When a business considers cross-border expansion, the first structural decision is often whether to establish a branch office or incorporate a subsidiary. Both these structures are suitable based on your business goals. A “branch” is legally an extension of the parent company in another nation; on the other hand, a “subsidiary” is an independently incorporated entity. And this is one of the crucial aspects that affects your liability, taxation, regulatory compliance, and even investor perception.
As per the latest data, we can see that subsidiaries remain the dominant model, as we can see that around 70% of foreign direct investment (FDI) inflows in 2023 were structured through subsidiary entities. Even though branch offices can be incorporated faster and have less structure are often capital-intensive to set up, accounting for a smaller share, often serving as testing grounds for new markets
In the following sections, we break down the operational, financial, and compliance dimensions of both the business structures, helping you decide whether a branch or a subsidiary is the right launchpad for your global growth strategy.
Now, one by one, let’s look at both business structures in detail.
What is a branch office?
As a business, when you decide to incorporate your business in India, one of the simplest and easiest routes is to open a branch office in India. But what does that really mean in legal and operational terms?
A “branch” is not a new company; instead, it is an extension of an existing parent company that operates outside India, but is legally inseparable from the headquarters. In simple terms, we can imagine it as a satellite that beams the parent company’s operations into a new market without the need to create a separate legal identity.
As per the RBI guidelines, foreign companies can open a branch office in India for specific permitted activities such as:
- Export or import of goods
- Professional or consultancy services
- Research in areas where the parent is already engaged
- Promoting collaborations between Indian and overseas companies
- Acting as a buying or selling agent
- Providing IT and software development serves
However, activities like retail trading, manufacturing, or processing are not permitted for branch offices.
Why do companies choose a branch?
As a company branch gives you more easy to set up benefit which makes your route to India a little faster.
- Represent itself in India with an official presence.
- Carry out trading activities, consultancy services, research, or act as a buying/selling agent.
- Provide technical support for parent products.
- Explore the Indian market before committing to a full-fledged subsidiary.
This flexibility makes the branch an attractive “testing ground” for global businesses that are still evaluating long-term potential.
Branch compliance and taxation reality check
In India, if you are setting up a branch office, then you have to get RBI approvals before you begin the operations. And this permission is granted only if the foreign parent has a track record of profit-making and a good standing overseas.
Along with the RBI approval, branches must register with the Registrar of Companies (RoC) under the Companies Act, 2013, to obtain their business PAN/GST registrations in India.
When it comes to tax, this is where the real distinction lies. Under the Indian taxation rules, a branch office is treated as a foreign company under Indian law. And this will make you subject to a corporate tax rate of 40% plus surcharge and cess. This often makes the structure costlier in the long run.
In short, we can say that a branch office is like keeping one foot in the door of India’s marketplace, light, flexible, and low-commitment, but also exposed, limited, and sometimes less respected.
What makes a subsidiary different
As we saw, a branch is an extension of the parent company; on the other hand, a subsidiary is a new company in its own right. According to the Companies Act, 2013, a subsidiary is mentioned as a company in which another company controls more than 50% of the shareholding.
A subsidiary company that you form in India enjoys a separate legal identity. This means it can sue and be sued, and it can own property and even enter into a contract like a usual company registered in India. And most importantly, the parent company will have limited liability to the extent of its shareholding.
Why do subsidiaries attract global investors?
We can see that nearly 70% of FDI inflows into India (DPIIT, 2023) come through subsidiaries. Why does this business structure attract more businesses? Because they offer benefits that branches cannot match:
- You get to enjoy complete freedom to operate across manufacturing, retail, e-commerce, and services, unlike a branch that puts some restrictions.
- Unlike a branch, you get the benefit of lower corporate tax rates at 25–30% plus surcharge and cess instead of the steep 40% foreign company tax rates like a branch.
- As a subsidiary, your foreign parent company will have limited liability up to its investment.
- Customers, banks, and partners view a subsidiary as a “local company,” which enhances trust, improves funding prospects, and eases regulatory approvals.
Who should consider a subsidiary in India?
A subsidiary is the right fit if:
- Someone looking to build a long-term and scalable presence in India
- If you are engaging in manufacturing, trading, or large-scale services.
- You seek to build trust with Indian partners, regulators, and customers.
- You are ready to comply with Indian corporate governance requirements and take a serious stake in the market.
Advantages of both structures
When a company from outside India enters the Indian market, there is no one-size-fits-all structure. Both branch and subsidiaries offers a unique set of advantages depending on your business goals.
Understanding these advantages side by side is important for making an informed decision.
| Aspect | Branch Office | Subsidiary |
|---|---|---|
| Legal status | Extension of the parent company, easier to establish | Separate legal entity under the Companies Act, 2013 |
| Setup speed | Faster approvals via RBI and RoC, minimal capital | Longer process, requires incorporation under the Companies Act |
| Cost efficiency | Lower setup and operating costs | Higher incorporation and compliance costs |
| Operational scope | Limited activities (import/export, consultancy, liaison, IT services) | Broad scope including manufacturing, trading, retail, R&D, services |
| Liability | Parent company bears full liability for branch operations | Liability limited to subsidiary’s assets, parent shielded |
| Taxation | Taxed as a foreign company at ~40% plus surcharge and cess | Taxed as an Indian company at ~25–30% plus surcharge and cess, eligible for incentives |
Key factors to consider before choosing
Choosing the right business structure when you are registering as a foreign company is not just about the speed and cost; it is also about aligning your business goals with India’s regulatory, tax and market requirements. Hence, before committing to a branch or subsidiary, every foreign business should weigh these important factors:
How long do you plan to stay
A branch structure is suitable if you are staying in India for a shorter term. And if you have a longer vision, such as being from manufacturing, joint ventures, or building a talent hub, then you must choose a subsidiary that offers you more stability.
How much liability are you willing to take
Unlike in the branch where the parent company’s global assets are exposed to liabilities that arise in India, a subsidiary company gets a limited liability option.
How important is tax efficiency
Branches are taxed at ~40%, while subsidiaries are taxed at 25–30%. And subsidiaries may also avail of GST credits, SEZ benefits, and tax holidays which are not available for a branch.
What regulatory path suits your strategy
Branches need RBI approval under FEMA, with limited permitted activities. Subsidiaries require incorporation under the Companies Act, 2013, but once incorporated, they enjoy full operational scope.
Challenges faced in both structures
Now, let’s have a look at the challenges a business incorporated as a branch and subsidiary faces in India.
Common challenges with branch offices
- RBI rules restrict branches from incorporating in retail trading, manufacturing, or processing, which narrows business opportunities.
- Higher tax rates compared to subsidiaries. Taxed at ~40%.
- Since the branch is not a separate legal entity, the foreign parent company will be directly liable for all the liabilities incurred in India.
- Customers, banks, and even regulators often view branches as temporary setups rather than committed long-term players.
Common challenges with subsidiaries
- As a subsidiary company registered in India, you must comply with the Companies Act 2013, FEMA reporting, board meetings, annual audits, annual audits, and filing with RoC, adding to administrative overhead.
- You will have a higher set up cost compared to when you register as a branch in India.
- You might need additional government approval incase of Investments in areas like defence, telecom, and multi-brand retail.
Conclusion
When you decide to expand to India, you will have higher growth opportunities, but the ultimate success of that journey depends on how you choose the right business structure to register your business in India. As you have seen by now, a branch office gives you speed and simplicity. A subsidiary offers you more credibility and also allows longer-term operations in India as a foreign company.
Under both structures, you get to enjoy unique benefits and challenges; what matters is aligning the structure with your business goals and tax strategy.
With expert guidance on FEMA, RBI, and Companies Act compliance, your entry into the Indian market will be easier and future-ready. The right structure today can define your future growth.
FAQs
Can a branch office be converted into a subsidiary in India?
No, you can’t do a direct conversion. A branch must first be closed, and then you have to apply for a new subsidiary incorporated under the Companies Act, 2013.
Is there any minimum capital required to set up a subsidiary in India?
No in India, there are no mandatory requirements to incorporate your branch office or subsidiary in India. This makes incorporation flexible, though practical investment levels depend on business needs and the RBI’s FDI rules.
