Entry Options for Foreign Companies in India
Foreign companies looking to establish a presence in India have four primary options, each with different purposes, regulatory frameworks, and operational freedoms.
Option 1: Liaison Office (LO)
A Liaison Office is the most restricted form of presence. It can only act as a communication channel between the foreign parent and Indian customers — it cannot earn any income in India.
Permitted activities:
- Representing the parent company
- Promoting exports/imports
- Promoting technical/financial collaborations
- Acting as communication channel
Not permitted:
- Signing contracts in India
- Earning revenue
- Importing or exporting on own account
Approval: RBI approval required. Application through Authorised Dealer Bank.
Validity: Initially 3 years, extendable. For Non-Banking Finance Companies (NBFCs) and construction sector — prior Government approval additionally required.
Annual compliance:
- Annual Activity Certificate (AAC) from CA filed with RBI by 30 September
- Audited accounts
- Form FNC (Annual Return to RBI)
Option 2: Branch Office (BO)
A Branch Office has more operational freedom than a Liaison Office. It can earn revenue from activities specified in the RBI approval.
Permitted activities:
- Export/import of goods
- Rendering professional/consultancy services
- Conducting research (with parent's approval)
- Promoting technical/financial collaborations
- Representing parent company in India
Not permitted:
- Retail trading (generally)
- Agriculture/plantation activities
- Manufacturing (though can subcontract)
Approval: RBI approval required. Net worth of parent company must be minimum USD 1,00,000 (or USD 50,000 for some sectors).
Taxation: Branch offices are taxed as foreign companies — 40% plus surcharge and cess on Indian income (higher than Indian company rate of 25%).
Annual compliance:
- Annual Activity Certificate by 30 September
- Form FNC
- Income Tax Return
Option 3: Project Office (PO)
A Project Office is set up specifically to execute a single contract/project in India. Once the project is complete, the office must be closed.
Eligibility: A foreign company that has secured a contract to execute a project in India.
Approval: Generally no RBI approval needed if the project is funded by inward remittance or bilateral/multilateral international financing.
Permitted activities: Only activities related to the specific project.
Compliance: Less ongoing compliance than LO/BO, but must be wound up upon project completion.
Option 4: Wholly Owned Subsidiary (WOS) — Most Recommended
The preferred route for most foreign companies is to incorporate an Indian Private Limited Company as a Wholly Owned Subsidiary (WOS). This gives the maximum operational freedom.
Key advantages:
- Can engage in any business permitted under FDI policy
- Lower tax rate (22–25%) compared to a Branch Office (40%)
- Can raise local debt
- Easier to sell or transfer
- No revenue restrictions
- Full operational independence
Process:
- 1Incorporate a Private Limited Company under Companies Act 2013
- 2Receive FDI in the subsidiary
- 3File FC-GPR with RBI within 30 days of share issuance
- 4Ongoing FEMA and MCA compliance
Comparison Table
| Feature | Liaison Office | Branch Office | Project Office | WOS (Pvt Ltd) |
|---|---|---|---|---|
| Revenue from India | ❌ | ✓ | Only project | ✓ |
| RBI Approval | Required | Required | Generally not required | Not required |
| Tax Rate | NIL (no income) | 40%+ | 40%+ | 22–25% |
| Manufacturing | ❌ | ❌ | ❌ | ✓ |
| Local borrowing | ❌ | ❌ | ❌ | ✓ |
| Fundraising | ❌ | ❌ | ❌ | ✓ |
| Recommended for | Market exploration | Specific services | One-time projects | Full business |
Step-by-Step: Setting Up a WOS in India
Step 1: Appoint Indian Resident Director
Every Indian company must have at least one director who is a resident of India (stayed in India for ≥182 days in previous calendar year). This can be a nominee director initially.
Step 2: Incorporate the Company
File SPICe+ form with MCA. Foreign shareholders provide:
- Apostilled copies of incorporation documents of parent company
- Apostilled copy of Board Resolution authorising investment
- Passport copies of foreign directors/shareholders
- Address proof (overseas)
Step 3: Receive Capital and File FC-GPR
Remit share capital from parent to Indian subsidiary's bank account. File FC-GPR with RBI within 30 days.
Step 4: Obtain Regulatory Licences
Depending on the business sector:
- FSSAI licence (food)
- RBI licence (NBFC, payment aggregator)
- SEBI registration (financial services)
- Drug licence (pharma)
Annual Compliance for Foreign-Owned Indian Companies
| Obligation | Deadline | Authority |
|---|---|---|
| FLA Return | 15 July | RBI |
| AGM + AOC-4 + MGT-7 | September 30 | MCA |
| Income Tax Return | October 31 | Income Tax Dept |
| GST Returns | Monthly/Quarterly | GST Portal |
| Transfer Pricing (if applicable) | November 30 | Income Tax Dept |
Transfer Pricing — A Critical Consideration
If the Indian entity transacts with its foreign parent (goods, services, royalties, management fees), Transfer Pricing regulations apply. All such transactions must be at arm's length price, documented in a Transfer Pricing Report, and filed with the income tax department. This is a complex area requiring specialist advice.
Foreign companies entering India should plan their entry structure carefully — the choice between LO, BO, or WOS has significant long-term implications on tax, compliance, and operational flexibility.
