Opening of Branch Office by Foreign Company

A branch office is the most suitable and preferred business model followed by foreign companies to establish their temporary presence in India. It carries the same business and activity as parent company. Before setting up a branch office in India, foreign companies should take into consideration the following important factors –

  1. Local costs
  2. State regulations
  3. Physical activity
  4. Type of company

Many of the businesses establish their offices in India just to understand more about the Indian market without thinking of fulfilling any long term objective. Foreign entity is allowed to undertake only that activity which is mentioned in the branch office application. Any additional activity carried out by a branch office will be considered as an illegal activity without the RBI approval.

Opening of Branch Office by Foreign Company

Activities permitted for a foreign company branch office in India

Foreign companies engaged in trading or manufacturing activities are allowed to set up branch offices in India and can undertake the following activities in the Indian Territory –

  1. Export/import of goods
  2. Carrying out research work in the area in which the parent company is engaged
  3. Offering professional or consultancy services
  4. Offering services in IT and software development in India
  5. Offering technical support to the products supplied by parent/group companies
  6. Representing the Indian office branch of the foreign company and acting as buying/selling agents in India.
  7. Developing of financial or technical collaboration b/w Indian companies and parent or overseas group company.
  8. Foreign airline/shipping company

Activities prohibited for a foreign company branch office in India

Foreign Companies (Companies incorporated outside India) are prohibited to engage in the following activities through the Indian branch office –

  1. A Branch office in India is not allowed to engage in retailtrading activities of any nature.
  2. A branch office either directly or indirectly not allowed carryingout manufacturing or processing activities in India.
  3. Any profit earned by a branch office in India is remitted from India to the parent company only after paying the applicable taxes.

Conditions for setting up foreign company branch office in India

Any foreign company planning to set up a branch office in India needs to meet the following important conditions –

  1. The name of the branch office you are planning to open should be same as the parent company. In case you have not received any revenue from the branch office in India, head office will be liable for paying the expenses.
  2. The applicant company must be a body corporate established outside India.
  3. The net worth of the Indian branch office must not exceed US £100000
  4. The company should have a record of profit making during the immediate past 5 financial years in the home country.
  5. Proprietary firms outside India are not allowed to set up branch offices in India.

Procedure for setting up a branch office in India by a foreign country

Foreign companies needs to adhere to the following procedure in order to set up branch offices in India –

  1. RBI approval– Foreign companies planning to set up their branch offices need to get approval from the foreign exchange department, Reserve Bank of India, Central office, Mumbai. Don’t contact RBI branch located in your respective states capitalfor approval.
  2. Company’s track record– When the application is submitted by the parent company to set up a branch office in India, RBI scrutinizes the application to take overview about the track record, financial position and the activity of the company. There is no criterion specified for examining the tracking record or financial position of the parent company.

Applications made by parent companies considered by RBI in form FNC (Annex-1) through two routes. The application should be submitted to RBI in the prescribed form FNC through the authorised dealer bank.

  1. Reserve bank route– A foreign company need to submit this application through reserve bank route, if the principal business of the foreign entity falls under sectors where 100% FDI is permissible under the automatic route.
  2. Government route– A foreign company needs to submit their application through the government route, if the principal business of the foreign entity falls under the sectors where 100% FDI is not permissible under the automatic route.

Documents required for foreign company branch office set up

A foreign company needs to deposit the following set of forms in order to obtain the registration –

  1. FNC form duly signed by AR
  2. Parent company’s information along with incorporation certificate attested by a notary public or the Indian embassy in the country of registration.
  3. Registered office proof
  4. Documents of incorporation for branch office to be established in India
  5. Latest audited balance sheet of the applicant company
  6. Note on location or proposed activity
  7. Board resolution to open a branch office
  8. KYC of the authorized signatory
  9. Detailed information about the local representatives in the branch office of the parent company

Taxation

A branch office set up by a foreign company in India does not have a separate legal entity and runs as per laws governed by parent office. Hence, setting up a branch office in India is taxed asa foreign company and is liable to pay 40% tax plus surcharge and cess as applicable.

Time period of registration

Registration of a branch office usually takes 45 days and no registration renewal is required in case of branch office but in some of the cases where RBI gives approval of 2-3 years, renewal of registration is required.

Validity of approval

After getting the approval from AD category I bank, validity of 6 months is provided to the applicant company to set up their branch office. In case the applicant company failed to set up their branch office in 6 months, RBI approval is required for further extension of time.

Shifting of office

In case you want to shift the branch office to another city in India, you need to take the approval of authorized AD banks. However, if you want to change the branch office within the same city, no such approval is required.

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