Legal Structure and Identity

• A subsidiary is an independent legal entity registered under the Companies Act, 2013
  
• A branch office is not a separate legal entity and functions as an extension of the parent company.
  
• Subsidiaries can own property, sue, or be sued independently.
  
• Branch offices cannot own assets or initiate legal proceedings independently.
  
• Subsidiaries have their own board and governance, while branch offices are governed by the parent company’s directives.
  

Ownership and Control

• A subsidiary may be wholly or partially owned by the parent company.
  
• A branch office is fully owned and directly controlled by the parent company.
  
• The parent appoints directors for subsidiaries, while branch offices operate under managers assigned by the parent.
  
• Subsidiaries make decisions locally under their board’s supervision.
  
• Branches follow centralized decision-making from the parent company headquarters.
  

Permitted Activities

• Subsidiaries can carry out any legal business activity permitted under Indian law.
  
• Branch offices are restricted to specific activities like export/import, research, and representation.
  
• Subsidiaries can engage in manufacturing, retail, or full-scale operations.
  
• Branch offices cannot engage in manufacturing directly in India.
  
• Subsidiaries have operational freedom, while branch offices require prior approvals for many functions.
  

Taxation and Compliance

• Subsidiaries are treated as domestic companies and taxed accordingly.
  
• Branch offices are taxed as foreign entities at higher corporate tax rates.
  
• Subsidiaries must comply with Indian accounting and reporting standards.
  
• Branch offices report to both Indian regulators and the foreign parent company.
  
• Transfer pricing and FEMA regulations apply to both, but subsidiaries have local tax registrations.
  

Regulatory Approvals

• Subsidiaries are registered with the Ministry of Corporate Affairs (MCA)
  
• Branch offices require Reserve Bank of India (RBI) approval under FEMA.
  
• Subsidiaries follow the Companies Act for operations and disclosures.
  
• Branch offices must report to the RBI and comply with additional foreign exchange norms.
  
• Setting up a subsidiary is often a more permanent solution compared to a branch office.