scaling

THE ONE THING MOST FOREIGN COMPANIES GET WRONG

The most common mistake foreign companies make is choosing a Liaison Office or Branch Office because they feel it is less committal — fewer forms, lower perceived complexity. Then, as their India plans grow, they find themselves trying to convert or wind down the non-incorporated structure and restart as a Subsidiary. That process takes time, triggers additional regulatory steps, and in some cases requires addressing accumulated compliance gaps.

The Wholly Owned Subsidiary requires more upfront structure — a resident director, incorporation filings, statutory audit — but it grows with the company. It does not need to be rebuilt when the business scales.

If India is a serious destination — and the volume of foreign investment into the country makes clear that it is — starting with the structure that fits a decade of operations, not just the first year, is the decision that consistently pays off.

HOW ACCORP PARTNERS CAN HELP

Accorp Partners works with foreign companies, NRIs, and Indian promoters navigating the India entry decision. The team advises on which structure fits the business model, manages end-to-end incorporation for Wholly Owned Subsidiaries — including resident director coordination, SPICe+ filing, and post-incorporation FEMA compliance — and handles the ongoing annual compliance stack that keeps an Indian company in good standing with the MCA, RBI, and Income Tax Department.

For foreign companies evaluating their India incorporation options or looking to regularise an existing structure, Accorp Partners' India incorporation services are available here:

https://accorppartners.com/services/incorporation/india-incorporation

Frequently Asked Questions

Q: Can a foreign company earn revenue through a Liaison Office in India?

A: No. A Liaison Office is strictly prohibited from carrying out any commercial, trading, or revenue-generating activity in India. All expenses must be funded through inward remittances from the foreign head office. Any income generation — even incidental — violates the terms of the RBI approval.

Q: What is the tax rate difference between a Branch Office and a Wholly Owned Subsidiary in India?

A: A Branch Office is taxed as a foreign company at approximately 42–43% effective rate on Indian income. A Wholly Owned Subsidiary is taxed as a domestic Indian company at 22% under the concessional regime or 25% under the standard regime — a significant difference that compounds over years of operations.