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FEMA & Cross-Border Transactions

India Entry Modes

India Entry Modes

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Overview

India entry modes is the advisory that decides how a foreign company should structure its entry into the Indian market. The choices under the Foreign Direct Investment (FDI) regime — the foreign investment under the Foreign Exchange Management Act 1999 and the Foreign Direct Investment Policy, the non-resident investment under the Foreign Exchange Management (Non-debt Instruments) Rules 2019 — run from the wholly-owned subsidiary, through the joint venture with an Indian partner, to the branch office, the liaison office and the project office, with the sectoral caps, the entry routes and the approval conditions of the FDI policy deciding which structure is available for which business. The advisory maps the business to the structure the law allows.

The entry mode decides everything downstream — the tax, the repatriation, the control, the compliance. The subsidiary is a resident Indian company with its own tax position and its own compliance; the branch office is a foreign presence with the FEMA registration and the limited activity; the joint venture brings the partner and the agreement. Each mode carries a different regulatory weight, and the choice made at entry is expensive to change later.

The cost of the wrong entry mode is the restructuring cost: the structure that does not fit the sectoral caps, the activity that exceeds the branch office's permitted scope, the repatriation that is blocked by the structure — each a rebuild of the India presence at multiples of the original cost.

This service is for foreign companies entering India. We assess the business, the sector and the investment plans against the FDI policy and the NDI Rules 2019, recommend the entry mode — subsidiary, joint venture, branch, liaison or project office — and the structure, map the sectoral conditions and the approvals, and set up the entity, the FEMA filings and the tax registration for the chosen mode.

How It Works

  1. 1

    Business & Sector Assessment

    We assess the business, the sector and the investment plans.

    Harun Raaj & Associates does this1 week
  2. 2

    Entry Mode Analysis

    We analyse the entry modes against the FDI policy and the sectoral caps.

    Harun Raaj & Associates does this1 week
  3. 3

    Structure & Route Recommendation

    We recommend the structure, the entry route and the approvals required.

    Harun Raaj & Associates does this1 week
  4. 4

    Entity & Regulatory Setup

    We set up the entity, the FEMA filings and the tax registrations.

    Harun Raaj & Associates does this4-8 weeks
  5. 5

    Post-Entry Compliance

    We establish the post-entry compliance — returns, reporting and renewals.

    Harun Raaj & Associates does thisOngoing

Frequently Asked Questions

What is the key difference between a liaison office and a branch office for a foreign company entering India?
Both are governed by the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations 2016 under FEMA. A liaison office under Regulation 3 is permitted only to act as a communication channel between the parent and Indian customers — it cannot earn any income in India and all expenses must be met by inward remittance from the parent. A branch office under Regulation 4 can carry out commercial, trading, or industrial activities and can earn income, but only in sectors where 100% FDI is permitted under the Consolidated FDI Policy. A branch office files annual reports in Form OBR with the Reserve Bank through an authorised dealer, whereas a liaison office files in Form LOR. The branch office is taxed as a foreign company in India at 40% plus surcharge under Section 115JB-equivalent provisions and the applicable double tax avoidance agreement.
For a foreign company wanting to hold equity in an Indian operating company, is a wholly-owned subsidiary or an LLP more tax-efficient?
A wholly-owned subsidiary (private limited company) is taxed at 25% under Section 115BAB or 22% under Section 115BAA of the Income-tax Act 1961 (subject to conditions), with dividend repatriation attracting withholding tax under Section 195 at rates as modified by the applicable DTAA. An LLP is taxed at 30% under the Income-tax Act but profits distributed to partners (including the foreign partner) are exempt from further tax under Section 10(2A). However, LLP profit repatriation to a foreign partner requires RBI approval under the FEMA NDI Rules 2019, Schedule VII, and interest on capital contribution is capped at 12% per annum under Section 40(b). For manufacturing or technology sectors, the subsidiary route at 15% tax under Section 115BAB (new manufacturing companies) is typically superior, while for professional services or investment holding, the LLP structure merits careful analysis.
What FEMA approvals does a foreign company need to set up a project office in India for executing an Indian contract?
Under Regulation 5 of the FEMA (Establishment of Branch/Liaison/Project Office) Regulations 2016, a foreign company may establish a project office in India without prior RBI approval if the project is funded by inward remittance from abroad, by a bilateral or multilateral development financial institution, or if the contract has been awarded by a central or state government entity. In all other cases, prior RBI approval through an authorised dealer bank is required by submitting Form POPO. The project office must file a completion report within two months of project completion and remit surplus funds to the parent. Profits are taxable in India at the foreign company rate of 40% plus surcharge under the Income-tax Act 1961, subject to Article 5 (Permanent Establishment) and Article 7 (Business Profits) of the applicable DTAA.
We are a US company and want to test the Indian market without a permanent entity — what is the lightest regulatory footprint?
The lightest structure is a liaison office under Regulation 3 of the FEMA (Establishment of Branch/Liaison/Project Office) Regulations 2016, which requires RBI approval via an authorised dealer bank using Form FNC. The liaison office cannot generate revenue and cannot sign commercial contracts — it can only promote the parent's products, gather market intelligence, and facilitate communication. It must open an INR bank account, maintain books of accounts, and file annual reports in Form LOR with the RBI. From a tax perspective, a liaison office that strictly adheres to the permitted activities does not constitute a Permanent Establishment under the India-US DTAA Article 5(4)(d), meaning the parent's profits are not taxable in India. The RBI grants initial approval for three years, renewable thereafter.
What transfer pricing risks arise when a foreign parent provides management services or IP licences to its Indian subsidiary?
Under Sections 92 to 92F of the Income-tax Act 1961 and the Income-tax Rules 1962 (Rules 10A–10THD), all international transactions between associated enterprises must be at arm's length. Management service fees paid by the Indian subsidiary to the parent are classified as 'international transactions' under Section 92B and must be benchmarked using one of the prescribed methods — most commonly the Comparable Uncontrolled Price method or the Transactional Net Margin Method under Rule 10B. Royalty payments for IP licences must also satisfy arm's length standards and comply with the applicable DTAA royalty article as well as RBI guidelines on royalty remittances (FEMA Notification No. 20(R)). The Indian subsidiary must maintain contemporaneous transfer pricing documentation under Rule 10D and file Form 3CEB, certified by a CA, with the income-tax return. The Indian tax authorities have a dedicated Transfer Pricing Officer empowered to make adjustments under Section 92CA.

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