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 Branch Office (BO) or a Wholly Owned Subsidiary (WOS).
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 business startup lawyer in India can provide essential guidance through this decision-making process.
1. Legal Identity and Structure
Branch Office (BO):
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.Subsidiary (WOS):
A separate legal entity incorporated under Indian law. It can enter contracts, sue or be sued, own property, and independently manage operations.
Takeaway: A subsidiary provides legal separation and protection for the parent company. In contrast, a branch exposes the parent to full liability.
2. Regulatory Approvals
BO:
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.Subsidiary:
Registered with the Ministry of Corporate Affairs (MCA) under the Companies Act. No RBI approval is required for sectors under the automatic FDI route.
A business startup lawyer in India can assist with documentation, RBI liaison, and sector-specific compliance.
3. Business Activities
BO:
Limited to activities approved by the RBI, such as consultancy, IT services, research, and trading support. Cannot engage in manufacturing or retail.Subsidiary:
Can operate freely in any lawful business activity permitted under Indian law and FDI policy, including manufacturing, services, and e-commerce.
Legal Note: A subsidiary offers more flexibility and is ideal for companies planning long-term growth in India.
4. Taxation and Compliance
BO:
Taxed as a foreign company at 40% + surcharge and cess. Limited access to tax benefits and startup incentives.Subsidiary:
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.
| Compliance Requirements | Branch Office | Subsidiary |
|---|---|---|
| Annual filings | RBI + ROC | ROC |
| Tax returns | Required | Required |
| Audit | Mandatory | Mandatory |
| Other reports | RBI activity report | Board meetings, AGMs |
5. Repatriation of Profits
BO:
Profits can be repatriated to the parent company after RBI approval and tax clearance.Subsidiary:
Dividends can be repatriated after paying withholding tax, with no need for RBI approval.
A business startup lawyer in India can help structure your entity in a tax-efficient manner for smooth profit repatriation.
6. Liability and Risk
BO:
All liabilities are the responsibility of the parent company. Creditors can make claims against global assets.Subsidiary:
Liability is limited to the capital invested. The parent is not liable beyond its shareholding.
Conclusion: A subsidiary reduces risk exposure and offers better legal protection.
7. Winding Up
BO:
Requires RBI and ROC approval, tax clearance, and a time-intensive closure process.Subsidiary:
Can be voluntarily closed under the Companies Act or through a fast-track exit if eligible.
8. Employment and Operations
BO:
Can hire local staff but with some restrictions. Employment contracts must align with the permitted scope of activities.Subsidiary:
Has full autonomy to hire Indian or foreign employees, manage payroll, and access HR-related government benefits.
Summary: Which Is Right for You?
| Criteria | Branch Office | Subsidiary |
|---|---|---|
| Legal Identity | Extension of parent | Separate entity |
| Scope of Activities | Limited | Broad and flexible |
| Tax Rate | ~40% | 15%25% |
| FDI Flexibility | Restricted | High |
| Liability | Full exposure | Limited |
| Closure Process | Complex | Streamlined |
How a Business Startup Lawyer in India Can Help
Partnering with a business startup lawyer in India ensures that your entry into the Indian market is legally sound and efficient. Services may include:
✅ Choosing between BO and Subsidiary
✅ Handling RBI and MCA compliance
✅ Drafting shareholder agreements, MoA, and AoA
✅ Navigating sector-specific FDI rules
✅ Legal representation and ongoing advisory
Whether youre aiming for a limited presence or long-term investment, a trusted law firm can make the setup process smoother, safer, and faster.
