4 India Entry Vehicles Compared: Subsidiary, LLP, Branch or Liaison Office

The first decision a foreign company makes about India is also the hardest one to reverse. Choosing an india entry vehicle fixes what you are allowed to do, who approves it, how you are taxed, what you must file every month, and how cleanly you can leave. Change it later and you are not amending a form — you are winding one structure down and standing another one up, usually with tax consequences attached. It is worth an hour of thought before incorporation rather than a restructuring afterwards.

The Four India Entry Vehicle Options at a Glance

Foreign companies entering India choose, in practice, between four structures. Two are separate Indian legal entities; two are extensions of the foreign parent. That distinction drives almost everything else.

• Private limited subsidiary — a separate Indian company. Full commercial activity. The default for anyone who intends to trade, hire and invoice in India.
• LLP — also a separate entity, lighter to run, but foreign investment into it is restricted to a narrower set of sectors.
• Branch office — not a separate entity. An extension of the parent, limited to a defined list of activities, established through an approval route.
• Liaison office — also not a separate entity, and not permitted to earn income in India at all.

There is also a project office, used where a foreign company has won a specific contract to execute a project in India. It is genuinely a special case rather than a general entry option, so it is left out of the comparison below.

Private Limited Subsidiary: The Default for Operating Businesses

A private limited company incorporated in India, with the foreign parent as shareholder, is the most common route and usually the right one if you intend to actually operate. It can carry on full commercial activity, employ people, sign contracts in its own name and invoice customers directly.

Its real advantage is containment. Because it is a separate legal person, the parent’s exposure is to its investment rather than to the Indian operation’s liabilities, and the Indian business can be sold, diluted or brought under a joint venture without touching the parent’s own structure.

On the foreign investment side, 100% foreign ownership is permitted under the automatic route in a large majority of sectors — meaning no prior government approval is required, though reporting to the Reserve Bank of India still is. Sectoral caps and conditions do apply in specific industries, and they change, so the route has to be confirmed for your sector rather than assumed.

The cost is compliance. A subsidiary carries the full Indian corporate calendar: statutory audit, filings with the Registrar of Companies, income tax, GST, withholding tax, and reporting to the RBI on the share issue that funded it.

The sectoral position is published rather than a matter of interpretation: the consolidated FDI policy and the sector-wise caps are maintained by the Department for Promotion of Industry and Internal Trade, and are summarised on the Government of India’s foreign direct investment policy pages. Check the current entry for your activity rather than relying on a summary written in an earlier policy year.

LLP: Leaner to Run, Narrower on Foreign Investment

A limited liability partnership gives you a separate entity with materially lighter ongoing compliance than a company — no board meeting formalities, a simpler annual filing regime, and no dividend distribution mechanics to manage.

The catch is the investment rule. Foreign direct investment into an LLP is permitted only in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions attached. If your sector carries a cap, needs approval, or has performance conditions, the LLP is simply not available to you as a funded vehicle.

That rules the LLP out for a large share of inbound investors, and it is why the structure tends to suit professional services, consulting and software businesses rather than regulated or capital-intensive ones. It is also a less familiar object to a future acquirer or institutional investor, which matters if the Indian business is ever meant to be sold or raise money.

Branch Office: Trading Without a Separate Entity

A branch office lets a foreign company earn income in India without incorporating a subsidiary — but it is an extension of the parent, not a separate company, so the parent carries the liability and the Indian profits sit within the foreign company’s own tax position.

Branch offices are established under the FEMA (Establishment of Branch or Liaison Offices in India) Regulations, 2016, with approval obtained through an Authorised Dealer Category-I bank and, in certain cases, the Reserve Bank itself. That approval is not a formality: it defines the activities the branch may undertake.

The permitted activities are a defined list rather than a general licence, and typically cover things such as export and import of goods, professional or consultancy services, research the parent is engaged in, promoting technical or financial collaborations, acting as a buying or selling agent for the parent, IT and software development services, and technical support for products the parent supplies. Manufacturing and retail trading are not on that list.

The structural consequence to weigh is tax. Because the branch is the parent operating in India, it creates a taxable presence for the foreign company directly, generally taxed at rates applicable to foreign companies rather than to Indian ones.

The governing regulations and the master directions that sit under them are published by the Reserve Bank of India, and the approval conditions attached to a specific branch are set out in the approval itself — which is the document to read before assuming an activity is permitted.

Liaison Office: Presence Without Trading

A liaison office — sometimes called a representative office — may not undertake any business activity in India and may not earn any income there. It exists to represent the parent, conduct market research, act as a communication channel between the head office and Indian parties, and promote collaboration.

Because it cannot trade, it is funded entirely by inward remittances from the parent. Like a branch, it is set up under the 2016 FEMA regulations through an AD Category-I bank.

A liaison office is a reasonable way to spend a year understanding a market before committing capital. It is a poor way to start selling, and the boundary matters: if the office in substance negotiates or concludes business, you have the tax exposure of a trading presence without the structure to support it.

The Questions That Actually Decide It

Comparison tables rarely settle this. In practice the choice falls out of five questions, answered in order.

1. Will you earn revenue in India? If yes, the liaison office is out immediately.
2. What does your sector allow? Sectoral caps and approval requirements can remove the LLP, and occasionally constrain the subsidiary. Confirm the current position for your specific activity before anything else.
3. Do you want the Indian liability ring-fenced from the parent? If yes, you want a separate entity — subsidiary or LLP — not a branch.
4. What is the exit? A subsidiary is the cleanest thing to sell, dilute or bring a partner into. A branch is not a saleable object.
5. How much compliance can you absorb? A subsidiary carries the full calendar. If there is no finance function to run it, that is an argument for outsourcing it rather than for choosing a lighter vehicle you will outgrow.

Where the answers conflict — and they often do — the tiebreaker is usually the exit question, because it is the one with the least room to adapt later.

What Each India Entry Vehicle Costs You in Ongoing Compliance

The compliance load differs enough between the four structures to change the decision, and it is routinely underestimated because the incorporation quote and the annual running cost are quoted separately.

• Subsidiary — the heaviest. Statutory audit, annual filings with the Registrar of Companies, income tax return, transfer pricing documentation where intra-group charges exist, monthly GST returns, TDS deposits and quarterly TDS returns, payroll statutory dues, and RBI reporting on share issues and transfers.
• LLP — lighter. No board meeting machinery and a simpler annual filing regime, though audit obligations apply above prescribed thresholds and the tax and GST position is broadly comparable.
• Branch office — an Indian filing calendar plus the conditions attached to the RBI approval itself, including annual reporting on the branch’s activities.
• Liaison office — the lightest in substance but not nil: it still files annually and must demonstrate it has stayed inside its permitted scope.

Thresholds, forms and due dates shift with each Finance Act and with RBI circulars, so the list above describes the shape of the obligation rather than a fixed schedule. What does not change is that someone has to own it. The most common pattern we see in diligence is a well-chosen structure with two years of unowned filings behind it.

Three Mistakes That Are Expensive to Unwind

Each of these is cheap to avoid at the outset and awkward to fix once the structure is running.

1. Treating a liaison office as a soft launch. If the office in substance negotiates terms or concludes business, the activity has outgrown the permission. The exposure is not just regulatory — it is a taxable presence created without the structure to support it.
2. Choosing an LLP for the lighter compliance, then discovering the sector blocks the investment. The FDI test applies to the sector, not the structure, so this surfaces at funding rather than at incorporation.
3. Setting up a branch to avoid incorporation, without pricing the tax position. A branch places the Indian profits inside the foreign company’s own tax position, generally at rates applicable to foreign companies. The saving on setup can be smaller than the annual difference.

The common thread is that each mistake is made for a good short-term reason — speed, cost, simplicity — and surfaces one or two years later, when reversing it is a project rather than a decision.

What Changes After You Choose

Whichever vehicle you pick, the obligations begin at incorporation or approval rather than at first revenue. A subsidiary needs its tax registrations and a bank account before it can invoice, and the inward remittance that funds the shares triggers its own reporting to the RBI within a defined window.

The practical failure mode is not choosing the wrong vehicle. It is choosing a reasonable vehicle and then letting the filings slip while the business gets going, so that a funding round or an acquirer’s diligence two years later turns up a backlog that has to be regularised under time pressure. Decide the structure deliberately, then make sure someone owns the calendar from day one.

How PerspireIP Can Help

PerspireIP advises foreign companies, investors and NRIs on India entry, due diligence and compliance — weighing the entry structure for tax, control and speed, incorporating it, and then running the accounting and the filing calendar so nothing is left unowned. Tell us what you are trying to do in India and we will scope the work and quote before anything starts.

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