In recent times, the Indian economy is offering a favorable business environment not only to the Indian companies but also to the foreign companies that are willing to expand their business in India. India provides a market wherein companies can make the most of their expansion plans by identifying their growth opportunities at the lowest level. Foreigners or foreign companies can enter the Indian market through many ways. Establishing a Branch office in India (BO) or Establishing an Indian Subsidiary or Wholly Owned Subsidiary (WOS) are the Most popular ones. In this article, we will discuss the differences between a Branch office and Indian Subsidiary.
When a parent company provides its same service in a different location, it is known as a branch. It is an extension of Head-office with a right to accrue income and does not hold a separate legal standing of its own.
Companies incorporated outside India engaged in manufacturing or trading activities can set up a BO in India with specific approvals of the Reserve Bank of India (RBI).
Following are the activities permitted to the Branch office opened in India:
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Intimation to ROC in Form FC-1 along with following docs within 30 days from the date of RBI approval:
When the purpose of a foreign company is to hold shares in an Indian entity and to engage in all types of commercial activities as well as manufacturing and trading activities in India, it opts for a wholly owned subsidiary company registration in India
It is a corporate entity incorporated under companies Act, 2013 and can do all activities like manufacturing, trading, providing service etc.
An Indian subsidiary can conduct business activities as per its ’main objects’ stipulated in the Memorandum of Association subject to Indian regulations.
To know more on How to register an Indian Subsidiary, contact Ebizfiling on +919643203209
Following is the presentation in tabular form for the main points of differences between a Branch office and Indian Subsidiary in India
Title |
Branch Office |
Indian Subsidiary |
Definition |
A branch office in India would be a part of the same business of Home country and will perform the same operations, only with an office that runs in here in India. |
An Indian subsidiary is a type of company, where the control and ownership are handled by foreign companies. This company is called a parent company. |
Constitution |
|
|
Reports to |
Head Office |
Holding company |
Liability |
In case of Branch office, the extent of liability is unlimited. In case where the Branch office incurs any loss, that needs to be paid after liquidation of assets of the foreign/parent company i.e. the head office. Here, to fulfill the liabilities of the Branch office, the assets of the parent company can be utilized. |
In the case of a subsidiary company, the liability of the parent company would be limited to the extent of its shareholding in the subsidiary company as the subsidiary is a distinct legal entity apart from its shareholders. |
Business Activity |
Branch conducts same business as parent organization. |
Subsidiary may or may not conduct the same business as a parent organization. |
Source of Income |
For the Branch office in India, the only source of Income will be the funds received from the Head office through normal banking channels for which, a Branch office has to open an account in any AD Category-I Bank in India or the branch office may generate income through the process of its business operations. |
While in case of an Indian subsidiary, the source of income would be all the income arising out of its business activities. |
Taxation |
The tax slabs in India for the Branch office as it is considered as foreign company, are divided in to 3 slabs
|
In case of Indian Subsidiary the tax slabs will be as follows:
|
Management |
In the case of the Branch office, all the managerial tasks would be handled by the Authorized Representative of the head office, who is resident in India. |
The Indian subsidiary requires the minimum two directors from which at least one director shall be an Indian National. |
Criteria for setup in India |
To open a branch office in India, the Parent Company should have a profit making track record during the immediately preceding five financial years in the home country. Also, the net worth of the branch office must not be less than the US $100,000. |
To open an Indian Subsidiary in India there is no requirement of minimum or basic share capital. Also, no requirement of track record of parent company as shareholder. |
Meeting |
Not Applicable |
|
Accounts maintenance |
Either separately or jointly |
Separately |
Annual Compliance Filing |
|
|
Borrowing |
The Branch Office is not allowed to borrow locally unless the prior approval of RBI is taken |
|
To open a branch company in India can lead to a greater control of the parent company. This means that every activity in the branch company is overseen by the parent company. Also, the parent company has full control over its branch to make decisions.
Whereas the subsidiary Company work separate from the parent companies, and have distinct legal entities. This reflects in their tax, liabilities, and governance.
Hope this article explaining differences between branch office and Indian Subsidiary was helpful.
Suggested read: Why would it be a good move to start business / Indian Subsidiary / Manufacturing base in India?
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EbizFiling.com is a motivated and progressive firm managed by like-minded people. It helps a variety of small, medium and large businesses to cater to all compliance requirements of Indian Laws.
Get in touch for a free consultation on info@ebizfiling.com or call +91 9643203209.
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