Under the Companies Act, a foreign investor, prior to make to decide to incorporate a company, has several options, among which to choose, :
• a Liaison Office (liaison office)
• a Project Office
• a Branch Office (branch)
Prior approval of the Reserve Bank of India, the Liaison Office, which acts as a communication channel between the foreign head office and subjects operating in India. A Liaison Office may be the preferred choice when the intention of the foreign company is limited to having a connection with its contacts in India and to promote exports and imports.
A Liaison Office in India, therefore, can only function as a representative and non-commercial office that does not produce revenue and acts as an intermediary between the foreign company and the contacts that the foreign company has in India. Since a Liaison Office can not undertake any commercial activity, it can not produce any profit and will therefore not be subject to any corporate tax (corporate tax).
Foreign companies wishing to develop specific projects in India may decide to create for this purpose a temporary Project Office, set up for the sole purpose of carrying out the activities related to the realization of a specific project financed directly with funds coming from abroad or alternatively, through the financing of an international bilateral or multilateral financial agency.
A Branch Office of a foreign company can be formed with the prior approval of the Reserve Bank of India. A Branch Office is basically an issue of a foreign company that can perform various activities on behalf of the parent company. However, the Branch Office is not authorized to perform any production activity independent of the parent company, and the latter is responsible for all the activities performed by its Branch Office. Due to the restrictions on day-to-day operations and the higher incidence of taxes, the opening of a Branch Office is not normally considered the most efficient way to make investments in India.