Branch Office vs Subsidiary in India: Who You Can Hire
A liaison office, a branch office and a wholly owned subsidiary each permit a different workforce. The structure you register decides who you can legally hire.
The choice between a branch office vs subsidiary in India is a hiring decision before it is a tax one. A liaison office may employ only representative staff funded from abroad. A branch office may employ people to deliver permitted services, but not to manufacture or retail. A wholly owned subsidiary can employ anyone, in any function, and is the only structure that supports a full leadership team.
Why does the entity structure decide who you can hire?
Most India entry conversations start with tax and end with hiring. That order costs time. Under the Foreign Exchange Management Act, the vehicle you register determines the activities you may lawfully perform in India, and an employment contract is only meaningful for work the entity is permitted to do. Register the wrong structure and your first senior hire is barred from the job you hired them for.
The stakes are not small. DPIIT data released on 3 June 2026 put India's total FDI inflows for FY 2025-26 at US$58.85 billion, an 18 per cent rise on the previous year, with inflows from the United States more than doubling to US$11.17 billion. The Ministry of Corporate Affairs recorded roughly 5,302 foreign companies registered in India as at 31 December 2025, of which 3,285 remained active. A large share of those registrations were structural decisions taken before anyone drew up a job description.
What can a liaison office in India actually employ?
A liaison office is a communication channel, not a business. FEMA defines it as a place of business that does not undertake any commercial, trading or industrial activity, directly or indirectly, and that maintains itself entirely out of inward remittances received from the parent through normal banking channels.
To qualify, the foreign parent needs a profit-making track record across the three immediately preceding financial years in its home jurisdiction and a net worth of not less than US$50,000. Approval runs three years and is renewable, reduced to two years for non-banking financial companies and for businesses in construction and development.
In hiring terms that permits a chief representative, a small business development or coordination team, and support staff. It does not permit a revenue-owning country manager, because there is no revenue to own. Every salary is met from abroad in convertible foreign exchange. If a candidate's package assumes a variable component tied to India sales, a liaison office cannot pay it.
This is the most common miscast in early India market entry work. A parent registers a liaison office for speed, then recruits a commercially motivated leader who spends eighteen months unable to sign a contract, and leaves.
What can a branch office employ, and what is it barred from?
A branch office is an extension of the foreign company rather than a separate legal entity, so the parent carries direct liability for everything the branch does. It can invoice, contract and generate revenue in India, which makes it a genuine commercial employer.
Eligibility is tighter than for a liaison office: a profit-making record across the five preceding financial years and a minimum net worth of US$100,000, calculated on paid-up capital and free reserves less intangible assets. Where the applicant itself falls short, a financially sound parent or group company may issue a letter of comfort supporting the branch.
Permitted activities are prescribed, not assumed. They include export and import of goods, professional and consultancy services, research and development aligned to the parent's business, IT-enabled services and software development, technical support for products the parent supplies, acting as a buying or selling agent, and representing foreign airlines and shipping lines.
The exclusions matter more for hiring. A branch office may not conduct retail trading, may not manufacture directly in India, and may not undertake real estate development or agricultural and plantation activity. So a branch can employ a services delivery head, an engineering team and a consulting practice lead. It cannot employ a plant head, because it cannot run a plant.
Registration also cascades into local obligations. Once a branch employs people it must register under state Shops and Establishments law, enrol staff in provident fund, and meet employee insurance requirements. That is the same administrative burden a subsidiary carries, without the tax treatment or the liability protection.
Why does a wholly owned subsidiary unlock the full leadership team?
A wholly owned subsidiary is an Indian company. It is a separate legal person, it ring-fences the parent from Indian liabilities, and subject to sectoral FDI caps and licensing it can do anything an Indian-owned company can do, including manufacturing, retail trading and holding regulated licences.
It is therefore the only structure that supports a complete country leadership team: a managing director with profit and loss ownership, a manufacturing or operations head, a finance chief with statutory signing authority, and an HR leader running Indian payroll and provident fund obligations directly rather than through the parent.
It also changes what you can credibly promise a candidate. Equity or phantom equity in the Indian entity, a real profit and loss, a seat on an Indian board: none of these exist inside a branch office. For a senior leader leaving an established domestic company to join a foreign entrant, that difference is often the entire negotiation.
One statutory requirement shapes the first appointment. Section 149(3) of the Companies Act, 2013 requires every company to have at least one director who has stayed in India for at least 182 days during the preceding financial year, applied proportionately in the year of incorporation. Foreign nationals qualify if they genuinely reside here. Most parents cannot spare one, which makes the resident director the first India appointment in practice, and frequently a nominee rather than a leader.
Getting that appointment right is a search problem, not a compliance one. Running a structured talent map before incorporation tells a board whether the resident director it needs and the country head it wants can be the same person, or whether it is about to appoint a placeholder it will have to unwind.
What does a project office change?
A project office is a branch office with an expiry date, established to execute a specific contract in India. It employs a project team, typically site leadership, engineering, procurement and commissioning, for the life of that contract. It is the right structure when the India presence genuinely ends when the project does. It is the wrong structure when the contract is a foothold, because the office and every employment contract inside it wind up on completion.
How do the three structures compare on tax and approval?
Tax is where the difference becomes expensive. A branch office or project office is generally treated as a permanent establishment of the foreign parent and taxed at the foreign company rate of 35 per cent, plus applicable surcharge and 4 per cent cess. A domestic company electing the concessional regime under section 115BAA pays 22 per cent plus a flat 10 per cent surcharge and 4 per cent cess, an effective 25.17 per cent.
That gap of roughly ten percentage points on Indian profits recurs every year. Across a five-year India plan it will usually exceed the incremental cost of incorporating and running a subsidiary, which is the calculation most boards skip.
The approval route differs too. Liaison, branch and project offices are established under the Reserve Bank's FEMA notification framework, currently Notification FEMA 22(R)/2016, through an Authorised Dealer Category-I bank using Form FNC, followed by allotment of a Unique Identification Number and filing of Form FC-1 with the Registrar of Companies. A subsidiary is incorporated directly with the Ministry of Corporate Affairs and needs no Reserve Bank pre-approval where the sector sits on the automatic route.
What is changing under the RBI's draft 2025 regulations?
The Reserve Bank published draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations on 3 October 2025 and took public comments until 24 October 2025. They have not been notified in the Official Gazette, and the 2016 framework remains in force as at September 2026.
If notified as drafted, three changes would matter for hiring. The five-year profit track record would go. The US$100,000 net worth floor would go. And the prescriptive list of permitted activities would be replaced by a negative list, so a branch could undertake anything not expressly prohibited, subject to sectoral regulation, including business lines the foreign parent does not itself operate.
Policy is moving the same way elsewhere. A 60-day fast-track approval mechanism now applies to proposals in strategic manufacturing sectors including electronics components, capital goods and semiconductors. Boards planning a 2027 entry should treat the branch office rules as a live variable rather than settled law. A branch that is uneconomic today may become viable, and will still carry the 35 per cent rate and unlimited parent liability.
Which structure fits which India entry plan?
Three questions settle it in most cases.
- Will the India entity invoice Indian customers? If no, a liaison office is sufficient and cheapest. If yes, rule it out immediately.
- Will it manufacture, retail, or hold a regulated licence? If yes, only a subsidiary works, and your leadership plan needs a plant or operations head from day one.
- Is the India presence contract-bound and finite? If yes, a project office. If the contract is really a beachhead, incorporate now and staff the project through the subsidiary.
Where the answers point to a subsidiary, which they increasingly do, the market intelligence question becomes the binding one: is the leadership you need actually available in the location you have chosen? Karnataka drew US$12.9 billion in FDI equity in FY 2025-26, close to double the prior year, and computer software and hardware took US$13.9 billion nationally. Concentrated capital means concentrated competition for the same few dozen credible country heads.
What does this mean for your first hires?
Sequence the decision in this order. Settle the structure first, because it fixes the job description. Benchmark the band second, because a branch office and a subsidiary can offer materially different packages for what looks like the same title. Run the search third. A brief written before the structure is settled will be rewritten, and rewriting a brief mid-search costs credibility with exactly the candidates you most want.
We have written separately on who to hire first when entering India, on the site leader profile for a global capability centre, and on building a defensible CXO pay band. Each of those assumes the structure question is already answered. This is the article that answers it.
If you are at the point of choosing, our India entry practice works the structure question and the shortlist together, and our compensation benchmarking prices the role against the structure you have actually chosen rather than a generic country-head figure.