Branch Office and Liaison Office
KAPG & Associates
Branch Office and Liaison Office are two common setups for foreign companies to establish a presence in India without creating a subsidiary. Here's an overview of each:
Branch Office (BO)
A Branch Office allows foreign companies to conduct specific business activities in India but remains an extension of the parent company. Key Features includes:
Activities Permitted: Export/import of goods | Rendering professional or consultancy services | Promoting technical or financial collaborations | Acting as a buying/selling agent | Representing the parent company in India | Research work in areas where the parent company operates.
Restrictions: Cannot engage in manufacturing directly but can subcontract this to Indian manufacturers. Earnings are repatriated to the parent company.
Regulatory Requirements: Approval from Reserve Bank of India (RBI). Compliance with FEMA regulations.
Taxation: Treated as a foreign company for tax purposes (current corporate tax rate ~40%).
Advantages: Direct operational control from the parent company. Ideal for short- to medium-term projects.
Liaison Office (LO)
A Liaison Office serves as a representative office of the foreign company to establish a communication channel but cannot engage in commercial activities. Key features includes:
Activities Permitted: Promoting the parent company's business/products. Facilitating technical/financial collaboration. Acting as a communication link between the parent company and Indian stakeholders.
Restrictions: Cannot earn income in India or undertake any business/commercial activities. Operates solely as a cost center funded by the parent company.
Regulatory Requirements: Approval from RBI. Regular filings with RBI and ROC (Registrar of Companies).
Taxation: Since it cannot earn income, taxation is not applicable directly. Compliance costs remain.
Advantages: Low operational cost. Suited for market research and brand promotion.
| Feature | Branch Office | Liaison Office |
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| Commercial Activity | Permitted (limited) | Not permitted |
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| Revenue Generation | Yes | No |
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| Approval Required | RBI + Ministry of Corporate Affairs | RBI only |
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| Tax Liability | Yes (Corporate Tax) | No direct taxation |
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| Purpose | Business operations | Representation and promotion |
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