Liaison Office & Branch Office
In today’s global economy, many businesses look beyond their home borders to expand their reach, explore new markets, build strategic partnerships, and test international opportunities. For foreign companies planning to enter India’s dynamic and fast-growing market, choosing the right market-entry strategy is a critical first step.
Two of the most popular options available for foreign entities seeking presence in India — without immediately forming a separate company — are:
➡️ Liaison Office (LO)
➡️ Branch Office (BO)
Both structures serve distinct purposes, involve different regulatory requirements, and suit different business goals depending on the nature and scale of operations. In this comprehensive guide, we will break everything down — what they are, how they differ, eligibility criteria, how to set them up, advantages, limitations, compliance, requirements, taxation, and much more — in clear, humanized language that’s easy to read and optimized for SEO.
What is a Liaison Office?
A Liaison Office, also known as a representative office, is a type of business establishment that serves as a communication channel between the parent company and its clients or partners in a foreign market. It does not engage in commercial or revenue-generating activities and cannot undertake any business or trading activities. Instead, the liaison office facilitates communication and information exchange, helping the parent company understand the local market and establish a network.
What Is a Branch Office (BO)?
A Branch Office represents the foreign company and is permitted to carry out business operations in India on behalf of the parent company. Unlike a Liaison Office, a Branch Office can engage in limited commercial activities, generate revenue, and enter contracts, but it cannot incorporate itself as a separate legal entity distinct from the parent.
Typical Activities of a Branch Office
A Branch Office may undertake:
- Sales and marketing of products/services
- Contract execution on behalf of foreign parent
- Consultancy or technical services
- Import/export operations
- IT and software development services
- Other business activities within the scope permitted by the Reserve Bank of India (RBI) and
- Foreign Exchange Management Act (FEMA) guidelines
Unlike a Liaison Office, a Branch Office can earn income from its operations and is subject to local taxation on that income.
Liaison Office’s Important Characteristics
- Non-commercial activities: It is restricted from engaging in direct sales, trading, or any other commercial activity that results in profit generation.
- Communication channel: It acts as a link between the parent company and the local market to gather information, promote the company’s products or services, and build a local network.
- Market research: The liaison office can conduct market research and feasibility studies to help the parent company make strategic decisions for future expansion.
- Brand promotion: Promoting the company’s brand and products in the target market without engaging in business transactions.
- Cost-effective entry: Suitable for companies that want to explore foreign markets without a significant initial investment.
Legal Framework That Governs LO & BO in India
The establishment of Liaison and Branch Offices in India is governed by the Foreign Exchange Management Act (FEMA), 1999 and regulations issued by the Reserve Bank of India (RBI) under FEMA.
Foreign companies seeking to establish either office must apply for permission in Form FNC-1 through an Authorized Dealer Category – I Bank to the RBI. This process ensures that applicants meet specific eligibility criteria, such as net worth and track record requirements, and adhere to foreign exchange compliance provisions
According to RBI guidelines:
For a Liaison Office the foreign entity generally must demonstrate:
- A profit-making track record for the preceding three financial years
- A minimum net worth of USD 50,000 or equivalent
For a Branch Office, the criteria are typically more rigorous:
- A profit-making track record for the preceding five financial years
- A minimum net worth of USD 100,000 or equivalent
Purpose and Function of a Liaison Office in Detail
A Liaison Office is primarily created to establish a non-commercial presence in India. It enables multinational corporations to:
Market Research and Market Intelligence
Liaison Offices conduct research to understand customer preferences, industry trends, and competitive landscapes — insights that are priceless before launching full-scale operations.
Brand Awareness and Promotion
Although not allowed to sell, the Liaison Office may promote the parent company’s brand, products, and services through informational activities, presentations, and product brochures — without entering into transactions with customers.
Communication with Stakeholders
These offices act as local points of contact in India to liaise with distributors, suppliers, clients, and government authorities, facilitating smoother business discussions and collaborations.
Feasibility and Strategic Planning
Liaison Offices help foreign companies evaluate long-term business feasibility by gathering data and insights that influence decisions about future investments or expansion plans.
Because of these functions, Liaison Offices are often the first step toward establishing a more permanent presence such as a Branch Office, subsidiary, or joint venture in India.
Scope of Services Offered by a Liaison Office:
- Promotional Activities: Promoting the parent company’s products or services to build awareness in the target market.
- Market Research: Conducting studies to understand market dynamics and gather data for strategic planning.
- Facilitating Communication: Acting as a local point of contact to strengthen relationships with partners, clients, and stakeholders.
- Coordination: Coordinating between the parent company and local agents or distributors for smooth business operations.
Advantages of a Liaison Office
Here’s why foreign companies prefer starting with a Liaison Office:
Cost-Effective Market Entry
Since it doesn’t engage in commercial activity, a Liaison Office requires lower capital and operational expense compared to a Branch Office or subsidiary.
Minimal Tax Burden
Liaison Offices are not subject to income tax in India because they do not undertake business activities or generate revenue locally.
Excellent for Market Understanding
Liaison Offices enable deep understanding of local consumer behavior, regulatory framework, and competitor positioning before committing large investments.
Builds Brand and Network
Even without selling products, these offices help strengthen brand visibility and build relationships with key Indian stakeholders.
Simple Regulatory Framework
Compared to Branch Offices, compliance and reporting for Liaison Offices are less complex, making them easier to manage initially.
Limitations of Liaison Offices
Despite their advantages, Liaison Offices have some limitations that companies must consider:
- Cannot generate revenue — Meaning no commercial or operational transactions are permitted.
- Dependent on foreign remittances — All expenses must be met with funds sent from the parent company abroad.
- sign contracts with Indian customers for business purposes.
- Time-bound permissions — RBI approvals for Liaison Offices are typically granted for a specific period (often 3 years, extendable).
Because of these limitations, Liaison Offices are not suitable for companies ready to sell and operate directly in the Indian market.
What is a Branch Office?
A branch office is a foreign representative that does business in another country on behalf of the mother company. It is not permissible for a liaison office to create income through its business-related activity. This could be achieved either by selling product or services. It functions on behalf of its mother company. It appears in the foreign market as the parent company.
Branch Office: Expanded Business Operations
A Branch Office represents a more advanced stage of market entry. Unlike Liaison Offices, Branch Offices can perform commercial activities and generate revenue on behalf of the foreign parent company.
Examples of activities a Branch Office may undertake include:
- Selling or distributing products
- Providing technical or professional services
- Entering into contracts on behalf of the parent company
- Facilitating imports and exports
- Conducting market operations aligned with the parent’s core business
Advantages of a Branch Office
Branch Offices offer several benefits for foreign companies serious about doing business in India:
Ability to Earn Revenue in India
A Branch Office can sell products or services and earn revenue, enabling businesses to expand their footprint in the Indian market.
Replicable Business Activities
It can undertake many activities allowed under RBI regulations, including consultancy, project execution, and marketing efforts.
Direct Representation of Parent Company
It operates as an extension of the foreign corporation, often under the same name, enhancing brand presence.
Profit Repatriation
Profits generated by a Branch Office can usually be repatriated, subject to applicable taxes and regulations.
Limitations of Branch Offices
However, Branch Offices also have constraints:
Tax & Compliance Burden — Branch Offices are subject to Indian income tax and often international taxation regulations.
Strict Eligibility Requirements — They typically require a higher net worth and profit history.
Transfer Pricing Regulations — Branch Offices engaging in related-party transactions must adhere to India’s transfer pricing rules.
Because of these factors, companies must evaluate whether a Branch Office fits into their long-term business strategy.
Primary Characteristics of Branch Office
- Can be involved in commercial business. A branch can carry out some business operations as well, though they may refer to sales, services, or contract execution of a product or service.
- There is no differentiation in legal personalities. It will not be held as a legal personality other than the parent corporation. Thus the parent company alone will be accountable for the services conducted by this branch.
- Capacity to earn money: It may carry out immediate income generation projects in the third country.
- Taxes: The branch office is subjected to local taxes on the income derived from its performance within the host country.
- Flexibility of Operations: The parent company is more responsive and manageable in its business within the local market.
Range of Operations of a Branch Office
- Trading Activities: Selling products or services directly to customers in the local market.
- Contract Execution: Engaging in contractual agreements for projects or services within the country.
- Consultancy Services: Offering professional services such as consulting, technical support, or management services.
- Import and Export: Facilitating import and export of goods as per the company’s business objectives.
- Marketing and Promotion: Conducting extensive marketing campaigns to enhance brand visibility and sales.
Eligibility & Compliance Requirements
Both Liaison and Branch Offices require approval from the Reserve Bank of India (RBI) under FEMA regulations.
Key Documentation Required
To apply for either office, the foreign company must typically submit:
Application in Form FNC-1
Certified copy of Certificate of Incorporation and Memorandum & Articles of Association
Latest audited financial statements
Proof of track record and net worth
Board resolution and authorized representative details
Power of Attorney to Authorized Dealer bank
The application is filed through an Authorized Dealer Category – I Bank, which forwards it to RBI for processing.
Eligibility Criteria
Liaison Office — net worth not less than USD 50,000 and profit track record for at least three years.
Branch Office — net worth not less than USD 100,000 and a profit track record for five years.
Approval Timeline and Extension
Normally, RBI approvals for Liaison Offices are granted for 3 years initially, which can be extended upon application and compliance review.
Branch Office approvals may also be time-bound and depend on ongoing compliance.
Taxation: How LO and BO Are Taxed in India
Liaison Office Taxation
Since Liaison Offices are not permitted to earn income in India, they generally do not attract corporate income tax, provided they strictly adhere to non-commercial activities.
Branch Office Taxation
Branch Offices are subject to Indian taxation on the profits they earn in India. This includes:
Corporate tax rates applicable to foreign companies
Surcharge and cess
Compliance with transfer pricing regulations
Tax implications should be evaluated carefully before entering the Indian market.
Key Points to Remember Before Deciding
To choose between a Liaison Office and Branch Office, a company should consider:
- Business objectives — exploratory or revenue-generating
- Investment appetite — low vs higher cost
- Regulatory compliance — simplicity vs complexity
- Tax implications — none vs taxable operations
- Strategic roadmap — market testing vs full operations
Often, companies start with a Liaison Office, build confidence and partnerships, and then convert or upgrade to a Branch Office based on market insights and business
Liaison Office vs. Branch Office: Which is Right for Your Business?
This will depend upon whether it’s business objectives or even market entry strategies. The decision will depend upon the following criteria:
- Business Goals: Whether the aim of establishing the foreign office is research for the marketplace or simply presence without carrying any commercial activity in that marketplace then liaison office works; whereas the main goal should be revenue generation and other types of business-related activities to take place within its premise then there comes the usage of branch offices.
- Registration and Compliance Needs: The procedure for registration and compliance needs is different between liaison offices and branch offices. Be aware of the liability under law in running each type of office .
- Financial Liability: The running cost for a branch office may be steeper than that for a liaison office because the branch office can operate.
How We Can Help
Setting up liaison and/or branch offices establish new markets. Liaison and/or branch offices help a lot in getting through local business practices. For business undertaking, complex situations of regulation arise. Not only not limited to, the company here helps your business at every stage of progression.
- Registration and Compliance: legal and regulatory provisions concerning opening up liaison or a branch office.
- Market Analysis and Feasibility Studies: assisting to gain an understanding about the opportunities and risks pertaining to the market.
- Strategic Planning: Always guiding you on just the right way to achieve your business goals.
- Tax and Accounting Support: Releasing your local operations tax liabilities and ensuring financial reporting.
- Ongoing Advisory Services: Help support you expand and grow beyond the setup process.
Why Choose Us?
We deal with so many businesses that wish to expand their global presence. We are the best candidate to assist your business in opening a Liaison Office or a Branch Office. Our end-to-end services, specifically designed for every business requirement, ensure hassle-free and successful entry into markets.
- Expert Guidance: Our team understands the details that go into international office set up.
- Tailor-made Solutions: Solutions we will offer would precisely match business objectives and needs of particular sectors.
- Compliance with Regulations: Maintain compliance with all regulatory requirements in your target location.
- Cost-effective Solution: Affordable solutions that bring value to your investment.
