Most UK companies choose a wholly owned private limited company because it limits liability to the capital invested, can invoice and employ freely, and is taxed at the domestic company rate. A branch or liaison office needs RBI approval and track-record tests, and a branch is taxed at the higher foreign-company rate. Use an Employer of Record to test the market, and hold the Indian company directly from the UK unless an intermediate holding company has real substance.
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Key facts
| Default choice | Wholly owned private limited company |
|---|---|
| Branch office | RBI approval; the UK company needs a profit record for the five preceding years and net worth of at least USD 100,000; taxed as a foreign company |
| Liaison office | RBI approval; the UK company needs a profit record for the three preceding years and net worth of at least USD 50,000; no income, no invoicing |
| LLP | FDI allowed only in eligible sectors; treated as transparent in some jurisdictions, which complicates UK tax treatment |
| Employer of Record | No entity, no capital; the EOR is the legal employer; good for the first hires |
| Holding | Direct from the UK is the baseline; an intermediate holding company must pass the treaty's principal purpose test |
The five structures side by side
| Structure | Can earn revenue? | Tax in India | Liability | Right for a UK company that |
|---|---|---|---|---|
| Private limited subsidiary | Yes | Domestic company rate; dividends taxed on payment | Limited to capital | Plans sales, development or a captive centre |
| Branch office | Specified activities only | Foreign company rate on profits; no dividend tax | The UK company is directly liable | Needs to carry out the parent's own business in India, such as export and import or consultancy |
| Liaison office | No | No income; costs funded from the UK | The UK company is directly liable | Wants market research and liaison only |
| LLP | Yes (eligible sectors) | LLP rate; distributions not taxed again | Limited to contribution | Fits a partnership or professional services model, after tax review |
| Employer of Record | No: the EOR employs on your behalf | Service fee only; PE risk remains | Contractual | Wants staff in weeks, with no entity, to test the market |
Why the subsidiary is usually the answer
- Ring-fenced liability: a claim in India reaches the subsidiary, not the UK parent, subject to the usual exceptions.
- Lower tax rate: a domestic company pays a lower headline rate than a foreign company's branch. The branch also faces the permanent establishment tests directly.
- Commercial credibility: Indian customers, landlords, banks and employees deal more easily with an Indian company.
- Clean exit: a sale of shares is easier than a sale of branch assets.
Direct holding or an intermediate company?
A UK company can hold the Indian company directly, which keeps the 10% treaty dividend rate and the UK distribution exemption in view. Some groups insert a holding company in a third country for regional reasons. That structure must now pass the Multilateral Instrument's principal purpose test, so it needs staff, decision-making and a business reason beyond the treaty rate. The UK CFC and substance rules also apply. We would test the structure before recommending anything other than a direct holding.
Directors and ownership: UK practical points
- The Indian company needs a resident director. Options include a senior hire, a UK colleague who relocates, or an adviser-nominated director with a clear services agreement and indemnity.
- A UK group often uses a UK parent plus a second group company as shareholder. Choose the second shareholder so that its own tax and compliance burdens are small.
- Directors of the Indian company have statutory duties under the Companies Act, 2013, personal liability for some filings and potential disqualification for non-compliance, so brief UK nominees properly.
When an Employer of Record is the right first step
An Employer of Record (EOR) employs your people in India under its own entity and charges you a fee. It suits the first one to ten hires and the first year of a market test. The limits are that it cannot sign customer contracts for you, it does not remove permanent establishment risk if your managers direct the work, and the cost per head rises with scale. Plan the move to a subsidiary when headcount, contracts or assets in India make the EOR the wrong tool, and agree conversion terms with the EOR at the outset.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, HMRC, Companies House and the UK legalisation service for apostilles.
Frequently asked questions
Which structure do most UK companies choose in India?
A wholly owned private limited company. It limits liability, can earn revenue and employ staff, is taxed at the domestic company rate and is the easiest vehicle to sell or restructure.
What is the difference between a branch office and a subsidiary in India?
A branch is part of the UK company, needs RBI approval, is limited to specified activities and is taxed as a foreign company. A subsidiary is a separate Indian company that can carry out its own business.
Can a UK company open a liaison office in India?
Yes, with RBI approval through an authorised dealer bank, if it has a profit record for the previous three years and net worth of at least USD 50,000. The office can liaise and research but cannot earn income or invoice.
Should a UK company hold its Indian subsidiary directly?
In most cases yes. Direct holding keeps the treaty and UK exemption position simple. An intermediate holding company must pass the principal purpose test and needs real substance.
Is an Employer of Record better than a subsidiary?
Only at the start. An Employer of Record is faster and needs no capital, but it cannot contract in your name, and it becomes costly as the team grows. Most groups convert to a subsidiary after the first year or ten hires.
Related guides
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Read the guide →Sources
Last updated 19 October 2026. General information only, not legal or tax advice. Indian and UK rules change often; confirm current requirements before acting.