By S&S Co. Advocates & Solicitors · Published 30 October 2026 · Informational content, not legal advice: see our disclaimer
A German machine tool manufacturer has won a contract to install equipment at a factory in Gujarat and needs a local office for the eighteen months the project will run. A Japanese trading house wants a presence in Mumbai to liaise with Indian buyers but has no intention of billing anyone in India directly. A US engineering firm wants to actually trade and invoice from an Indian location without the cost and permanence of floating a subsidiary. Each of these is a real client fact pattern, and each points to a different one of the three structures the Reserve Bank of India permits for a foreign company to establish a presence in India without incorporating a separate Indian entity: the liaison office, the project office, and the branch office.
Confusing the three is more than an academic error. Each carries a different approval route, a different set of permitted activities, and different consequences if the foreign company does something the chosen structure does not allow. This guide sets out what each one is for, how approval actually works, and where foreign companies most often get the choice wrong.
The Governing Framework
All three structures sit under the Foreign Exchange Management (Establishment in India of Branch Office or Liaison Office or Project Office or Any Other Place of Business) Regulations, 2016, generally referred to by practitioners as FEMA 22(R). These regulations replaced an earlier 2000-era framework and have themselves been amended since 2016, so a foreign company's counsel should always confirm the current consolidated text against the Reserve Bank's own published version rather than relying on an older PDF found through a general search.
The regulations split applications into two tracks. Where the foreign company's principal business activity falls in a sector where 100 per cent foreign direct investment is permitted under the automatic route, the application goes through an Authorised Dealer Category-I bank designated by the Reserve Bank, which processes it on the Reserve Bank's behalf. Where the activity falls outside that automatic route, or the applicant is a foreign non-government organisation, foreign government body, or similar entity, the application instead goes through the Reserve Bank directly, on what is commonly called the government route. A foreign company that assumes it automatically qualifies for the AD-bank route without checking its own sector classification against the current FDI policy is one of the more frequent causes of delay at this stage.
Liaison Office: A Window, Not a Business
A liaison office exists to act as a channel of communication between the foreign head office and parties in India. It cannot undertake any commercial, trading or industrial activity, cannot earn income in India, and must be funded entirely through inward remittances received from the head office abroad. In practice this means a liaison office can promote the parent's products, collect market information, and represent the parent in discussions with Indian customers or suppliers, but it cannot sign a contract on the parent's behalf that generates revenue booked in India, and it cannot invoice an Indian customer directly.
Approval, once granted, is for three years, and the Authorised Dealer Category-I bank handling the account can extend that period by a further three years from the date the earlier approval or extension expired, provided the liaison office has filed its Annual Activity Certificates for the earlier years and has operated its bank account within the terms of the approval. A liaison office that has quietly started invoicing Indian customers, even informally, to cover its own costs has stepped outside what the structure permits and risks having its licence revoked quite apart from any separate tax exposure that conduct creates.
Project Office: Tied to a Specific Contract
A project office is for a foreign company that has secured a contract from an Indian company to execute a specific project in India and needs a temporary local presence for the duration of that project, nothing more general than that. The office exists to perform the contract and is expected to wind up once the project is complete, which is why the Reserve Bank treats it differently from a liaison or branch office that is meant to be an ongoing presence.
A foreign company does not need prior Reserve Bank approval to open a project office if the underlying project is funded by a direct inward remittance from abroad, or by a multilateral or bilateral international financing agency, or has received clearance from an appropriate authority for the project, or the Indian company awarding the contract has secured term loan funding for it from a public financial institution or a bank in India. Where none of these conditions is met, the foreign company has to seek the Reserve Bank's specific approval before opening the office. A common mistake is a foreign contractor assuming that having won the tender is itself enough, when the funding condition is the actual gateway that determines whether the automatic route is even available.
Branch Office: The Closest Thing to Actually Trading
A branch office is the structure that comes closest to letting a foreign company operate commercially in India without incorporating a subsidiary, but it is still constrained. A branch can generally export and import goods, render professional or consultancy services, carry out research work the parent is already engaged in, promote technical or financial collaborations between Indian and overseas companies, act as a buying or selling agent, provide IT and software services, and provide technical support for products supplied by the parent group. What it cannot do is retail trading of any kind, or manufacturing and processing activities in India, even on a job-work basis, unless carried out in a Special Economic Zone under the terms applicable there.
A branch is also taxed in India as a foreign company on the income the branch generates here, at the higher foreign-company corporate tax rate rather than the domestic company rate, and the branch can repatriate its profits abroad net of the applicable Indian tax once an auditor has certified that the branch's income genuinely arose in India and that its tax liabilities have been accounted for. Foreign companies sometimes assume the branch route is simpler than incorporating a subsidiary because it avoids a fresh company registration, without weighing that the tax rate differential and the activity restrictions can make a subsidiary the cheaper option over the life of the operation.
Choosing Between the Three, and the Sector Question
Certain sectors attract extra scrutiny whatever the structure chosen. Where the foreign applicant's principal business falls within defence, telecommunications, private security, or information and broadcasting, specific additional approval conditions apply beyond the ordinary AD-bank processing, though a defence-sector applicant that already holds a direct contract from the Ministry of Defence or a related defence public sector entity is generally treated as not needing the separate case-by-case approval that would otherwise apply. Profits earned by a defence-related branch are also typically subject to a lock-in period before they can be repatriated, reflecting the sensitivity of the sector rather than any general rule applicable to branches as a class.
The underlying choice usually comes down to how long the Indian presence is meant to last and how much actual trading activity it needs to carry out. A liaison office suits a company testing the Indian market or managing supplier relationships with no intention of billing locally. A project office suits a one-off contract with a defined end date. A branch suits ongoing professional, consultancy, or import-export activity that falls short of full manufacturing or retail. Anything beyond what a branch permits, in practice, usually means the foreign company should be looking at a wholly owned subsidiary or joint venture instead, which is a different legal and tax conversation entirely.
Ongoing Compliance Once the Office Is Open
Approval is not a one-time event. Every liaison, project and branch office has to file an Annual Activity Certificate confirming that its activities during the year stayed within what was approved, typically certified by a chartered accountant and submitted through the designated AD Category-I bank. A branch office also has registration and filing obligations under the Companies Act, 2013 as a foreign company with a place of business in India, separate from its FEMA obligations, and both sets of filings have to be kept current in parallel.
Winding up any of these offices on closure of the project or the business also needs the Reserve Bank's or the AD bank's sign-off before the remaining funds can be remitted back to the head office, including a confirmation that no outstanding liabilities, tax dues, or regulatory issues remain. Foreign companies that let an office go dormant without formally closing it, assuming it will simply lapse, tend to find the account remains reportable and the compliance obligations continue to run regardless, which becomes a problem the moment the head office tries to use that same banking relationship for a fresh venture in India.
Frequently Asked Questions
Can a liaison office be converted into a branch office or a subsidiary later?
There is no direct conversion mechanism. A liaison office that has outgrown its restrictions typically has to be wound up, with a fresh application made for a branch office or a new Indian company incorporated, rather than the existing liaison office simply being reclassified.
Does a project office need to register with the Registrar of Companies?
A project office is generally treated as a more limited, project-specific establishment than a branch, but a foreign company should still confirm its specific Companies Act filing obligations for the office with its company secretary, since these are separate from the FEMA approval and are driven by the Companies Act's own definition of a foreign company's place of business.
Can a branch office hire employees directly in India?
Yes, a branch office can employ staff in India for its permitted activities, and those employees are subject to ordinary Indian labour and tax withholding obligations, with the branch acting as the employer of record for purposes of provident fund, income tax deduction at source, and related compliance.
What happens if a liaison office is found to have been invoicing customers in India?
This is treated as the office operating outside its permitted scope. The Reserve Bank or the AD bank can revoke the approval, and the foreign company separately risks being treated as having a taxable presence in India for income tax purposes on activity the liaison structure was never meant to cover, which can trigger a much larger tax exposure than the FEMA issue alone.
How long does RBI or AD bank approval for a branch office typically take?
Processing time varies with the sector and the completeness of the application, and foreign companies should expect the AD bank or RBI to ask for the parent's audited financial statements, a net worth certificate, and details of the activities proposed before deciding, so a realistic internal timeline should allow for at least one round of queries before approval is granted.
References & Further Reading
The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.
- Foreign Exchange Management (Establishment in India of Branch Office or Liaison Office or Project Office or Any Other Place of Business) Regulations, 2016 (FEMA 22(R))
- RBI Master Direction on Establishment of Branch Office / Liaison Office / Project Office in India
- Companies Act, 2013, provisions applicable to a foreign company with a place of business in India
- RBI procedural guidelines on extension of liaison office validity by AD Category-I banks