A foreign company can set up a business in India by registering, establishing a a Private Limited Company, LLP, Branch office or a Liason Office. Branch office is usually for a project or to support the clients of foreign company in India. For companies planning to setup a manufacturing or trading or a IT back office Private limited Company is the best option.
Below are details about all the options a foreign company can choose to register in India.
Private Limited company
A foreign company can also register a wholly owned Private Limited Company in India. 100% FDI is allowed in most of the sector. It can engage in any lawful business and there are no restrictions. Generally IT, manufacturing and trading companies go for this type of structure
Branch Office
Branch office is a good way to start if a foreign company wants to have a temporary presence in India. Branch office does not have its own identity and is a extension of the foreign company. It can engage in very limited commercial activities and is taxed at a much hire rate. Generally banks go for this kind of structures.
Liason office
It serves as link between foreign company and local clients in India. It cannot engage in any commercial activity in India. Generally Shipping and Airlines companies opt for this.
Comparison of Subsidiary Company, Branch Office, and Liaison Office in India
Feature | Subsidiary Company | Branch Office | Liaison Office |
Most Suited For | Long-term presence, independent operations | Temporary setup for commercial activities | Market research, non-commercial presence |
Allowed Activities | Any business activity | Export, import, consulting, support services | Market research, liaison, brand promotion |
Not Allowed Activities | None | Manufacturing in India | Revenue-generating activities |
Pre-requisites to Register | Minimum 2 directors (1 Indian resident required); FDI rules | RBI and government approval; Indian resident recommended for representation | RBI approval; Indian resident recommended for representation |
Ownership | Majority or 100% foreign ownership possible | Wholly owned by parent company | Wholly owned by parent company |
Tax Rates | Corporate tax rates as per Indian law | Taxed at branch rate for foreign companies | Not taxed (non-revenue generating) |
Compliance Requirements | High; audited financials, annual filings | Moderate; audited financials, tax filings | Low; simple filings, annual activity report |
Control | Independent management in India | Controlled directly by the parent company | Controlled by parent company |
Profit Repatriation | Dividends allowed with taxes | All profits sent back to parent company | No profits, no repatriation |
Need for Indian Resident | Mandatory (at least one director) | Recommended for ease in compliance | Recommended for compliance |
Ideal for | Companies planning significant investment | Testing market or temporary projects | Initial market presence, brand promotion |
Steps for Incorporation | 1. Name approval | 1. Submit Form FNC to RBI | 1. Submit Form FNC to RBI |
Time Taken | 10-15 days | 4-6 weeks | 4-6 weeks |
Which Option Should You Choose?
In conclusion, foreign companies have three main options to set up in India: a Subsidiary Company, a Branch Office, or a Liaison Office. Each option has its own benefits, depending on the company’s needs and goals.
For 90% of companies, a Subsidiary is the top choice because it provides 100% operational flexibility, allows all types of business activities, and makes it easy to scale. A Subsidiary also enables foreign companies to have full ownership and take advantage of tax benefits in India.
On the other hand, foreign banks usually choose a Branch Office, while shipping, airline, and logistics companies often prefer a Liaison Office for brand promotion and market research without revenue generation.
Each option requires understanding the setup and compliance needs, but for most companies, a Subsidiary offers the best flexibility and growth opportunities in India.
Important Links
1. What are the types of entities a foreign company can establish in India?
Foreign companies can establish three main types of entities in India: a Subsidiary Company, a Branch Office, or a Liaison Office. Each option has specific activities allowed and is suited for different business goals.
2. What is the difference between a subsidiary, branch office, and liaison office in India?
A Subsidiary operates independently, can perform all commercial activities, and is suitable for long-term presence. A Branch Office allows limited commercial activities like export/import and consulting. A Liaison Office only supports non-commercial activities, like market research or brand promotion, without direct revenue generation.
3. Is it mandatory to have an Indian resident director for a subsidiary company?
Yes, at least one Indian resident director is required to register a subsidiary company in India. This is part of the regulatory requirement to ensure local representation.
4. How long does it take to establish a branch office or liaison office in India?
The setup time for a Branch or Liaison Office is generally 4-6 weeks, as it involves approval from the Reserve Bank of India (RBI) and registration with the Registrar of Companies (ROC).
5. What documents are required for registering a foreign subsidiary in India?
Key documents include the parent company’s certificate of incorporation, proof of identity and address of directors, digital signatures, and an Indian resident director’s identification. Some documents need notarization and apostille, especially for companies from the USA and Europe.
6. Can foreign companies hold 100% ownership in their Indian subsidiary?
Yes, foreign companies can own 100% of their Indian subsidiary in most sectors, except a few that have restrictions. This allows full control over the Indian operations.