Branch, liaison or project office in India: Form FNC to closure, what a branch pays against a subsidiary, and where the permanent establishment line sits
A foreign company runs a branch, liaison or project office in India through three files. The RBI file: Form FNC to a designated AD Category-I bank, a Unique Identification Number from the RBI before the approval letter, and an office opened within six months of that letter. The Registrar’s file is Chapter XXII of the Companies Act 2013: Form FC-1 within 30 days, then Form FC-4 and FC-3 each year. The tax file: the Annual Activity Certificate as at 31 March, to the AD bank and the Director General of Income Tax (International Taxation) by 30 September.
A branch is taxed as a foreign company, 35 percent on the Finance Bill 2026 rate against 25 or 30 percent for a subsidiary, but remits profit with no dividend charge. A liaison office stays outside a permanent establishment only while used solely for preparatory or auxiliary work. Closure runs back through the AD bank, a liaison office can become a branch, and, outside the NBFC and construction liaison cases, no office converts into a subsidiary. Whether to open one at all is decided on the India subsidiary service page.
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Which office is which, and who may open one
FEMA 22(R) draws the three. A liaison office is a channel of communication between the head office and entities in India and undertakes no commercial, trading or industrial activity (Regulation 2). A project office represents a foreign company executing a project in India and needs a contract from an Indian company plus one of four conditions: inward remittance funding, a bilateral or multilateral financing agency, clearance by an appropriate authority, or a term loan from an Indian bank or public financial institution to the awarding company (Regulation 4(f)). A branch office is any establishment the company describes as such; Annex C of the Master Direction lists what a branch and a liaison office may do, and a liaison office may only represent, promote and communicate. A liaison office approval runs three years (Regulation 4(d)); NBFC and construction offices get two, then close or convert into a JV or wholly owned subsidiary. If Indian residents own the parent, LRS vs ODI runs alongside, with its own Form FC and a different UIN on the founders’ side.
From Form FNC to Form FC-1: the approval leg
Form FNC goes to an AD Category-I bank (Regulation 4(c)). The bank obtains the UIN from the RBI’s Foreign Exchange Department CO Cell before it issues the approval letter (Circular No. 69 of 12 May 2016, paragraph 4); a project office gets none (RBI FAQ Q.12). If no office opens within six months the approval is cancelled, with one six-month extension by the bank for reasons beyond the applicant’s control; anything further needs the RBI. A body corporate incorporated outside India with a place of business here, itself or through an agent, that conducts any business activity in India is a foreign company (Companies Act 2013, section 2(42)). Section 380(1) gives it thirty days to deliver the charter, directors, authorised Indian representative and principal place of business; Rule 3(3), as amended by G.S.R. 491(E) of 12 August 2024 in force from 9 September 2024, makes that Form FC-1 to the Registrar, Central Registration Centre, with the attested RBI approval or a declaration that none is required. Alterations go in Form FC-2 within thirty days (Rule 3(4)).
Table 1: the office’s own calendar after approval
The subsidiary’s year is on the India compliance calendar. Rows assume a 31 March year end; 30 May and 30 September are our arithmetic.
| Filing | Trigger | Deadline and content | Recipient | Source |
|---|---|---|---|---|
| Form FNC | Decision to open | Before opening; UIN from the RBI first (none for a project office); office opened within six months, one bank extension for reasons beyond the applicant’s control, further only with the RBI | AD Category-I bank; RBI CO Cell | Reg. 4(c); Circular 69 para 4; FAQ Q.12 |
| Form FC-1 | Place of business established | 30 days; charter, directors, Indian representative, attested RBI approval; PAN on setting up | Registrar, Central Registration Centre | s. 380(1); Rule 3(3) as amended by G.S.R. 491(E) of 12 August 2024; Master Direction |
| Form FC-4, annual return | Year end | 60 days, so 30 May; books of account kept at the Indian principal place of business | Registrar | s. 384; Rule 7 |
| Annual Activity Certificate (Annex D) | 31 March | By 30 September with audited statements including a receipt and payment account; other year ends, six months from the balance sheet due date | AD bank and the Director General of Income Tax (International Taxation); project office, bank only | Reg. 4(l); Master Direction |
| Form FC-3, financial statement | Year end | Six months, so 30 September, which the Registrar may extend by up to three months on application (Rule 4 proviso; verify in the consolidated Rules); audited by a practising chartered accountant in India, with related party, repatriation and fund transfer statements | Registrar | s. 381; Rules 4 to 6 |
| Return of income | Tax year end | 31 October; 30 November with a section 172 report; regardless of income or loss | Income Tax Department | Income-tax Act 2025 s. 263(1) |
| Closure | Decision, project end or expiry | Approval copy, auditor’s certificate on remittable amount and liabilities, no-litigation confirmation, Registrar’s compliance report | AD bank; RBI CO Cell | Reg. 4(m); Master Direction para 10; Circular 69 para 15 |
What a branch pays against what a subsidiary pays, tax year from 1 April 2026
A branch or project office is taxed as a foreign company (Income-tax Act 2025, sections 2(42) and 2(46)). For the tax year from 1 April 2026 (AY 2027-28 in the old vocabulary) section 3(1) of the Finance Act 2026 charges tax at the First Schedule Part I-B rates plus surcharge. The Schedule as introduced in the Finance Bill of 1 February 2026 puts a foreign company at 35 percent and a domestic company at 25 percent (turnover up to Rs 400 crore in tax year 2024-25) or 30 percent; the enacted Schedule was not available from an official source, so verify those rates. The 40 percent many pages print is the old rate. On the parent’s own books a branch is the parent itself, its Indian result taxed once in India, where a subsidiary’s result arrives only as a dividend; the home-country treatment is the parent’s leg, confirmed by counsel qualified there.
| Item | Branch or project office (a foreign company) | Wholly owned subsidiary (a domestic company) |
|---|---|---|
| Base rate | 35 percent of total income; Bill figure, verify | 25 percent up to Rs 400 crore turnover in tax year 2024-25, else 30 percent; Bill figure, verify |
| Surcharge and cess, s. 3(4) and 3(15) | 2 percent above Rs 1 crore, 5 percent above Rs 10 crore; 4 percent cess on tax plus surcharge | 7 and 12 percent at the same thresholds; the same cess |
| Head office expenses | Capped at 5 percent of adjusted total income (s. 60); Article 7(3) allows a reasonable allocation subject to that limit, none for royalties, fees or commissions paid to head office | No cap; parent charges are related party transactions at arm’s length under intercompany agreements and transfer pricing |
| Getting the profit home | Remitted net of Indian tax through the AD bank on audited accounts and a chartered accountant’s certificate (Reg. 4(i)); no further Indian tax | Dividend taxed at 20 percent (s. 207(1)); 15 percent under Article 10(2) for a US corporate parent holding 10 percent of the voting stock, otherwise the 20 percent domestic rate stands, below the treaty’s 25 percent ceiling; a US parent’s returns are on the service page |
At the top band that is 38.22 percent for the branch against 34.94 for a 30 percent subsidiary (35 × 1.05 × 1.04 and 30 × 1.12 × 1.04, our arithmetic); the branch gives some back on remittance and loses some to the section 60 cap, which the treaty does not lift.
The permanent establishment line for an office that only liaises
Article 5(1) of the India-US convention makes a permanent establishment a fixed place of business through which the business is wholly or partly carried on; Article 5(2) includes a place of management, a branch and an office, so a branch or project office is inside from day one. A liaison office is an office too; it stays outside under Article 5(3) only while used solely for purchasing or collecting information, advertising, the supply of information, research or other preparatory or auxiliary activities. The line is Article 5(4): a person who habitually exercises authority to conclude contracts, maintains a stock from which he delivers, or secures orders wholly or almost wholly for the enterprise is a permanent establishment, and liaison staff who close deals do this. Section 9(9) of the Income-tax Act 2025 mirrors the test in wider words, habitually plays the principal role leading to contracts, and adds a significant economic presence limb not covered here.
A team hired through an employer of record has no office; its test is Article 5(2)(l): services furnished in India through employees or other personnel for more than 90 days in any twelve-month period, or at any length for a related enterprise. On our reading an EOR’s employees working under your direction are other personnel, so the days run against the work. A project office has Article 5(2)(k): a construction, installation or assembly project after 120 days in any twelve-month period. The India-UAE and India-Singapore conventions carry their own day counts; verify yours. A UAE parent run from India meets the place of effective management test first: a UAE company run from India.
Closing the office, or moving it into a subsidiary
Closure runs back through the AD bank on the Regulation 4(m) documents in Table 1 and the FAQ below. Bring Form FC-3 and FC-4 current first; a FEMA filing already missed is regularised through FEMA, ODI and LRS compliance. A liaison office can be upgraded to a branch under AD bank approval if the parent meets the Regulation 4(a) branch test (the figures sit in Schedule A on the India subsidiary service page), keeping its PAN and bank account (FAQ Q.10 and Q.5). No rule turns an office into a subsidiary; the Master Direction’s only conversion is the NBFC or construction liaison office that must close or convert into a JV or WOS on expiry. For everyone else: incorporate the subsidiary, sell it the office’s assets at no more than book value, which the bank allows only on closure, and close. The subsidiary brings the FDI route question, the FEMA FDI compliance checklist and, with an Indian partner, the joint venture term checklist.
| Presence | Exit route | The paper | What carries over | Path into a subsidiary |
|---|---|---|---|---|
| Liaison office | Close through the AD bank, or upgrade to a branch if the parent qualifies (FAQ Q.10) | The Reg. 4(m) set | On upgrade, the PAN and bank account (FAQ Q.5) | None direct: incorporate, sell assets at book value on closure, close |
| Branch office | Close through the AD bank after remitting the final profit (Reg. 4(i)) | The same set; Form FC-3 and FC-4 current | People, contracts and assets move by agreement | The same three steps |
| Project office | Closes at project end through the AD bank | The same set; no UIN (FAQ Q.12), AAC to the bank only | Nothing by law | A subsidiary if the business outlives the project |
| Team through an employer of record | None under FEMA 22(R); the question is whether a permanent establishment already exists (Article 5(2)(l), 5(4)) | The parent’s PE file; the EOR contract | People and work product, by agreement, once the subsidiary exists | On the India subsidiary service page |
Infinilex is a consultancy. An advocate enrolled in India signs the FEMA and Companies Act positions; Infinilex’s company secretary and chartered accountant prepare the Chapter XXII, Form FNC and closure files where a statute names those professionals. A US-admitted Infinilex lawyer signs the treaty reading for a US parent, and Infinilex counsel qualified for the relevant UAE regulator sign a UAE parent’s leg. Infinilex counsel qualified in India, the UAE and the US sign opinions for those jurisdictions; for the EU and any other jurisdiction, including a Singapore parent’s home leg, Infinilex scopes and coordinates the local counsel who sign.
Sources: FEMA 22(R)/2016-RB (amended to 21 January 2019); RBI Master Direction FED No. 10/2015-16 (updated 18 May 2021); RBI Circular No. 69 of 12 May 2016; RBI FAQ as on 26 December 2016; Companies Act 2013 Chapter XXII (Gazette of India, 30 August 2013) and the Companies (Registration of Foreign Companies) Rules 2014 as amended by G.S.R. 491(E) of 12 August 2024; Income-tax Act 2025; Finance Act 2026 section 3; Finance Bill 2026 of 1 February 2026, First Schedule; India-US convention of 12 September 1989, IRS text.
Frequently asked questions
What is the due date for the Annual Activity Certificate to the RBI?
On or before 30 September for a 31 March year end. Regulation 4(l) of FEMA 22(R) requires the Annual Activity Certificate (Annex D) as at 31 March, with audited financial statements including a receipt and payment account, by 30 September: a branch or liaison office files it with its AD Category-I bank and the Director General of Income Tax (International Taxation), a project office with the AD bank only (RBI Master Direction, 18 May 2021).
How is a branch office taxed in India compared with a subsidiary?
As a foreign company: 35 percent of total income under the Finance Bill 2026 as introduced on 1 February 2026 (verify against the enacted First Schedule), plus 2 percent surcharge above Rs 1 crore and 5 percent above Rs 10 crore and the 4 percent cess under section 3 of the Finance Act 2026, against 25 or 30 percent plus 7 or 12 percent surcharge for a subsidiary. The branch remits profit net of tax with no further Indian charge, where a subsidiary's dividend bears 20 percent under section 207 of the Income-tax Act 2025, 15 percent under Article 10(2) of the India-US convention for a corporate parent holding 10 percent of the voting stock.
Can a liaison office be upgraded to a branch office?
Yes. The RBI's FAQ (Q.10, as on 26 December 2016) allows the upgrade under AD bank approval on the automatic route if the foreign entity meets the Regulation 4(a) branch test (the figures are in Schedule A on the India subsidiary service page), under advice to the RBI. The PAN and bank account continue once the account is re-designated as a branch office account (FAQ Q.5). The office is then taxable as a foreign company on what it earns in India.
What is the procedure for closure of a liaison office in India?
Apply to the designated AD Category-I bank with the Regulation 4(m) documents in paragraph 10 of the RBI Master Direction: the approval copy, an auditor's certificate on the amount remittable and the office's liabilities, a confirmation that no legal proceedings are pending, and a Registrar of Companies report on compliance with the Companies Act 2013. The bank reports the closure to the RBI by the fifth of the following month (Circular No. 69 of 12 May 2016). Bring Form FC-3 and FC-4 up to date first.
Opening, running or closing an office in India?
Tell us who the parent is, what the office will do and whether a team already works for you through an employer of record. We will tell you which office fits and whether the permanent establishment line is already behind you.
Thirty minutes with Prashant Sharma, the founder, who does the work himself. You leave with next steps either way. Email is read by the founder and answered within one working day.
General information, not legal, tax or foreign exchange advice; positions as at 30 October 2026. Base rates are Finance Bill 2026 figures as introduced, to be verified against the enacted First Schedule; the India-UAE and India-Singapore treaty tests and the home-country treatment of the office are outside this page. The permanent establishment readings are ours.