The Indian economy is on an upswing. And with recession being a thing of the past, many foreign companies are all set to set up shop here. Many choose to enter into tie-ups with their Indian counterparts, set up subsidiaries while still others would like to make a beginning by setting up a branch office or a liaison office.
Whatever the case be, you need to be well versed with the related provisions that are governed by Foreign Exchange Management. As per RBI rules any foreign company looking at setting up an office in India may consider any one of the following. It could be either a Project office, a branch office or simply a liaison office. But before you take the plunge, understand the implications of each to ascertain which of them fits your needs.
Setting up a liaison office: Considering a liaison office? Mind you, a liaison office can be just that and no more. In other words, your liaison office will be more like an intermediary between the two offices – your head office abroad and the one in India, without any permission to undertake any activity that can lead to income generation. So expect no profit-making or business activity other than simple communication between your head office and vice-versa. The permission to set up a liaison office as per rules is initially given for upto three years beyond which you may need to apply for an extension.
Planning to set up a branch office? Unlike a liaison office, as per rules a branch office set up in India is allowed to engage in trading or commercial activities, promote technical and financial collaboration, import or export goods and engage in research activities among others. It is akin to a person residing in India and carrying out activities here. Hence the income generated whatsoever by the branch office will be taxable here in India. But a branch office set up here cannot carry out manufacturing or processing activities on its own.
Unlike the above, a project office is set up to complete a specific project given to a foreign company by an Indian company subject to clearance by appropriate authorities.