Setting Up a Branch Office vs Subsidiary in India: What Foreign Companies Should Know (2025)
Introduction
India continues to be a global investment hotspot for multinational companies. However, when a foreign entity considers entering the Indian market, one of the first strategic decisions it faces is whether to open a branch office or a subsidiary. While both offer entry into the Indian economy, the implications in terms of control, taxation, and legal liability differ significantly.
In this comprehensive 2025 guide by Makwana Sweta & Associates, a leading firm offering CA services in Mumbai and across India, we will break down the major differences between a branch office vs subsidiary, including registration processes, regulatory oversight, and tax treatment.
What is a Branch Office?
A branch office is an extension of a foreign company, allowed to conduct specific business activities in India, but it is not a separate legal entity. It is treated as a foreign company under Indian laws.
Permitted Activities:
According to the RBI guidelines, a branch office can:
- Export/import goods
- Provide professional or consultancy services
- Act as a buying/selling agent
- Conduct research work
- Represent the parent company
Important: A branch office cannot carry out retail trading or manufacturing activities directly in India.
What is a Subsidiary?
A subsidiary, on the other hand, is a separate legal entity incorporated under the Indian Companies Act, 2013. Foreign companies can own up to 100% equity, depending on the sector, under the automatic route or government approval route.
There are two types:
- Wholly Owned Subsidiary (WOS)
- Joint Venture (JV) with an Indian partner
Key Differences: Branch Office vs Subsidiary
| Feature | Branch Office | Subsidiary |
|---|---|---|
| Legal Status | Not a separate legal entity | Separate legal entity |
| Governing Law | FEMA + RBI Guidelines | Companies Act, 2013 |
| Approval Required | RBI approval via AD Category-I bank | MCA (Ministry of Corporate Affairs) |
| Activities Allowed | Limited (consultancy, liaison, etc.) | All permissible commercial activities |
| Liability | Parent company liable | Limited liability to the subsidiary only |
| Tax Treatment | Taxed as a foreign company (40% rate) | Taxed as Indian company (25% rate)* |
| Repatriation of Profits | Allowed post-tax, subject to rules | Dividends can be repatriated after DDT |
| Capital Structure | No minimum prescribed | Minimum Rs. 1 lakh (practical) |
*As of FY 2025, the base corporate tax rate in India is 22% + surcharge and cess. Effective rate is ~25.17%.
Taxation Differences (Updated 2025)
Branch Office:
- Taxed at 40% (plus surcharge and cess) as it is considered a foreign company
- Not eligible for most Indian tax exemptions
- Subject to Transfer Pricing regulations
- Required to file Form 49C with RBI
Subsidiary:
- Taxed at 22% base rate (for domestic companies)
- Can avail startup incentives, depreciation, and other deductions
- Eligible to claim benefits under Double Taxation Avoidance Agreement (DTAA)
- Must file annual returns with ROC and Income Tax Department
Regulatory Process & Approvals
For Branch Office:
- Application to RBI through AD Category-I bank
- Parent company must have:
- Net worth of at least USD 100,000
- A track record of profitability in the past 5 years
- Requires submission of:
- Board resolution
- Incorporation certificate
- Audited financials
For Subsidiary:
- Registered with MCA under Companies Act
- Requires:
- DSC and DIN for directors
- Memorandum of Association (MoA)
- Articles of Association (AoA)
- Filing of SPICe+ form
- Post incorporation, PAN, TAN, GST, and bank account are set up
Compliance Requirements
| Requirement | Branch Office | Subsidiary |
| Annual Filing | Report to RBI + ITR | MCA + Income Tax + Audit Report |
| Statutory Audit | Mandatory | Mandatory |
| Transfer Pricing Report | Required if related-party transactions | Required if related-party transactions |
| GST Registration | If liable | Mandatory if threshold exceeded |
| FEMA Reporting | FC-GPR, FLA | FC-GPR, FLA |
Which One Should You Choose?
Choose Branch Office if:
- You only need a liaison presence in India
- You are not engaging in direct sales or manufacturing
- You want a lower setup cost
Choose Subsidiary if:
- You plan full-fledged operations, hiring, and asset ownership
- You want local market credibility
- You want limited liability and tax benefits
Expert Insight from Makwana Sweta & Associates
Setting up a business presence in India requires navigating complex regulatory environments, particularly under FEMA, Companies Act, and Indian Tax Laws. At Makwana Sweta & Associates, a leading firm of Chartered Accountants in Mumbai, we help foreign companies evaluate the right structure based on operational, tax, and compliance perspectives.
Whether you’re opening a branch office or incorporating a subsidiary, our team offers end-to-end support including:
- Entity setup and RBI/MCA liaison
- FEMA and FDI compliance
- Annual return and tax filings
- Legal and secretarial services
Final Thoughts
As a foreign company, choosing between a branch office vs subsidiary in India is a strategic decision with long-term implications. While the branch model offers simplicity, the subsidiary model offers independence, scalability, and better tax positioning.
For tailor-made advice and full compliance support, connect with Makwana Sweta & Associates—one of the most trusted CA services in Mumbai, catering to Indian and international clients.