A subsidiary company is registered in the same manner as an Indian company is registered. It has same rights and privileges/ obligations as an Indian company has. It is subject to the same tax rates, similar treatment in the court of law at par with the any other Indian company. However, the documentation is quite different while incorporating a subsidiary company involving foreign stakeholders.
A branch office of a foreign company is considered as a foreign company in India which is controlled by their head office. These are regulated by a specific provision of FEMA as applicable and enforced by the RBI. They are also required to file annual activity certificate along with audited balance sheet and profit & loss account. A branch office can be established for the purposes of export and import of goods, for rendering of professional or consultancy services, to carry research work for the parent company, to promote financial or technical collaboration b/w the parent foreign company and any other Indian company to represent the parent foreign company in India and to act as the buying/ selling agents, to render services in IT and software development, to do foreign airline and shipping business in India or to render support to the customers of foreign parent company in India. However, a branch office is not allowed to carry out any manufacturing or processing activity in India except inside a special economic zone (SEZ). To establish a branch office in India prior approval of Reserve Bank of India is required which is normally granted to only those applicants who have standing in the parent country of at least 3 years with a track record of generating profit more than 50,000 USD. The profit of a branch office is taxable at a rate applicable to foreign countries. The proceeds of operation of the branch office after payment of applicable taxes can be repatriated to the parent company.
To execute projects undertaken by a foreign company, the RBI has granted general permission for the establishment of project offices in India by the foreign companies. Such offices can only undertake activities which are necessary for the execution of the specific project for which the permission is granted. The project offices are considered as a foreign company operating in India. The profit of a project office is taxable at a rate applicable to foreign countries. The proceeds of the operation of the project office after payment of applicable taxes can be repatriated to the parent company.
A liaison office or a representative office can be established by a foreign company subject to the prior approval of the RBI. A liaison office cannot have any source of income in India. All their expenses like rent, salary, other staff welfare expenses from the money received from the head office. Further, apart from market research, representation of foreign company before the prospective/ customer a liaison office cannot do any other activity. Since liaison office is not allowed to do any business office in India hence there is no question of any profit being accrued to these entities hence, no taxation.
An individual residing outside India can invest in any Indian company subject to sector/ activity based prohibitions and all other prohibitions which are otherwise applicable to a foreign entity for establishing a subsidiary company is also applicable to any non resident individuals while investing in any Indian company or while setting up an Indian company along with another foreign individual or an Indian Individual.