Branch and Laison Office

Liaison Office (LO) - "The Representative"

An LO is essentially a representative office. It cannot conduct any commercial or business activity and cannot earn any revenue in India.

• Permitted Activities: Market research, promoting products of the parent company, and acting as a communication channel between the Indian market and the foreign head office.
• Funding: 100% of expenses must be met by inward remittances from the foreign parent company.

Advantages

• Low Complexity: Easiest way to "test the waters" and build brand visibility.
• No Tax Liability: Since it earns no income, it generally doesn't pay Indian income tax (though it must file information returns).

Disadvantages

• No Revenue: You cannot sign contracts, invoice customers, or collect money.
• Cost Center: It remains a purely expensive "expense" for the parent company.

Branch Office (BO) - "The Operational Arm"

A BO is an extension of the foreign company that can engage in commercial activities, though it is restricted from manufacturing (it can only subcontract manufacturing to Indian firms).

• Permitted Activities: Export/Import of goods, consultancy services, R&D, and promoting technical/financial collaborations.
• Funding: Can be self-sustaining through revenue generated in India.

Advantages

• Revenue Generating: Unlike an LO, it can bill customers and sign commercial contracts.
• Ease of Repatriation: Profits can be sent back to the parent company after paying local taxes.

Disadvantages

• High Tax Rate: Branch offices are often taxed as "foreign companies," meaning a base tax rate of 40% (plus surcharges), which is much higher than the ~25% paid by an Indian Subsidiary.
• Unlimited Liability: Since it is not a separate legal entity, any legal or financial liability in India falls directly on the foreign parent company.