The common advantage for both the subsidiary company in India and the branch office in India is that India has a young and efficient population, so creating a large labor pool for business will be effortless. Also, India has achieved a bench mark in its “Ease of Doing business” norms worldwide. More specific advantages and disadvantages for Indian Subsidiary and Branch office are as under.
Indian Subsidiary:
An Indian subsidiary is a company in which another company holds and controls its interests. It can be wholly owned by foreign nationals.
Advantages of an Indian Subsidiary:
Here are a few advantages of starting an Indian Subsidiary in India
1. Separate Legal Identity: An Indian subsidiary enjoys the benefit of having a distinct legal identity in the eyes of the law.
2. Independent Management Structure: Indian subsidiaries have their own management structure, separate from the parent company.
3. Limited Liability: Shareholders or owners of an Indian subsidiary have limited liability towards the company.
4. 100% FDI Allowed: Foreign Direct Investment (FDI) of up to 100% is permitted for Indian subsidiaries without prior permission, although post facto filing/intimation to the Reserve Bank of India is required.
5. Retained Ownership: The parent company, regardless of its location, can maintain 100% effective ownership of its Indian counterpart.
6. Financial Support: The parent company can provide the necessary financial means to jump-start new companies and products. It can also continuously fund the subsidiary by subscribing to new shares, eliminating the need for costly debt.
7. Loss Offsetting and Joint Ventures: An Indian subsidiary can offset losses with profits and engage in joint ventures with other companies.
8. Taxation: The Indian subsidiary is subject to the same tax structure as domestic companies in India.
9. Permissible Activities: An Indian subsidiary can perform all activities permitted and stated in its Memorandum of Association.
10. Streamlined Registration: Registering an Indian subsidiary requires less time and money compared to establishing a branch office.
Disadvantages of an Indian Subsidiary:
1. Limited Autonomy: Despite having its own management structure, an Indian subsidiary's freedom is restricted due to its status as a subsidiary of a larger organization.
2. Restricted Cash Flow Access: The parent company may not have full access to the subsidiary's cash flows, depending on the level of control and management structure in place.
3. Liability Guarantees: The parent company may be required to guarantee loans taken by the subsidiary, exposing itself directly to the liabilities of the subsidiary.
Branch Office in India:
A branch office is another option for foreign companies to enter the Indian market, subject to strict control by the Reserve Bank of India (RBI) and certain conditions.
Advantages of a Branch Office in India:
Here are a few advantages of starting an Branch Office in India
1. Parent Company Control: A branch office allows the parent company to exercise a higher level of control. It operates as a dependent company, with decision-making and activities managed entirely by the parent company.
2. Brand Value Maintenance: The branch office in India can maintain the brand value of the parent company by using the same name.
Disadvantages of a Branch Office in India:
1. Higher Tax Rate: Branch offices are subjected to higher tax rates compared to Indian subsidiaries.
2. Activity Restrictions: A branch office can only conduct activities defined in its constitution, with various restrictions imposed.
3. Financial Dependency: If a branch office in India cannot cover its expenses, the head office in the foreign country must provide the necessary funds.
4. Strict Approval Process: Establishing a branch office in India requires prior approval from the RBI, making the process time-consuming and costly. The approval process typically takes around 45 to 60 days, and the registration process commences after approval.
Note: All registrations (such as Obtaining PAN, GST) are required in both cases i.e Indian Subsidiary and Branch office. Hence, all consequent compliance will have to be done.
Conclusion:
Both Indian subsidiaries and branch offices offer unique advantages and disadvantages for foreign companies expanding into India. It is essential to carefully evaluate these factors and consider the specific
requirements and objectives of the business before making a decision. Additionally, it is crucial to comply with all necessary registrations and subsequent compliance measures, such as obtaining PAN and GST, regardless of the chosen option.
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