Most US companies choose a wholly owned subsidiary, a private limited company, because it is a separate legal entity that can carry on full business, limits the parent's liability and is taxed as an Indian company. A branch office is an extension of the US company with restricted activities, a liaison office cannot earn revenue, and an LLP suits narrower cases.
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Key facts
| Wholly owned subsidiary | Separate legal entity; any permitted business; limited liability; taxed at about 25.17% under the concessional regime for domestic companies |
|---|---|
| Branch office | Extension of the US company; limited permitted activities; RBI approval needed; taxed as a foreign company at 35% plus surcharge and cess |
| Liaison office | Representative only; cannot earn income or invoice; costs funded from abroad; RBI approval needed |
| LLP | Partnership-style entity; foreign investment allowed only in eligible sectors; taxed at 34.944% (30% plus 12% surcharge and 4% cess) |
| No entity (EOR) | A provider employs your team for you; useful for testing the market before choosing a structure |
The four structures compared
| Wholly owned subsidiary | Branch office | Liaison office | LLP | |
|---|---|---|---|---|
| Legal status | Separate Indian company | Part of the US company | Part of the US company | Separate legal entity |
| Can earn revenue | Yes | Yes, within permitted activities | No | Yes |
| Parent's liability | Generally limited to investment | Parent is directly liable | Parent is directly liable | Limited to contribution |
| Approval | Automatic Route in most sectors; report to the RBI | RBI approval through an authorized dealer bank | RBI approval through an authorized dealer bank | Allowed only in eligible sectors |
| Tax rate (tax year 2026-27) | 25.168% under the concessional regime (Section 200 of the Income-tax Act, 2025, previously Section 115BAA of the Income-tax Act, 1961): 22% plus 10% surcharge and 4% cess. Without it: 25% (turnover up to ₹400 crore) or 30%, plus 7% or 12% surcharge and 4% cess, and Minimum Alternate Tax of 15% of book profit | 35% on India profits, plus 2% surcharge (income of ₹1 crore to ₹10 crore) or 5% (above ₹10 crore), plus 4% cess: up to 38.22% | No business income is taxable because commercial activity is not allowed; a PAN and an Annual Activity Certificate are still required | 30% plus 12% surcharge (income above ₹1 crore) plus 4% cess: 34.944%, with 18.5% Alternate Minimum Tax where it is higher |
| Sending profits to the US parent | Dividends bear Withholding Tax of 15% under the India-US treaty where the parent holds at least 10% of the voting power (domestic rate: 20% plus surcharge and cess) | After-tax profits can generally be remitted to the head office through the bank without a further layer of Indian tax | Not applicable, because there are no profits | A partner's share of the LLP's after-tax profit is not taxed again in the partner's hands in India |
| Eligibility of the US parent | No profit track record or minimum net worth test; FC-GPR reported within 30 days of allotment | Net worth of at least USD 100,000 and a profit-making record in the preceding five financial years in the home country | Net worth of at least USD 50,000 and a profit-making record in the preceding three financial years in the home country | Only in sectors where 100% foreign investment is allowed under the Automatic Route with no FDI-linked performance conditions |
| Annual filings | Statutory audit; Forms AOC-4 and MGT-7 with the Registrar; income tax return; GST and Withholding Tax returns; FLA return by 15 July | Audited accounts and income tax return as a foreign company; Annual Activity Certificate through the authorized dealer bank | Annual Activity Certificate from a Chartered Accountant, with the PAN reported | Form 11 by 30 May and Form 8 by 30 October; audit if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh; income tax return |
| Best for | Operations, sales, development centers, GCCs | Specific parent activities such as consultancy or R&D | Market research and liaison | Certain partnership-style setups |
Wholly owned subsidiary (private limited company)
This is the standard route for an operating business. The company has its own registrations, bank account, employees and contracts. It needs at least two directors (one resident in India) and two shareholders, which in a wholly owned subsidiary are usually the US parent and a nominee holding one share. It must keep statutory books, have its accounts audited every year and file annual returns.
Foreign ownership of up to 100% is allowed in most sectors under the Automatic Route. See the step-by-step incorporation process and the Resident Director rules.
Branch office
A branch office carries on specified activities of the parent in India, such as export and import, professional or consultancy services, research work in which the parent is engaged, IT and software services, and technical support for products the parent supplies. It needs RBI approval, usually applied for through an authorized dealer bank, and its activities are limited to those approved.
Because a branch is not a separate entity, the US company is directly liable for it, and its India profits are taxed at the rate for foreign companies. Branches are usually chosen where the parent wants to perform a defined activity without a separate company.
Liaison office
A liaison office represents the parent in India and passes information between the parent and Indian parties. It cannot undertake commercial activity or earn income, and its expenses are met by remittances from the parent. It also needs RBI approval. If your plan includes invoicing customers, hiring a sales team to close deals, or delivering services, a liaison office will not be enough.
Limited Liability Partnership (LLP)
An LLP is a separate legal entity with partners' liability limited to their contribution. Foreign investment in LLPs is permitted only in sectors where 100% foreign ownership is allowed under the Automatic Route and there are no performance conditions linked to the investment. For US parents, an LLP is less common because the US tax treatment of the interest and the lack of share-based instruments can complicate funding and exit. Confirm the US classification with your US tax adviser before choosing it.
How to choose
- Choose a subsidiary if you will hire a team, sign contracts, invoice customers, hold assets or plan to grow in India. This covers most US companies.
- Choose a branch office if the US company itself wants to perform a defined, permitted activity and you accept direct liability and foreign-company taxation.
- Choose a liaison office only for representation, market research or relationship building with no revenue.
- Start with an Employer of Record if you want to hire quickly, test the market and decide later. See EOR vs. subsidiary.
What this means for a US parent
- Your US tax adviser should confirm how each Indian structure is classified for US tax and what reporting it creates, for example Form 5471 for an Indian company. See US parent obligations. A branch or an unplanned presence of US staff can also create a taxable presence in India for the parent. See tax treaty and PE risk.
Mistakes to avoid
- Opening a liaison office and then invoicing customers or signing contracts, which is outside its permitted scope.
- Choosing a branch to save setup effort without weighing the parent's direct liability and higher tax rate.
- Deciding the structure before checking whether your sector allows 100% foreign ownership.
- Ignoring the US tax classification of the Indian entity until after the first filing.
How AU Corporate handles this
We advise on structure, incorporate the Indian entity and handle the RBI and MCA filings.
Related services: India business setup
Official sources
Rules on this page can be verified at the primary sources: Ministry of Corporate Affairs, Reserve Bank of India, Income Tax Department and the GST portal.
Frequently asked questions
Can a liaison office earn revenue?
A liaison office cannot earn revenue. It can only represent the parent and coordinate with Indian parties, cannot undertake commercial activity or earn income, and its costs are met by remittances from abroad.
Can a branch office be converted into a subsidiary later?
A business can be moved into a new Indian subsidiary, usually by transferring the activity and assets to the new company. The tax, FEMA and contract consequences should be planned in advance.
Is an LLP cheaper than a private limited company?
Compliance for an LLP can be lighter, but eligibility for foreign investment, funding options and US tax treatment usually matter more for a US parent than compliance cost.
Which structure do most US companies choose?
A wholly owned subsidiary incorporated as a private limited company, because it is a separate entity with limited liability that can carry on full business.
Can a US company own 100% of an Indian subsidiary?
A US company can own 100% of an Indian subsidiary in most sectors. India permits 100% foreign ownership under the Automatic Route, which needs no prior government approval. A few sectors have ownership caps, conditions or an approval requirement, so the sector position should be checked against the business activity before choosing a structure.
How many directors and shareholders does an Indian subsidiary need?
A private limited company in India needs at least two directors (Section 149(1) of the Companies Act, 2013) and two shareholders (Section 3(1)(b)), and at least one director must be resident in India, meaning a stay of 182 days or more in the year (Section 149(3)). In a wholly owned subsidiary, the US parent holds nearly all the shares and a nominee holds the balance.
Which sectors are restricted for foreign investment?
Most services and technology sectors in India allow 100% foreign ownership under the Automatic Route. A few activities are prohibited, and some sectors have ownership caps, conditions or government approval requirements, so the exact activity should be checked against the FDI Policy before committing.
What is a wholly owned subsidiary?
A wholly owned subsidiary in India is an Indian company whose shares are 100% held by the foreign parent, directly or through group entities. It is a separate legal entity with its own tax registrations, bank account and employees, and the parent's liability is generally limited to its investment.
What is the tax rate for a branch office in India?
A branch office of a US company is taxed as a foreign company at 35% on its India profits, plus a 2% surcharge where income is between ₹1 crore and ₹10 crore or 5% above ₹10 crore, plus 4% cess, which gives up to 38.22%. After-tax profits can generally be remitted to the head office without a further layer of Indian tax.
What is the tax rate for an LLP in India?
An LLP in India is taxed at 30%, plus a 12% surcharge where income exceeds ₹1 crore and 4% cess, which gives 34.944%. An Alternate Minimum Tax of 18.5% of adjusted total income applies where it is higher than the normal tax.
Does a liaison office pay tax in India?
A liaison office does not pay income tax on business profits because it cannot earn income or carry on commercial activity in India. It still needs a PAN and must file an Annual Activity Certificate from a Chartered Accountant, and commercial activity could create a permanent establishment and tax exposure.
What are the eligibility requirements for a liaison office or branch office in India?
A US company needs a net worth of at least USD 50,000 and a profit-making record in the preceding three financial years to open a liaison office, and a net worth of at least USD 100,000 and a profit-making record in the preceding five financial years to open a branch office. Both need RBI approval through an authorized dealer bank.
Related guides
Incorporation Process for a US-Owned Indian Subsidiary, Step by Step
The eight steps to incorporate a wholly owned subsidiary in India from the USA: forms, order of steps, typical 4 to 6 week timeline and first 90 days.
Read the guide →Resident Director Rules for an Indian Subsidiary: Who Can Be One and How to Plan
Every Indian company needs a Resident Director who has stayed in India 182 days in the financial year. Who qualifies, options for US parents, and duties.
Read the guide →Employer of Record vs. Subsidiary in India: When to Use Each
Compare an Employer of Record with your own Indian subsidiary: speed, control, compliance, tax presence and when to convert. A guide for US companies.
Read the guide →US Parent Obligations When You Own an Indian Subsidiary
US reporting that follows when you own an Indian subsidiary: Form 5471, FBAR, Form 8938 and international tax regimes. A guide for US finance teams.
Read the guide →Sources
Last updated 14 October 2026. General information only, not legal or tax advice. Indian rules change often; confirm current requirements before acting.