Difference Between Liasion Office, Branch Office And Wholly Owned Subsidiary
Table of Contents:-
Any foreign company that wants to set up business in India has following options:
- Registration of Liaison Office in India
- Registration of Branch Office in India
- Registration of Wholly Owned Subsidiary Company in India
Choosing a particular registration out of above depends upon multiple factors as mentioned below:
- Purpose for which it may be registered
Liaison office- It can only take up liaison activities in India and can act as a channel for communication between its head office abroad and Indian parties. It cannot undertake any commercial activities in India. Therefore, when purpose of foreign company is to do water testing in India without indulging in full-fledged commercial activity, it opts for Liaison office registration in India
Branch office- Foreign companies engaged in manufacturing and trading activities abroad are allowed Branch Office registration in India. Therefore, when the purpose of foreign company is to do engage in manufacturing and trading activities in India, it opts for Liaison office registration in India
Wholly Owned Subsidiary- It is a corporate entity incorporated under companies Act, 2013 and can do all activities like manufacturing, trading, provide service etc. Therefore, when the purpose of foreign company is to hold shares in Indian entity and to engage in all types of commercial activities as well as manufacturing and trading activities in India, it opts for wholly owned subsidiary company registration in India
- Legal status
Liaison office- Liaison office do not have any separate legal entity. It is considered as Foreign Company in India.
Branch office- Branch office do not have any separate legal entity. It is considered as Foreign Company in India.
Wholly Owned Subsidiary- Wholly owned subsidiary company has Separate legal entity & it is considered as Indian Company.
3. Criteria for set up
Liaison office- For registration of Liaison Office in India,
- Parent Company shall have a profitable track record during immediately preceding 3 years.
- The Net Worth of parent company shall be not less than USD 50,000/ or its equivalent
Branch office- For registration of Branch Office in India,
- Parent Company shall have a profitable track record during immediately preceding 5 years.
- The Net Worth of parent company shall be not less than USD 1,00,000/ or its equivalent.
Wholly Owned Subsidiary- There should be minimum 2 subscribers & 2 directors for registration of wholly owned subsidiary company. There is no minimum criteria for capital induction. And no requirement of track record of parent company.
- Approvals required
Liasion office- For liaison office registration, prior approval of RBI is required to enter into any business contracts.
Branch office- For Branch Office registration, prior approval of RBI is required to enter into any business contracts.
Wholly Owned Subsidiary- Approval for wholly owned subsidiary company registration is required from ROC. Further intimation to RBI is also required for issuance of shares to foreign holding company.
- Time Limit for approval
Liasion office- Liaison Office Registration License is available for 3 years, it can be renewed further.
Branch office- Branch Office Registration License is available for 3 years, it can be renewed further.
Wholly Owned Subsidiary – Private Limited company registration by foreign company is normally for perpetuity. It can operate till the closure of Indian company.
- Permitted Activities
Liasion office- Liasion office is allowed to do following activities:
- It can represent the parent company in India
- It can promote export / import from /to India.
- It can promote technical/financial collaborations between parent company and companies in India.
- It can act as a communication channel between the parent company and Indian companies.
Branch office- Branch office is allowed to do following activities
- It can do Export/Import of goods to/from India
- Provide professional or consultancy services
- To carry out research work, in which the parent company is engaged.
- It can promote technical or financial collaborations between Indian companies and parent or overseas group company.
- It can represent the parent company in India and acting as buying/selling agents in India.
- Providing services in Information Technology and development of software in India.
- Rendering technical support to the products supplied by the parent/ group companies.
Wholly Owned Subsidiary- It can do activities as per its Memorandum and Article of association.
- Other Registrations Required
Liasion office- After registration of Liaison Office, following further registrations / approvals will be required for LO:
- Shops and Establishment Act
- PAN / TAN
- ROC Registration
- Import Export Code
Branch office- After registration of Branch Office, following further registrations / approvals will be required for BO:
- Shops and Establishment Act
- PAN / TAN
- ROC Registration
- Import Export Code.
- GST Registration
Wholly Owned Subsidiary- – After private limited company registration, following registrations / approvals will be required for WOS:
- PAN / TAN
- ROC Registration
- Import Export Code.
- GST
- Shops and Establishment Act
- Permitted Incomes
Liasion office- The entire expenses of LO will be met from the funds received from head office through normal banking channels.
Branch office- The entire expenses of BO will be met either from the funds received from head office through normal banking channels or income generated in India.
Wholly Owned Subsidiary- The income of WOS will be generated from business activities.
- Management
Liasion office- It will be managed by Authorized representative of parent company in India.
Branch office- It will be managed by Authorized representative of parent company in India.
Wholly Owned Subsidiary- The WOS will be managed by Minimum 2 directors and one of whom shall be an Indian Resident.
- Remittance of Profit to Parent company
Liasion office- Remittance of profit required only in case of closure of LO.
Branch office- Profits can be repatriated/transferred to parent company subject to applicable taxes in India.
Wholly Owned Subsidiary- Profit of WOS can be repatriated/transferred:
Mode of Remittance of profits.
- In form of Dividend
- In form of Directors remuneration
- In form of Royalty/fees for technical services
- In form of Related Party transaction
- Meetings
Wholly Owned Subsidiary- Meetings are required to conduct as per as per the provisions of Companies Act, 2013
Liaison office- There is no criteria for meetings.
Branch office- There is no criteria for meetings.
- Advantages of wholly owned subsidiary over branch/liaison office:
- WOS gives a separate legal entity whereas the BO/LO has no separate entity.
- The liability of parent company is limited to the extent of its shareholding in the Wholly Owned Subsidiary (WOS) On the other hand the liability of the Branch is unlimited. The assets of the parent company are at risk of attachment in case the liabilities of the branch exceeds its assets.
- WOS can expand its business activities by altering its Memorandum of Association On other hand BO/LO cannot expand its activities or undertake any new trading, commercial, or industrial activity other than that is expressly approved by the RBI.
- Since Branch office and Liaison Office has no separate entity and is considered as Foreign Company in India, therefore, there is an exposure under Income Tax. Under Income Tax, Branch office are considered as permanent establishment (PE) of foreign company and accordingly foreign company also becomes taxable in India with respect to profit attributable due to Indian entity in India. Similarly, Indian Income tax authorities tries to hold India LO also as PE of foreign company in India.
- The overall advantage for both parties however, in forming a wholly owned subsidiary; are that the subsidiary can retain its name brand.
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