Branch Office vs Subsidiary explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A foreign company can enter India through a liaison office (representation only), a branch office (a taxable PE on India profits at the foreign-company rate) or an Indian subsidiary (a resident company at domestic rates). Each differs sharply on permitted activity, tax rate, PE risk and repatriation.
Overview
Choosing the right vehicle is a tax, regulatory and commercial decision. The three common structures — liaison office (LO), branch office (BO) and wholly/partly owned subsidiary — sit on a spectrum from a non-trading presence to a full Indian company. Each is governed by FEMA and RBI rules for setup and by the Income-tax Act, 2025 for taxation.
Permitted Activities
| Vehicle | What it can do | Income in India? |
|---|---|---|
| Liaison office | Liaison, market study, promotion of parent | No — funded by parent remittances |
| Branch office | Export/import, consultancy, permitted business activities | Yes — earns and is taxed |
| Subsidiary | Any lawful business (subject to FDI norms) | Yes — as an Indian company |
Tax Treatment
- Liaison office: being barred from income-earning, it is generally not taxed on income, but must file returns/statements. Overstepping permitted activity can create a taxable PE.
- Branch office: a PE of the foreign company. Its India-attributable business profits are taxed on a net basis at the foreign-company rate (around 35% plus surcharge and cess). Transfer pricing applies to dealings with the head office.
- Subsidiary: a separate Indian resident company, taxed on its global income at domestic rates — for example 22% plus surcharge and cess under the section 115BAA concessional regime, or 15% under section 115BAB for new manufacturing companies.
Permanent Establishment Risk
A branch is itself a PE — there is no PE question, only profit attribution. A subsidiary is a distinct taxpayer and is not automatically the parent’s PE; but if the subsidiary habitually concludes contracts for the parent or the parent has a fixed place through it, an agency or fixed-place PE can arise. A liaison office confined to permitted activities is usually a preparatory/auxiliary presence and not a PE.
Regulatory Setup
- LO/BO: approval from the AD bank / RBI under FEMA, plus registration with the ROC as a place of business of a foreign company and annual filings (including an Annual Activity Certificate).
- Subsidiary: incorporation under the Companies Act, 2013, with foreign investment under the automatic or government approval route depending on the sector.
Repatriation of Profit
A subsidiary distributes profit as dividends, taxable in the shareholders’ hands (with treaty relief on withholding). A branch can remit its post-tax profits to head office relatively directly, but those profits already bore the higher foreign-company rate. A liaison office has no profit to repatriate.
Choosing — A Quick Guide
| Priority | Best fit |
|---|---|
| Only market research / representation | Liaison office |
| Limited India business, keep it foreign | Branch office |
| Long-term operations, local hiring, lower rate | Subsidiary |
Common Pitfalls
- Letting a liaison office negotiate or conclude contracts, creating an unintended PE and tax exposure.
- Under-attributing profits to a branch PE, inviting transfer-pricing adjustment.
- Assuming a subsidiary shields the parent absolutely — its conduct can still create a parent PE.