Liaison office, branch office, project office or subsidiary: choosing your India entity

Sources: FEMA office regulations, RBI Master Direction, PwC and Khaitan & Co.^[1][2][3][4]

Liaison, branch and project offices are part of the foreign company itself. They are governed by the Foreign Exchange Management Act regulations of 2016 and approved through an authorised dealer (AD) bank, an Indian bank licensed to handle foreign exchange.^[1] A subsidiary or LLP is a separate Indian entity, set up under the Companies Act or LLP Act and governed by India’s foreign direct investment (FDI) rules.^[5]

A liaison office is a channel of communication only. It may not carry out “any commercial/trading/industrial activity, directly or indirectly”, and it must be funded entirely by remittances from the parent.^[1] It can represent the parent, promote exports and imports, and promote technical or financial collaboration, but it cannot earn income in India.^[2]

• Eligibility. The parent needs a profit track record of three years in its home country and a net worth of at least US$50,000; a letter of comfort from a parent company can substitute.^[1]
• Approval. The application (Form FNC) goes through an AD bank, which can approve it. The office must open within six months of approval, extendable by six months.^[1]
• Validity. Three years, extendable by the AD bank three years at a time.^[1]
• Construction companies. The rule that catches infrastructure firms: a liaison office of a construction or development company is allowed for two years only, with no extension unless the company is in infrastructure development. At the end it must close or convert into a joint venture or wholly owned subsidiary.^[1][6]

Approval times vary: published estimates range from about 40 days to about 90 days.^[7] A liaison office suits a company that wants to meet buyers, appoint distributors and track tenders before committing capital. It does not suit one that needs to sign and invoice Indian contracts.

A branch office can earn income, but only from a defined list of activities: export and import, professional or consultancy services, research, technical collaboration, acting as buying or selling agent, IT services, and technical support for the parent’s products. It may not manufacture or process “directly or indirectly”, and it may not do retail trading.^[2]

• Eligibility. Five years of profits and a net worth of at least US$100,000.^[1]
• SEZ exception. A branch in a Special Economic Zone may manufacture without RBI approval if the sector allows 100% FDI and the branch operates on a stand-alone basis.^[1]
• Profits. After-tax profits can be sent to the parent; the AD bank needs audited accounts and an accountant’s certificate that the profit came from permitted activities.^[1]
• Tax. A branch is taxed as a foreign company at a 35% base rate, which rises to between 36.40% and 38.22% with surcharge and cess.^[3] The 2026 Finance Act left that rate unchanged,^[4] and a branch cannot use the 22% regime available to Indian companies.^[8]

There is no legal route to convert a branch into a subsidiary. The branch has to close and a new company has to be formed, which advisers estimate takes 9–15 months.^[8] If you expect to grow into manufacturing or large local contracts, it is usually cheaper to start with a subsidiary.

A project office is the usual vehicle for a foreign contractor that has won a specific Indian contract. It needs no RBI approval if the contract is with an Indian company and any one of these applies:^[1]

• the project is funded by inward remittance from abroad;
• it is funded by a bilateral or multilateral agency, such as the World Bank, ADB or JICA;
• it has been cleared by the appropriate regulatory authority; or
• the Indian company awarding the contract has a term loan from an Indian bank or public financial institution for the project.

Otherwise approval comes from RBI’s central office.^[2] A project office can hold non-interest-bearing foreign currency accounts for the project, normally one in US dollars and one in the home currency, which close when the project ends.^[2] Surplus funds can be remitted during the project against audited accounts and an undertaking that any shortfall will be met from abroad.^[1]

Each project office is tied to one contract. RBI’s draft regulations of 2025 would let one office run several projects with a single foreign currency account and a single rupee account,^[9] but until they are notified, a contractor with several Indian contracts runs several offices.

1. Police report

   Report to the state’s Director General of Police within five working days of becoming operational.^[2]

2. PAN

   Obtain a Permanent Account Number for tax.^[2]

3. Registrar of Companies

   File Form FC-1 within 30 days of setting up a place of business in India, then annual accounts (FC-3) and an annual return (FC-4).^[10][11] Under the 2026 MCA guidance, a new project is normally reported on Form FC-2 rather than a fresh FC-1, unless it creates a separate place of business.^[10]

4. Annual Activity Certificate

   Due by 30 September each year with audited accounts, filed with the AD bank and, for liaison and branch offices, with the income tax department’s international taxation directorate.^[1]

5. Annual tax statement (liaison offices)

   Form 49C up to FY2025-26; under the new tax law this becomes Form 162, with the first due on 30 November 2027.^[12]

Most foreign infrastructure companies that plan to stay in India end up with a private limited company. FDI of up to 100% is allowed under the automatic route in most infrastructure sectors, so no government approval is needed, and the company can do anything its objects allow: manufacture, bid as an Indian entity, employ, borrow and partner.^[5]

• Directors. At least two, one of whom must stay in India for at least 182 days in the financial year.^[13]
• Incorporation. The SPICe+ web form combines name reservation, incorporation, director identification, PAN, TAN, provident fund and state insurance registration, a bank account and GST in one filing. The government reports average incorporation time of one to two days.^[14] For a foreign-owned company with notarised and apostilled documents, advisers put the realistic time at three to five weeks.^[8]
• Tax. The optional regime is 22% plus a 10% surcharge and 4% cess, about 25.17%, and companies on it are outside Minimum Alternate Tax.^[3] Dividends paid to the parent are taxed at 20% plus surcharge and cess, or a lower treaty rate.^[15]
• Reporting. Share issues to the foreign parent are reported to RBI on Form FC-GPR within 30 days, and the company files an annual Foreign Liabilities and Assets return.^[5][8]

The trade-off is compliance: annual accounts and returns with the Registrar, board meetings, tax and GST returns, and transfer pricing documentation for dealings with the parent. For transfer pricing under the new law, see our guide to joint ventures in India.

A limited liability partnership can take foreign capital only in sectors where 100% FDI is allowed under the automatic route with no FDI-linked performance conditions. Investors from Pakistan and Bangladesh cannot invest in LLPs.^[5] An LLP pays tax at a 30% base rate,^[4] and can only invest downstream in sectors that meet the same conditions.^[5]

LLPs suit consultancy and engineering-services businesses with a small number of partners. They are less common for infrastructure contractors, because clients, lenders and tender documents are generally set up for companies.

The Income-tax Act 2025 replaced the 1961 Act on 1 April 2026.^[16] For foreign contractors the central question is whether the parent has a permanent establishment (PE) in India, because a PE makes the parent’s Indian profits taxable here.

Tax treaties set the thresholds. Under the India–UK treaty, for example, a construction or installation site becomes a PE after six months, and services can create one after 90 days, or 30 days if they are for an associated company.^[18] EPC contracts are usually split into offshore supply, offshore services and onshore work. Offshore supply where title passes outside India has been held not taxable in India, but the new Act taxes offshore services such as royalties and fees for technical services more readily.^[18] Foreign companies building turnkey power projects that are funded by international aid and approved by the central government can be taxed on a deemed profit of 10% of receipts, a rule carried over from section 44BBB of the old Act.^[19][18]

Different rules apply depending on the vehicle:

• Offices. Prior RBI approval, in consultation with the government, is needed for any office of a Pakistani company; for offices of companies from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau in Jammu and Kashmir, the North-East or the Andaman and Nicobar Islands; and for applicants whose main business is defence, telecoms, private security or broadcasting.^[1]
• Subsidiaries and LLPs. Investment from a country sharing a land border with India, or with a beneficial owner there, still needs government approval. Press Note 2 of 2026 aligned the definition of beneficial owner with anti-money-laundering rules.^[20] Non-controlling beneficial ownership of up to 10% can now use the automatic route, and proposals in capital goods and electronic components are to be processed within 60 days.^[21]

Our guide to joint ventures in India covers how these rules affect JVs with Chinese or Hong Kong shareholders.

In October 2025 RBI published draft regulations that would drop the net worth and profit track-record tests, let AD banks approve more cases, replace the list of permitted activities with a principle-based test, and limit the special approval route.^[22] They had not been notified as of May 2026, and the 2016 rules still apply.^[17] Check the position before you file.

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