India rules · all investors
Entity Choice: India rules for foreign companies
CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375
The structure decides three things that are hard to change later: what the Indian business is allowed to do, who is liable for its debts, and how its profits are taxed. A subsidiary is a separate Indian company; a branch, liaison or project office is the foreign company itself acting in India under an approval.
Weighing the options in practice
The structure decides three things that are hard to change later: what the Indian business is allowed to do, who is liable for its debts, and how its profits are taxed. A subsidiary is a separate Indian company; a branch, liaison or project office is the foreign company itself acting in India under an approval.
Branch and liaison offices look simpler, but their approval fixes their activities. A liaison office cannot earn a rupee of income, and a branch cannot trade locally or manufacture outside a Special Economic Zone. Businesses that outgrow these limits usually have to set up a subsidiary and close the office, which costs more than starting with the subsidiary.
Joint ventures need extra thought: the shareholders' agreement, pricing of shares under FEMA when either side buys or sells, and exit rights. LLPs suit professional practices in sectors fully open to foreign investment, but banks and counterparties are less used to foreign-owned LLPs.
Options compared
| Option | Income in India | Parent liability | Approval |
|---|---|---|---|
| Private limited company | Yes | Limited | Automatic in most sectors |
| LLP | Yes | Limited | Only automatic-route sectors |
| Branch office | Approved activities | Unlimited | AD bank under FEMA |
| Liaison office | None | Unlimited | AD bank under FEMA |
| Project office | From one contract | Unlimited | General permission if conditions met |
Checklist
- List the activities planned for the next three years
- Check the sector's FDI route and any cap
- Compare tax on subsidiary profits and branch profits
- Test eligibility for a branch or liaison office approval
- Decide whether an Indian partner is needed
Common mistakes
- Choosing a liaison office for a business that will soon sell in India
- Ignoring sector caps that force a joint venture
- Assuming a branch avoids Indian compliance
- Not modelling how profits will be repatriated
How this applies to your country
- USA to India en-US
- UK to India en-GB
- Japan to India en-JP
- Germany to India en-DE
- Singapore to India en-SG
- Australia to India en-AU
- China to India en-CN
- Hong Kong to India en-HK
- Russia to India en-RU
- Spain to India en-ES
- France to India en-FR
- UAE to India en-AE
Our service: Company incorporation
Questions
Can an LLP be owned by a foreign company?
Yes, in sectors where 100% foreign investment is allowed under the automatic route and there are no FDI-linked performance conditions.
How long is a liaison office approval valid?
Usually three years, renewable through the authorised dealer bank, with shorter periods for some sectors.
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