Branch Office vs Liaison Office vs Project Office vs Wholly Owned Subsidiary: Which Is Right for Your Business in India?

1. Two Basic Routes
   • Route 1 – An office of the foreign company itself (BO / LO / PO): The foreign company does business in India through its own office. It is not a separate Indian company – it is an extension of the foreign parent, governed by FEMA 22(R) and approved through an Authorised Dealer (AD) Category-I bank.
   • Route 2 – A new Indian company (Wholly owned subsidiary or joint venture): The foreign company invests in shares of an Indian private limited company. The subsidiary is a separate Indian legal entity, governed by the FDI Policy, the FEMA (Non-Debt Instruments) Rules and the Companies Act.
2. Liaison Office (LO) – A “Representative Office”
   • Purpose: To act as a channel of communication between the head office and parties in India. It cannot undertake any commercial, trading or industrial activity and cannot earn any income in India.
   • Permitted activities (only these): representing the parent/group companies in India; promoting export/import from/to India; promoting technical or financial collaborations between group companies and Indian companies; acting as a communication channel between the parent and Indian companies.
   • Funding: All expenses are met through inward remittances from the head office.
   • Eligibility: Profit-making track record in the immediately preceding three financial years in the home country and net worth of at least USD 50,000.
   • Validity: Generally 3 years (2 years for NBFCs and entities in construction and development), extendable through the AD bank.
   • Best for: Testing the Indian market, meeting customers and building relationships before committing to full operations.
3. Branch Office (BO) – The Foreign Company Doing Business in India
   • Purpose: To carry on business in India in the same activity as the parent company, and earn income.
   • Permitted activities: export/import of goods; professional or consultancy services; research work in which the parent is engaged; promoting technical or financial collaborations; representing the parent in India and acting as buying/selling agent; IT services and software development; technical support for products supplied by the group; representing a foreign airline or shipping company.
   • Not permitted: Manufacturing (except a stand-alone branch in a Special Economic Zone, in sectors with 100% FDI) and retail trading. A branch cannot carry on activities outside the permitted list.
   • Eligibility: Profit-making track record in the immediately preceding five financial years in the home country and net worth of at least USD 100,000.
   • Profits: The branch can remit its profits abroad after paying Indian taxes, on submitting audited accounts and a Chartered Accountant’s certificate to the AD bank.
   • Best for: Service, trading (export/import), IT and consultancy businesses that want to operate in India in the parent’s own name.
4. Project Office (PO) – For a Specific Contract
   • Purpose: To execute a specific project awarded by an Indian company, for example a turnkey, construction, installation or engineering contract.
   • General permission is available if the foreign company has secured a contract from an Indian company, the project has the necessary regulatory clearances, and the project is funded by inward remittance from abroad, or by a bilateral/multilateral international financing agency, or the Indian company awarding the contract has a term loan from an Indian bank or public financial institution for the project.
   • Validity: For the tenure of the project; the office is closed when the project is completed and surplus is remitted abroad.
   • Best for: Foreign contractors and engineering companies executing one-time projects in India.
5. Wholly Owned Subsidiary (WOS) / Joint Venture (JV) – An Indian Company
   • Purpose: A private limited company incorporated in India, 100% owned by the foreign company (WOS) or jointly owned with an Indian or other partner (JV).
   • Activities: Any business permitted under the FDI Policy – including manufacturing, trading, services and e-commerce marketplaces – subject to sectoral caps and conditions.
   • Approval: No prior approval in most sectors (automatic route); the investment is reported to the RBI in Form FC-GPR within 30 days of issue of shares.
   • Liability: Limited to the subsidiary – the foreign parent is generally not liable for the debts of the Indian company.
   • Best for: Long-term business in India, manufacturing, local hiring at scale, raising funds, and wherever a branch is not permitted.
6. Side-by-Side Comparison

   Point	Liaison Office	Branch Office	Project Office	WOS / JV (Pvt Ltd Company)
   Legal status	Office of foreign company	Office of foreign company	Office of foreign company	Separate Indian company
   Can earn income in India?	No	Yes – only permitted activities	Yes – only from the project	Yes – any permitted business
   Manufacturing	No	No (except in SEZ)	Only as part of the project	Yes
   Approval	AD bank (RBI in specified cases)	AD bank (RBI in specified cases)	General permission if conditions met	Automatic route in most sectors; reporting to RBI
   Eligibility of parent	3 years’ profits, net worth USD 50,000	5 years’ profits, net worth USD 100,000	Contract with an Indian company	No track record needed
   Validity	3 years (2 for NBFC/construction), extendable	No fixed period	Project tenure	Perpetual
   Liability of foreign parent	Unlimited	Unlimited	Unlimited	Limited to investment
   Income tax	No taxable income if it stays within permitted activities	Foreign company rate – 35% plus surcharge and cess	Foreign company rate – 35% plus surcharge and cess	Domestic company – 22% concessional (about 25.17%), or 25%/30% plus surcharge and cess
   Money back to parent	Not applicable	Profits remitted after tax	Surplus remitted on completion (intermittent remittances allowed)	Dividends (TDS at 20% or lower DTAA rate), royalty, fees, buy-back
   Closure	Through AD bank	Through AD bank	On project completion, through AD bank	Strike-off or winding up under the Companies Act

7. Approvals and Compliances Common to BO, LO and PO
   • Application: In Form FNC to a designated AD Category-I bank, with the parent’s certificate of incorporation, latest audited financial statements, and a Letter of Comfort from the parent/group company if the applicant itself does not meet the profit and net worth criteria. The RBI allots a Unique Identification Number (UIN).
   • Prior RBI approval is needed where the applicant is from Pakistan; where it is from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the office is proposed in Jammu & Kashmir, the North-East region or the Andaman & Nicobar Islands; and where the principal business is defence, telecom, private security or information & broadcasting. Applicants from the listed countries must also register with the State Police.
   • Registration as a foreign company with the Registrar of Companies within 30 days of setting up a place of business in India, and annual filing of accounts under the Companies Act.
   • Annual Activity Certificate (AAC) from a Chartered Accountant as at 31 March each year – submitted by the BO/LO to the AD bank and the Director General of Income Tax (International Taxation), and by the PO to the AD bank.
   • Tax registrations and filings: PAN, TAN, income tax return (BO/PO), the annual statement of activities to the income tax department for an LO, and GST registration for a BO/PO making taxable supplies.
   • Property: BOs and POs may acquire property for their own use (prior RBI approval for entities from specified countries); all three may lease premises for up to five years.
8. Which One Should You Choose?
   • Only exploring the market? Start with a Liaison Office – low cost, no taxable income – but remember it cannot sign sales contracts or earn revenue.
   • Executing one contract? A Project Office is the simplest option and closes with the project.
   • Providing services, consultancy, IT or import-export in India in the parent’s name? A Branch Office works, but it is taxed at the higher foreign company rate and the parent carries unlimited liability.
   • Planning long-term operations, manufacturing, retail, local hiring or fund-raising? A Wholly Owned Subsidiary (or JV with an Indian partner) is usually the better choice – lower tax rate, limited liability and no restriction on activities beyond the FDI Policy.
   • Tax risk: If an LO or BO goes beyond its permitted activities, it may be treated as a permanent establishment of the foreign company, making the foreign company’s profits taxable in India and leading to FEMA violations.

What This Means for Foreign Companies

• A liaison, branch or project office is part of the foreign company; a subsidiary is an Indian company. That one difference drives liability, tax and flexibility.
• Check the profit track record and net worth of the parent before applying for a BO or LO – or arrange a Letter of Comfort from the group.
• Compare the effective tax cost: about 25% for a subsidiary under the concessional regime versus 35% plus surcharge and cess for a branch.
• Keep the office strictly within its permitted activities and file the Annual Activity Certificate every year.
• Many companies start with an LO and later convert to a subsidiary as business grows – plan the exit and conversion from day one.

Note: This article is based on 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, the RBI Master Direction on Establishment of BO/LO/PO in India by foreign entities, the FDI Policy and FEMA (Non-Debt Instruments) Rules, 2019, the Companies Act, 2013 and the Income-tax Act, 2025, as in force on 15 October 2026. Approval conditions may change; please check the latest RBI directions and consult us for your specific case. Also see our guide for foreigners to set up a business in India.