Representative Office, Branch Office, Project Office vs LLP's and Subsidiary in India

Liaison Office (LO or Representative Office)

• Used for networking, exploring market opportunities, and promoting parent company’s business activities

6 - 8 weeks

• Beneficial for foreign investors to test the waters
• Not subject to taxation
• Lower tax and import duties
• Fewer on-going formalities as compared to other business entities

• Not allowed to conduct any business
• LO can only act as a communication channel
• Permission to set an LO is initially granted for a period of 3 years and this may be later reviewed for extension
• Has to sustain itself through private remittances from the parent company

Branch Office (BO)

• Allowed to conduct same business as parent company including import and export of goods, consultancy and professional services, among others

6 - 8 weeks

• Permitted scope of business activities broader than liaison office
• Fewer compliances compared to a wholly owned subsidiary

• Not permitted to engage in retail trading or processing activities
• Manufacturing is permitted if subcontracted to an Indian manufacturer
• High effective tax rate of 43.68%

Project Office (PO)

• PO can be established if a foreign company receives a contract from an Indian company
• In case of no contract, prior approval from the RBI is required

4 weeks

• Suitable for executing a specific project such as one time turnkey or installation projects

• Exists only as long as duration of contract
• High effective tax rate of 43.68%

Limited Liability Partnership (LLP)

• LLP is a hybrid of a partnership firm and a company
• LLPs are governed by the Limited Liability Partnership Act, 2008

4 - 6 weeks

• Liability of Partners is limited to the extent of their contribution in LLP
• No minimum capital requirement conditions
• Effective tax rate of 34.94%
• Less compliances as compared to a WOS

• FDI is permitted under the automatic route in LLPs operating in sectors/ activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions
• Mandatory to have one designated partner who is an Indian resident

Wholly Owned Subsidiary (WOS)

• Foreign companies can set up WOS in form of private limited companies in sectors where 100% FDI is permitted

4 - 8 weeks

• Total control over business activities
• Fewer restrictions on scope of activities
• Effective tax rate of 25.17% for domestic companies and 17.16% for new manufacturing companies established after October 1, 2019

• Mandatory to have an Indian Resident Director
• Requirements to conduct mandatory Board Meetings

Legal type

Facilitates networking efforts between the foreign parent company and business parties in India.

Not a separate legal entity from the parent company.

Temporary setup that is essentially a branch office established by the foreign parent company for the limited purpose of executing a specific project.

Separate legal entity.

Foreign companies can set up WOS in form of private limited companies in sectors where 100% FDI is permitted

A wholly owned subsidiary, such as private limited company, is treated as a domestic company under India’s Income Tax Law and is eligible for all exemptions, deductions, and benefits as applicable to any other Indian company.

Criteria for set up

Net worth should be greater than or equal to US$50,000 or its equivalent. The applicant parent company must show a track record of profit during the immediately preceding three financial years in the home country.

Net worth should be greater than or equal to US$100,000 or its equivalent. The applicant parent company must show a track record of profit during the immediately preceding five financial years in the home country.

Secured a contract from an Indian company to execute a project in India.

The Project must have secured the necessary regulatory clearances; and is funded directly by inward remittance from abroad. Alternately, the Project is funded by a bilateral or multilateral International Financing Agency, or a company, or the entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the Project.

No minimum capital requirement conditions.

Minimum two partners

Foreign direct investment is subject to FDI Policy and compliances under Limited Liability Partnership Act, 2008.

For example, FDI is permitted under the automatic route in LLPs operating in sectors / activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions.

There is no minimum capital required for incorporating a private limited company.

Minimum two subscribers required.

No requirement of track record of the parent company as a shareholder.

Liabilities

Liabilities incurred by the representative office extend to the parent company.

Liabilities incurred by the branch office extend to the parent company

Liabilities incurred by the project office extend to the parent company.

Liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP.

Parent company can limit liabilities to subsidiary.

Entity name

Must be the same as parent company.

Must be the same as parent company.

Must be the same as parent company.

The name must be unique and acceptable as per the Companies Act, 2013 or LLP Act, 2008. The name cannot be identical or similar to an existing company or LLP or trademark in the same industry or field.

Can be the same or different from parent company.

Allowed activities

Used for networking, exploring market opportunities, and promoting parent company’s business activities.

Allowed to conduct same business as parent company, including import and export of goods, consultancy work, and professional services, among others.

Permitted scope of business activities broader than liaison office.

Fewer compliances compared to a wholly owned subsidiary.

A project office can be established if a foreign company receives a contract from an Indian company

In case of no contract, prior approval from the RBI is required.

The LLP’s structure and objective are primarily suited for carrying out business activities related to the services sector. However, there is no restriction to perform business in manufacturing and allied activity.

An LLP can conduct more than one business if the activities are related or in the same field.

All types of business activities are permitted, such as in the manufacturing, marketing, services sectors. Where 100% foreign direct investment is permitted, no prior approval of RBI is required.

Validity period

License is given for three years and the same can be renewed every three years.

But, in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, the validity period is only two years, and no extension for these sectors (excluding infrastructure development companies) will be considered.

Once the validity period expires, the liaison office has to either close down or be converted into a joint venture/wholly owned subsidiary in conformity with the FDI policy.

The validity of registration has no specific time frame, but is generally two to three years.

The project office remains valid for the entire tenure of the project (till the project is completed or wound up).

An LLP once incorporated continues till it is dissolved or as per terms stated in the LLP agreement.

A company, once incorporated, will continue until its dissolution.

Setup time

6-8 weeks

6-8 weeks

4 weeks

4-6 weeks

4-8 weeks

Taxation*

Not subject to taxation as this office type cannot engage in commercial activity

The tax slabs of a branch office (foreign company) are divided into three categories. Income below INR 10 million is taxed at 41.60%, income below INR 100 million is taxed at 42.43% and when the income of branch office is above INR 100 million then the tax rate applicable is 43.68%.

High effective tax rate of 43.68% as it is considered a permanent establishment of a foreign company.

Effective tax rate of 34.94%*.

*The amount of income-tax shall be increased by a surcharge at the rate of 12% of such tax, where total income exceeds INR 10 million.

Effective tax rate of 25.17% for domestic companies not claiming tax exemption / incentives and 17.16% for new domestic manufacturing companies established after October 1, 2019.

Annual filing

File Annual Activity Certificates (AAC) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year.

File Annual Activity Certificates (AAC) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year.

File Annual Activity Certificates (AAC) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year.

1. Yearly filings include the filing of financials of the LLP and Annual Return with MCA [Form 11 (Annual Return) and Form 8 (Statement of Accounts & Solvency of LLP)]

2. Filing Quarterly TDS returns

3. Filing of Income-tax return

4. Filing of GST returns

1. Yearly filing of financials and Annual Return with the MCA (AOC-4 and MGT-7)

2. Annual Compliance with RBI in case shares are allotted to foreign Individuals/ companies (Form FC-GPR Part A & Part B)

3. Annual return with the Income Tax Department

4. Filing of Quarterly TDS returns

5. Filing of monthly/ quarterly/ annual GST returns and GST audit

6. Various forms to be filed with MCA regarding board meeting (MBP-1), Director’s declaration (DIR-8, DIR-3 KYC), Deposits (DPT-3), MSME, Approval of FS & Board Report (MGT-14), Auditor Appointment ADT-1)

Bank account

An LO should the designated Authorised Dealer (AD) Category-I Bank in India to open an account to receive remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permitted Credits and Debits to the account shall be:

a. Credits

1) Funds received from Head Office through normal banking channels for meeting the expenses of the office.

2) Refund of security deposits paid from LO’s account or directly by the Head Office through normal banking channels.

3) Refund of taxes, duties etc., received from tax authorities, paid from LO’s bank account.

4) Sale proceeds of assets of the LO.

b. Debits

 1) Only for meeting the local expenses of the office.

A BO should any AD Category-I Bank in India to open an account for its operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds.

Any foreign entity except an entity from Pakistan who has been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank. An entity from Pakistan shall need prior approval of Reserve Bank of India to open a bank account for its project office in India.

For further information, see notes.**

Opening a current bank account is mandatory for every type of entity. The entity must submit the list of documents and details required by the bank.

Opening a current bank account is mandatory for every type of entity. The entity must submit the list of documents and details required by the bank.

Staff hiring

Can hire local and foreign staff.

Can hire local and foreign staff.

Can hire local and foreign staff.

Can hire local and foreign staff.

Can hire local and foreign staff.

Appointment of representative/ Authorised signatory

Parent company must appoint local authorised representative. An authorised representative is a person residing in India with a valid Permanent Account Number (PAN).

Parent company must appoint local authorised representative. An authorised representative is a person residing in India with a valid Permanent Account Number (PAN).

Parent company must appoint local authorised representative. An authorised representative is a person residing in India with a valid Permanent Account Number (PAN).

Minimum two partners are required, and a body corporate can be a partner.

At least two designated partners shall be individuals and at least one of the partners should be an Indian resident, that is, a person residing in India for 183 days or more in the previous financial year.

Minimum two directors required. At least one of the directors should be an Indian resident, that is, a person residing in India for 183 days or more in the previous financial year.

Note: *For clarity on corporate tax rates, please refer to corporate tax section.

** Bank account for project office.

AD Category – I banks can open non-interest-bearing foreign currency account for POs in India subject to the following:

●     The PO has been established in India, with the general / specific permission of Reserve Bank of India, having the requisite approval from the concerned Project Sanctioning Authority concerned as per these Regulations.

●     The contract governing the project specifically provides for payment in foreign currency.

●     Each PO can open two foreign currency accounts, usually one denominated in US$ and the other in the home currency of the project awardee, provided both are maintained with the same AD Category–I bank.

●     The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority and remittances from parent/group company abroad or bilateral / multilateral international financing agency.

●     The responsibility of ensuring that only the approved debits and credits are allowed in the foreign currency account shall rest solely with the AD Category–I bank. Further, the accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD Category–I bank.

●     The foreign currency accounts have to be closed at the completion of the project.