A foreign company has three common ways into India, and they are not close substitutes. A liaison office can only do communication and market research; it cannot earn a rupee of income. A branch office can carry on a defined set of activities and can earn income, but it is taxed as a foreign company at the higher rate. A subsidiary is a separate Indian company that can do almost any business allowed under the FDI rules and is taxed at the lower domestic rate. If you actually intend to trade, hire and build in India, a subsidiary is usually the answer.
| Question | Liaison office | Branch office | Subsidiary |
|---|---|---|---|
| Can it earn income in India? | No | Yes, from permitted activities | Yes |
| Separate legal entity? | No, it is the parent | No, it is the parent | Yes, an Indian company |
| Range of activity | Liaison and market research only | A defined, permitted list | Broad, within FDI rules |
| Taxation | Not applicable, no income | As a foreign company, higher rate | As a domestic company, lower rate |
| Approval | RBI route via AD bank | RBI route via AD bank | FDI route, company incorporation |
Liaison office: a presence, not a business
A liaison office, sometimes called a representative office, is exactly what the name says. It exists to be a point of contact. It can talk to customers and suppliers, gather market information, promote the parent’s products and act as a communication channel. What it cannot do is sign revenue contracts or earn income. It is funded entirely by inward remittance from the parent, and it needs RBI approval, routed through an authorised dealer bank.
This suits a company that wants to test the Indian market before committing. It is the lightest footprint available, and also the most limited.
Branch office: trade, but as the parent
A branch office can do real business, within limits. The permitted activities include import and export, professional or consultancy services, research, and representing the parent. It generally cannot manufacture on its own, except inside a special economic zone. A branch can earn income from those permitted activities, and it also needs RBI approval through an AD bank, with eligibility tied to the parent’s track record and net worth.
The catch is tax. A branch is not a separate company; it is the foreign parent operating in India, so its India income is taxed at the rate that applies to a foreign company, which is meaningfully higher than the domestic company rate. For a company that expects sustained Indian profits, that gap adds up.
Subsidiary: a real Indian company
A subsidiary is a company incorporated in India, often a wholly owned subsidiary of the foreign parent. It is a distinct legal entity with its own board, its own liability and its own compliance. It can carry on any business permitted under the FDI rules, hire freely, and sign contracts in its own name. Crucially, it is taxed as a domestic Indian company, at the lower corporate rate.
It carries the most compliance of the three, because it is a full company under the Companies Act. For most foreign businesses that plan to operate in India for the long term, that compliance is a fair price for the flexibility and the better tax position.
How to choose
Match the structure to the intent. If you only want to watch the market and stay close to customers, a liaison office is enough. If you want to run a specific service or trading activity but keep things lean, a branch office works, as long as you have priced in the higher tax. If you intend to actually build a business in India, hire a team and earn sustained revenue, set up a subsidiary. In the entries we handle, the companies that start with a liaison office “to be safe” and then want to trade usually end up incorporating a subsidiary anyway.
Frequently asked questions
What is the best way for a foreign company to set up in India?
It depends on intent. A liaison office suits market research with no income, a branch office suits a defined trading or service activity, and a subsidiary suits a company that wants to run a full business in India. Most companies planning sustained operations choose a subsidiary because it is a separate Indian entity taxed at the lower domestic rate.
Can a liaison office earn income in India?
No. A liaison office cannot carry on business or earn income. It is limited to communication, market research and representing the parent, and is funded by inward remittance from the parent company.
How is a branch office taxed in India?
A branch office is taxed as a foreign company on its India income, at a rate higher than the domestic company rate, because it is the foreign parent operating in India rather than a separate Indian company.
Is a subsidiary a separate legal entity?
Yes. An Indian subsidiary is a company incorporated under the Companies Act with its own legal identity, board and liability, separate from the foreign parent. Liaison and branch offices are not separate entities.
Reviewed by CS Sapna Malpani, a practising Company Secretary in Bangalore who advises foreign companies on India entry and FEMA compliance. This is general information, not legal advice. About Sapna Malpani.
Last reviewed: May 2026.