Foreign companies entering India must choose an entry structure before they can sign a contract, hire an employee, or open a bank account. The three primary structures — Wholly Owned Subsidiary (WOS), Branch Office (BO), and Liaison Office (LO) — are governed by different laws, carry different compliance burdens, and have fundamentally different tax treatment.

This guide covers the FEMA framework, the RBI approval process, tax implications, and which structure fits which business model.

## The Regulatory Framework

Foreign investment in India and the operation of foreign business entities are governed by:

- **Foreign Exchange Management Act, 1999 (FEMA)** — primary law for capital account transactions
- **FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office) Regulations, 2016** — governs BO and LO setup
- **Companies Act, 2013 (Sections 379–393)** — governs foreign companies operating in India
- **Foreign Direct Investment Policy** — issued by DPIIT under the Consolidated FDI Policy 2020 (updated periodically)
- **RBI Master Direction on Establishment of Branch/Liaison/Project Offices** — the operational guideline

## The Three Structures Compared

| Parameter | WOS (Pvt Ltd) | Branch Office | Liaison Office |
|---|---|---|---|
| Legal entity | Separate Indian company | Extension of foreign company | Extension of foreign company |
| Activities allowed | Any business activity (sector-specific FDI limits apply) | Manufacturing, trading, services, R&D, export/import | Only liaison, market research, communication — NO commercial activity |
| Can earn revenue in India? | Yes | Yes | No |
| Can repatriate profits? | Yes (after withholding tax) | Yes (after 40% branch profit tax) | Not applicable (no profit) |
| Corporate tax rate | 22% + surcharge + cess (new regime, Section 115BAA) | 40% + applicable surcharge + cess | Not taxable (no income) |
| RBI approval needed? | No (automatic route for most sectors) | Yes — Form FNC filed with AD Bank | Yes — Form FNC filed with AD Bank |
| MCA registration | Required (Form SPICe+, MOA, AOA) | Required (Form FC-1 within 30 days of establishment) | Required (Form FC-1 within 30 days) |
| Minimum capital | No minimum for most sectors | No minimum | No minimum |
| Repatriation route | Dividend under FEMA / Section 195 | Branch profit tax and repatriation | N/A |
| FEMA compliance | Annual FC-TRS, FLA Return, RBI reporting | Annual activity report to RBI via AD Bank | Annual activity report to RBI via AD Bank |

## When to Choose Each Structure

### Wholly Owned Subsidiary — the default choice

A WOS (incorporated as a private limited company under the Companies Act 2013) is the right choice for any foreign company that:

- Intends to generate revenue in India
- Plans to hire employees, sign contracts, or own assets in India
- Wants to use the lower 22% corporate tax rate under Section 115BAA
- Expects to grow and potentially list on Indian exchanges eventually

**The FDI route matters:** Most sectors fall under the **automatic route** (no prior government approval, just RBI reporting via the AD Bank). A few sectors — defence manufacturing, print media, insurance above 74%, telecom — require **government approval** via FIPA.

After incorporation, the foreign parent injects equity (reported via Form FC-GPR within 30 days of receipt of funds). Annual compliance includes FLA Return by 15 July, ECB filings if applicable, and APR on foreign liabilities.

### Branch Office — for companies providing specific services

A Branch Office is permitted for foreign companies engaged in manufacturing, trading, professional/consultancy services, R&D, and software. The Branch is taxed at **40%** (plus surcharge and health & education cess = effective ~43.68% for foreign companies).

**When BOs make sense:**
- Short-term project-based presence (construction, technology implementation)
- Professional services firms wanting to maintain the parent brand directly
- Companies where a separate Indian entity would create compliance complexity

RBI approval for a Branch Office is required. The application is filed through an AD (Authorised Dealer) Bank in Form FNC. Approval typically takes 4–8 weeks.

### Liaison Office — the softest footprint

A Liaison Office cannot carry out any activity that generates revenue in India. It exists only to:

- Represent the foreign parent
- Promote exports/imports
- Conduct market research
- Facilitate communication between the foreign parent and Indian counterparts

All expenses of the LO must be funded by inward remittances from the foreign parent. LOs are most commonly used by foreign companies doing market diligence before committing to a WOS or BO.

RBI approval is required. LO approval is initially for 3 years, renewable. Companies in the banking and insurance sectors cannot set up LOs; they need RBI/IRDAI-specific licences.

## The Incorporation Checklist for a WOS

Setting up a WOS involves the following:

**Step 1: Director Identification Numbers (DIN)**
At least one director must have an Indian DIN. Foreign nationals can get DIN via Form DIR-3, with passport and address proof apostilled in their home country.

**Step 2: Digital Signature Certificate (DSC)**
All proposed directors need DSCs (Class 3) for filing on the MCA portal.

**Step 3: Name Reservation**
File Form RUN (Reserve Unique Name) with 2 name options on MCA21. Name approval takes 1–3 working days.

**Step 4: SPICe+ Filing**
The combined incorporation form includes MOA, AOA, PAN application, TAN application, EPFO and ESIC registration, and bank account opening request. End-to-end incorporation typically takes 7–15 working days after all documents are ready.

**Step 5: FDI Reporting**
Once the foreign parent transfers the initial subscription amount, file Form FC-GPR with the AD Bank within 30 days. The bank reports it to RBI via the FIRMS portal.

**Step 6: Post-incorporation compliance**
[GST registration](https://www.harunraaj.com/services/gst-registration) (if taxable supply > ₹20 lakh), SHOP Act registration, professional tax registration (state-specific), and appointment of a statutory auditor within 30 days of incorporation.

## [Tax Planning](https://www.harunraaj.com/services/tax-planning) at Entry: Avoid These Traps

**Trap 1: Thin capitalisation.** India introduced thin capitalisation rules under **Section 94B** (effective AY 2018-19). Interest paid to associated enterprises exceeding 30% of EBITDA is disallowed. Structure the debt-equity mix before the first remittance.

**Trap 2: Repatriation of profits without WHT planning.** Dividends paid to a foreign parent attract TDS at 20% (Section 115-O abolished in 2020; now Section 115BBDA / dividend income is taxable in the hands of the parent). Under most DTAAs, the rate is 10–15%. File [Form 15CA](https://www.harunraaj.com/services/form-15ca-15cb) / 15CB before every remittance.

**Trap 3: Permanent Establishment (PE) risk for the parent.** If the Indian subsidiary acts as a dependent agent of the parent — concluding contracts on its behalf, holding inventory at its risk — the parent may be treated as having a PE in India under Section 9(1)(i) and DTAA Article 5. Structure the subsidiary as a limited risk entity.

**Trap 4: Angel tax on FDI — abolished from 1 April 2025.** Section 56(2)(viib), which taxed share premium above fair market value, was removed entirely by the Finance (No. 2) Act, 2024, effective AY 2025-26. This trap no longer applies to new investment rounds. If your company received a Section 56(2)(viib) notice before April 2025 and the assessment is still open, contact us — those proceedings remain live even after the abolition.

## How HRA Supports Market Entry

Our corporate law practice handles the full India market entry sequence: RBI/FEMA structuring, WOS incorporation, FDI reporting (FC-GPR, FC-TRS, FLA), PE risk analysis, DTAA WHT planning, and ongoing annual compliance for foreign subsidiaries.

[See our Corporate Law & Secretarial services →](/services/corporate-law)

## Frequently Asked Questions

**Q: Can a foreign company directly own 100% of an Indian company?**
Yes, in most sectors under the automatic route. Sectors with caps (e.g., insurance at 74%, print media at 26%) require government approval for higher percentages.

**Q: How long does it take to set up a WOS in India?**
With all documents ready and apostilled, 15–25 working days from DSC application to Certificate of Incorporation. FDI reporting adds another 2–4 weeks.

**Q: Does a Liaison Office need to file an [income tax return](https://www.harunraaj.com/services/itr-filing)?**
Yes. Even though the LO has no taxable income, it must file a NIL return and submit an Annual Activity Certificate (AAC) to the RBI through its AD Bank by 30 September each year.

**Q: What is Form FC-GPR and when must it be filed?**
Form FC-GPR (Foreign Currency — Gross Provisional Return) is filed by the Indian company with its AD Bank within 30 days of receiving equity investment from a foreign investor. It is then reported to RBI through the FIRMS portal.

**Q: Can a foreign company set up more than one type of presence in India?**
Yes — for example, a foreign company can have a WOS for commercial operations and simultaneously maintain a Branch Office for its professional services division. Each structure requires separate RBI approvals and compliance filings.

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*Prepared by Harun Raaj & Associates, Chartered Accountants. For India market entry advisory, FEMA structuring, and WOS incorporation, [contact our team](/contact).*

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## See Also

- [EPF and ESIC Compliance Guide for Employers in India (2026)](https://www.harunraaj.com/blog/epf-esic-compliance-guide-employers-india)
- [ROC Annual Filing Compliance Checklist for Private Limited Companies (FY 2025-26)](https://www.harunraaj.com/blog/roc-annual-filing-compliance-checklist-companies)
- [LLP vs Private Limited Company — Which Is Better for Your Business?](https://www.harunraaj.com/blog/llp-vs-private-limited-company-comparison)

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