Explore the key legal differences between setting up a Branch Office and a Subsidiary in India. Understand regulatory requirements, tax implications, business scope, and liability to make the right choice for your market entry strategy.
<p>India remains one of the most attractive destinations for foreign investment due to its large consumer base, skilled workforce, and ongoing pro-business reforms. For Russian companies planning to expand into India, two popular entry options are establishing a <strong>Branch Office (BO)</strong> or a <strong>Wholly Owned Subsidiary (WOS)</strong>.</p><p>Each structure has its own legal, regulatory, and operational implications. The choice depends on your business goals, risk tolerance, and long-term strategy. A qualified <strong id="docs-internal-guid-f7ca7da9-7fff-a64d-bca6-afc136f72178" style="font-weight: normal;"><a style="text-decoration: none;" href="https://ru.ahlawatassociates.com/uslugi/otkrytie-biznesa-v-indii/"><span style="font-size: 12pt; font-family: Arial,sans-serif; color: #1155cc; background-color: transparent; font-weight: bold; font-style: normal; font-variant: normal; text-decoration: underline; -webkit-text-decoration-skip: none; text-decoration-skip-ink: none; vertical-align: baseline; white-space: pre-wrap;">business startup lawyer in India</span></a></strong> can provide essential guidance through this decision-making process.</p><hr><h3>1. Legal Identity and Structure</h3><ul><li><p><strong>Branch Office (BO):</strong><br>Functions as an extension of the foreign parent company. It is not a separate legal entity. All liabilities and assets are reflected on the parents balance sheet, and legal exposure is direct.</p></li><li><p><strong>Subsidiary (WOS):</strong><br>A separate legal entity incorporated under Indian law. It can enter contracts, sue or be sued, own property, and independently manage operations.</p></li></ul><p><strong>Takeaway:</strong> A subsidiary provides legal separation and protection for the parent company. In contrast, a branch exposes the parent to full liability.</p><hr><h3>2. Regulatory Approvals</h3><ul><li><p><strong>BO:</strong><br>Requires Reserve Bank of India (RBI) approval under FEMA. The parent company must be profitable for 5 years and have a net worth of at least USD 100,000. Approval is activity-specific.</p></li><li><p><strong>Subsidiary:</strong><br>Registered with the Ministry of Corporate Affairs (MCA) under the Companies Act. No RBI approval is required for sectors under the automatic FDI route.</p></li></ul><p>A <strong>business startup lawyer in India</strong> can assist with documentation, RBI liaison, and sector-specific compliance.</p><hr><h3>3. Business Activities</h3><ul><li><p><strong>BO:</strong><br>Limited to activities approved by the RBI, such as consultancy, IT services, research, and trading support. Cannot engage in manufacturing or retail.</p></li><li><p><strong>Subsidiary:</strong><br>Can operate freely in any lawful business activity permitted under Indian law and FDI policy, including manufacturing, services, and e-commerce.</p></li></ul><p><strong>Legal Note:</strong> A subsidiary offers more flexibility and is ideal for companies planning long-term growth in India.</p><hr><h3>4. Taxation and Compliance</h3><ul><li><p><strong>BO:</strong><br>Taxed as a foreign company at 40% + surcharge and cess. Limited access to tax benefits and startup incentives.</p></li><li><p><strong>Subsidiary:</strong><br>Taxed as a domestic company at 15%25% depending on turnover and nature of activity. Eligible for various benefits under Indian tax laws and startup schemes.</p></li></ul><table><thead><tr><th>Compliance Requirements</th><th>Branch Office</th><th>Subsidiary</th></tr></thead><tbody><tr><td>Annual filings</td><td>RBI + ROC</td><td>ROC</td></tr><tr><td>Tax returns</td><td>Required</td><td>Required</td></tr><tr><td>Audit</td><td>Mandatory</td><td>Mandatory</td></tr><tr><td>Other reports</td><td>RBI activity report</td><td>Board meetings, AGMs</td></tr></tbody></table><hr><h3>5. Repatriation of Profits</h3><ul><li><p><strong>BO:</strong><br>Profits can be repatriated to the parent company after RBI approval and tax clearance.</p></li><li><p><strong>Subsidiary:</strong><br>Dividends can be repatriated after paying withholding tax, with no need for RBI approval.</p></li></ul><p>A <strong>business startup lawyer in India</strong> can help structure your entity in a tax-efficient manner for smooth profit repatriation.</p><hr><h3>6. Liability and Risk</h3><ul><li><p><strong>BO:</strong><br>All liabilities are the responsibility of the parent company. Creditors can make claims against global assets.</p></li><li><p><strong>Subsidiary:</strong><br>Liability is limited to the capital invested. The parent is not liable beyond its shareholding.</p></li></ul><p><strong>Conclusion:</strong> A subsidiary reduces risk exposure and offers better legal protection.</p><hr><h3>7. Winding Up</h3><ul><li><p><strong>BO:</strong><br>Requires RBI and ROC approval, tax clearance, and a time-intensive closure process.</p></li><li><p><strong>Subsidiary:</strong><br>Can be voluntarily closed under the Companies Act or through a fast-track exit if eligible.</p></li></ul><hr><h3>8. Employment and Operations</h3><ul><li><p><strong>BO:</strong><br>Can hire local staff but with some restrictions. Employment contracts must align with the permitted scope of activities.</p></li><li><p><strong>Subsidiary:</strong><br>Has full autonomy to hire Indian or foreign employees, manage payroll, and access HR-related government benefits.</p></li></ul><hr><h3>Summary: Which Is Right for You?</h3><table><thead><tr><th>Criteria</th><th>Branch Office</th><th>Subsidiary</th></tr></thead><tbody><tr><td>Legal Identity</td><td>Extension of parent</td><td>Separate entity</td></tr><tr><td>Scope of Activities</td><td>Limited</td><td>Broad and flexible</td></tr><tr><td>Tax Rate</td><td>~40%</td><td>15%25%</td></tr><tr><td>FDI Flexibility</td><td>Restricted</td><td>High</td></tr><tr><td>Liability</td><td>Full exposure</td><td>Limited</td></tr><tr><td>Closure Process</td><td>Complex</td><td>Streamlined</td></tr></tbody></table><hr><h3>How a Business Startup Lawyer in India Can Help</h3><p>Partnering with a <strong>business startup lawyer in India</strong> ensures that your entry into the Indian market is legally sound and efficient. Services may include:</p><p>✅ Choosing between BO and Subsidiary<br>✅ Handling RBI and MCA compliance<br>✅ Drafting shareholder agreements, MoA, and AoA<br>✅ Navigating sector-specific FDI rules<br>✅ Legal representation and ongoing advisory</p><p>Whether youre aiming for a limited presence or long-term investment, a trusted law firm can make the setup process smoother, safer, and faster.</p>
Ahlawat & Associates — ведущая индийская юридическая фирма, предоставляющая услуги в области корпоративного права, слияний, недвижимости, ИС, разрешения споров и налогообложения.
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