Branch Office vs Wholly Owned Subsidiary in India — Which Is Better for Foreign Companies?

For a foreign company entering India, the choice of entry vehicle drives tax rate, repatriation flexibility, RBI compliance burden and exit options for the next decade. The three most common options are a Branch Office (BO), a Liaison Office (LO) and a Wholly Owned Subsidiary (WOS) incorporated as a Private Limited Company.

1. Branch Office (BO)

• An extension of the foreign parent — not a separate legal entity.
• Requires prior RBI approval through AD Category-I bank under FEMA 22(R).
• Permitted activities: export/import, professional/consultancy services, R&D, technical support — cannot undertake manufacturing or retail trading.
• Taxed as a foreign company at 40% + surcharge + cess on Indian-source profits.
• Profits fully repatriable after tax, subject to AD bank documentation.
• Parent is fully liable for BO obligations.

2. Liaison Office (LO)

• Communication channel only — cannot earn income or undertake commercial activity in India.
• RBI approval required; valid for 3 years (renewable).
• Funded entirely by inward remittance from the parent.
• Best for market research, brand-building or preliminary feasibility before deciding on BO/WOS.

3. Wholly Owned Subsidiary (WOS)

• Separate Indian legal entity (Pvt Ltd), incorporated under the Companies Act 2013.
• FDI under automatic route in most sectors — no prior RBI approval; only post-allotment FC-GPR filing.
• Taxed as a domestic company: 22% under Section 115BAA (or 25% for turnover up to Rs400 crore).
• Dividends repatriable freely; DDT abolished from FY 2020-21, dividend now taxed in the parent's hands subject to DTAA relief.
• Parent liability is limited to capital subscribed.
• Can undertake any permitted activity including manufacturing, services, retail (sector caps apply).

4. Comparison at a glance

5. Recommendation matrix

• Long-term India play, manufacturing or services revenue: WOS — lower tax, limited liability, easier financing.
• Banking, insurance, NBFC or specific regulated financial services: Branch (subject to sector regulator approval).
• Pre-entry research, partner scouting, brand presence: Liaison Office.

Read more on our foreign companies advisory page and our entry framework for setting up a Wholly Owned Subsidiary in India.

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