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Short answer
Most foreign companies set up in India as a wholly owned subsidiary, because it can earn revenue, hire and own assets. A liaison office suits market testing but cannot earn income; a branch office can carry out specified activities but not manufacturing; and a joint venture fits sectors with FDI caps or where a local partner adds value.
The four main structures compared
| Structure | Can earn revenue? | Legal status | Typical use |
|---|---|---|---|
| Wholly owned subsidiary | Yes | Separate Indian company | Full operations, sales, hiring |
| Liaison office (LO) | No | Extension of the foreign company | Market research, representation |
| Branch office (BO) | Yes, for permitted activities | Extension of the foreign company | Trading, services, R&D support |
| Joint venture (JV) | Yes | Indian company with local shareholder | Capped sectors, local market access |
1. Wholly owned subsidiary
A private limited company incorporated in India and owned by the foreign parent. It is a separate legal entity, so its liabilities stay in India. In most sectors foreign investment is allowed under the automatic route, which means no prior government approval — only reporting to RBI after the investment. Some sectors carry caps or need government approval.
After shares are allotted to the foreign parent, the company must report the investment in Form FC-GPR and then meet ongoing filings such as the annual FLA return. It is also taxed as a domestic company and must keep books under Indian accounting standards.
2. Liaison office
A liaison office acts only as a communication channel between the parent and Indian parties. It may do market research, promote the parent's products and build relationships, but it cannot carry on business or earn income. Its running costs come from the parent through inward remittances.
Applications go through an Authorised Dealer Category-I bank. Approval is usually granted for a limited period and can be extended. A liaison office must file an Annual Activity Certificate certified by a Chartered Accountant.
3. Branch office
A branch office can carry out specified activities — for example export and import, professional or consultancy services, research work, and technical support for the parent's products. It cannot manufacture directly, except in specified cases such as units in Special Economic Zones. Profits can be remitted to the parent after tax, and the branch is taxed in India as a foreign company.
4. Joint venture
A joint venture is an Indian company in which the foreign investor holds shares alongside an Indian partner. It is the usual choice where sectoral FDI caps apply, or where the partner brings distribution, licences or local relationships. The shareholders' agreement — covering control, exit and deadlock — matters as much as the corporate filings.
How to choose
- Check the FDI policy for your sector: caps, conditions and approval route.
- Decide whether you need to earn revenue in India now or only test the market.
- Look at tax: a subsidiary pays domestic company rates; a branch is taxed as a foreign company.
- Plan for compliance: annual filings, transfer pricing on dealings with the parent, and FEMA reporting.
Common questions
What is the most common way for a foreign company to set up in India?
A wholly owned subsidiary (a private limited company) is the most common route. It can earn revenue, hire staff and own assets, and in most sectors foreign investment is allowed under the automatic route without prior government approval, subject to sectoral caps and conditions.
Can a liaison office in India earn revenue?
No. A liaison office may only act as a communication channel — market research, promotion and liaison between the parent and Indian parties. It cannot carry on business or earn income in India, and its expenses are met by inward remittances from the parent.
Can a branch office in India do manufacturing?
Generally no. A branch office may undertake specified activities such as export-import, professional or consultancy services, research and technical support, but it cannot manufacture or process goods directly, except in specified cases such as units in Special Economic Zones.
Who approves a liaison office or branch office in India?
Applications are made through an Authorised Dealer Category-I bank. In specified cases — for example certain applicant countries or sectors such as defence and telecom — prior RBI or government approval is also required.
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This guide is general information, not legal or tax advice. FDI policy, RBI directions and approval requirements change; confirm the current position for your sector and facts before acting.