What is the difference between a liaison office and a branch in India?
A liaison office may not earn income. It exists to represent the Canadian company, to make contact, gather information and support the parent's business, and the moment it starts doing anything that produces revenue it is no longer what it was registered as. A branch may earn income and is taxed on its Indian profits, at rates that differ from a subsidiary's. So the choice is not between two offices of different sizes. It is between a presence that may not trade and one that may. Registering a liaison office because it seems the lighter option, and then trading through it, creates a problem in both countries at once.
Can we start with a liaison office and convert it later?
Conversion is not a change of label. Each Indian route has its own permitted activities and its own registration, so moving from one to another generally means closing the first and establishing the second, with whatever the first has accumulated dealt with before it can be wound up. That is real work, and it falls at the point when the business has finally started to move, which is the worst moment for it. If the plan genuinely is to look before trading, a liaison office can be right, provided everyone accepts that it may not earn income in the meantime and that trading through it is not a small irregularity. If the plan is to trade within the year, start with a structure that can.
Which Indian structure should a Canadian company use to actually sell there?
If revenue is the point, the liaison office is out, because it may not earn income. That leaves a branch, a project office where the work is a defined contract, and a subsidiary. A branch is taxed on its Indian profits at rates that differ from a subsidiary's, and it keeps the Canadian company itself inside the Indian system. A subsidiary is an Indian company in its own right, which brings transfer pricing on what passes between the two and its own questions about getting profits home. The choice follows the shape and the expected life of the Indian activity, rather than the other way round.
When is a project office the right choice in India?
A project office suits a defined piece of work with an end to it, a contract to be performed in India on a known scope, rather than an open-ended presence. It is one of the routes India offers, each with its own permitted activities, tax treatment and closure process, and it is chosen because the shape of the work matches it, not because it sounds lighter than a branch. The closure process matters here more than elsewhere, since the structure is expected to end. Establish at the outset what will be required to close it, because that is the part groups tend to reach with no plan at all.
How hard is it to close an Indian entity we no longer need?
Harder than opening it, and that asymmetry is the main reason to choose carefully. Each route has its own closure process, and closing the wrong structure later is materially harder than choosing correctly at the start. A subsidiary in particular is an Indian company, and winding one up is an exercise with its own timetable, its own approvals and its own final filings. Groups usually discover this when the Indian activity has already stopped and nobody wants to spend on it any more. Ask what closing each option would involve at the point you are choosing between them, not at the point you want out.
Do we pay Indian tax on a subsidiary's profits and again in Canada?
A subsidiary is an Indian company, so its profits are taxed in India on its own results, and what comes back to Canada is a payment between two companies with its own treatment. That is a repatriation question, and it is settled largely by how the Indian company was funded and by what passes between the two, which is also where transfer pricing applies. A branch works differently, being taxed on Indian profits at rates that differ from a subsidiary's while remaining part of the Canadian company. Which combination is better depends on the amounts involved and on how soon cash is needed in Canada.
Do NRIs pay tax on money sent to India?
Sending your own funds to India is a transfer of capital, not income, so the remittance itself is not taxed. What is taxable is income the money then earns in India — interest, rent, capital gains — under the rules for the account type it sits in. Sending money out of India is the direction that needs certification before the bank will act. See NRE, NRO and FCNR accounts.
What is DTAA?
DTAA — a Double Taxation Avoidance Agreement — is India's term for a tax treaty. It allocates taxing rights between India and the other country, caps withholding on cross-border payments, and gives relief for income taxed twice by either exempting it or crediting the foreign tax. Relief is claimed, and from the Indian side that normally means a tax residency certificate, Form 10F and Form 67. See DTAA relief.
