Opening an Indian Subsidiary or a Branch Office in India- Advantages and Disadvantages explained

The common advantage for both the Indian Subsidiary and Branch office in India is that India has a Young and efficient population, so creating a large labor pool for business will be effortless. Also, India has achieved a bench mark in its “Ease of Doing business” norms worldwide. More specific advantages and disadvantages for Indian Subsidiary and Branch office are as under.

Indian Subsidiary

The Indian subsidiary company is a company whose interests are held and controlled or held by another company. The Indian Subsidiaries can be wholly owned by foreign nationals.

Advantages of starting an Indian Subsidiary company

Here are a few advantages of starting an Indian Subsidiary in India

• An Indian Subsidiary company enjoys the benefit of Separate Legal Identity in the eyes of law.
• Indian subsidiary have a Management structure of its own, different from the parent company.
• Shareholders or the owners of a Company have a limited liability towards the company.
• In case of Indian Subsidiary, FDI is allowed 100% without any prior permission However it requires posts facto filing/intimation to the Reserve Bank of India.
• Parent Company (based in any part of the world) can retain a 100% effective ownership of its Indian Counter-part.
• The parent company can provide the monetary means and capability to jump start new companies and products  .
• Parent company can provide continuous inflow of funds by subscribing to new shares of subsidiary company and thus save it from cost of debt.
• This arrangement also provides an advantage of offsetting losses from profits Also, allows joint ventures with other companies.
• In terms of Taxation as well, the Indian subsidiary will have the same tax structure as a domestic company in India.
• An Indian subsidiary can perform all the activities as permitted and mentioned in Memorandum of association.
• Time and money consumed in registering an Indian Subsidiary is lesser compared to the Branch office registration.

Disadvantages of an Indian Subsidiary

• Though Indian Subsidiary has its separate Management, the freedom of the Indian subsidiary company is restricted as it is a subsidiary of a large organization  .
• The parent company may not have full access to the cash flows of the subsidiary, depending on the management structure and on the amount of control it exercises on the subsidiary.
• The parent company may need to guarantee the loans of its subsidiaries, thereby directly exposing itself to the liabilities of its subsidiaries.

Branch office in India

A Branch Office (BO) is one of the models for a foreign company to enter India and understand the Indian market with a very strict control by the Reserve Bank of India (RBI), as it does allow the foreign companies to test and do business in India, subject to certain conditions.

Advantages of Opening a Branch office in India

Here are a few advantages of starting an Branch Office in India

• The branch office offers a greater level of control to the parent company. A branch office is known as a dependent type of company, which means that its activities are entirely managed by the parent company in terms of the decision-making process.
• The branch office in India maintains the brand value of the parent company as it shall use the same name as that of the Parent company.

Disadvantages of Branch office in India

• Compared to Indian Subsidiary, the tax rate for the Branch Office is higher.
• The branch office, as an extension of its parent foreign company, is only allowed to conduct activities that are defined in its constitution. There are several restrictions on the activities of Branch Office.
• If the Branch office in India can not meet the expenses, then all the revenue must be met by the head office in foreign.
• For opening a Branch office in India, to take prior approval of RBI (Reserve Bank of India) is a must.
• Requirement for Documents is much more and more stringent for opening a Branch Office in India.
• In India opening a Branch Office is costly in terms of time and money as it requires prior approval from RBI which may take almost 45 to 60 days.The actual registration process for Branch office will start post approval.

Note: All registrations (such as Obtaining PAN, GST) are required in both cases i.e Indian Subsidiary and Branch office. Hence, all consequent compliance will have to be done.

Recommended Read: 10 benefits of starting a business in India by a foreigner