Comprehensive Guide to Setting Up a Branch Office in India

1. Introduction

Expanding into India is a strategic move for many foreign companies due to its vast market potential. A Branch Office (BO) is a common business structure that allows foreign companies to establish a presence in India while maintaining operational control.

This guide covers the registration, compliance, benefits, limitations, and procedural requirements of setting up a Branch Office in India.

2. What is a Branch Office?

A Branch Office (BO) is an extension of a foreign company, permitted to conduct specific business activities in India. Unlike a Liaison Office, a BO can engage in revenue-generating activities but is subject to regulatory restrictions.

Key Features of a Branch Office:

• Can engage in commercial activities but limited to the business scope of the parent company.
• Cannot engage in retail trading, manufacturing, or processing activities in India.
• Operates under strict compliance with Reserve Bank of India (RBI) and Companies Act, 2013 regulations.
• The foreign parent company is liable for its actions.

3. Eligibility Criteria for Establishing a Branch Office

A foreign entity must meet the following criteria to establish a Branch Office:

1. Profitability: The parent company should have a profitable track record in the preceding five financial years in its home country.
2. Net Worth Requirement: The net worth of the parent company should be at least USD 100,000.
3. Regulatory Approval: The application must be submitted to the RBI via an Authorized Dealer (AD) Bank.
4. No Proprietary Firms: Only incorporated businesses can open a BO; proprietorships are not eligible.

Exception: A subsidiary of a financially strong parent company can provide a Letter of Comfort (LoC) to satisfy the financial criteria.

4. Permissible Activities of a Branch Office

A Branch Office in India can undertake the following activities:

• Import and export of goods.
• Providing professional or consultancy services.
• Conducting research and development (R&D).
• Promoting technical or financial collaborations.
• Representing the parent company as a buying/selling agent.
• Providing technical support to parent company products.
• Operating foreign airlines/shipping services in India.

Prohibited Activities:

• Retail trading of goods.
• Manufacturing or processing activities directly (subcontracting is allowed).

5. Step-by-Step Process to Set Up a Branch Office in India

Step 1: Application to RBI via Authorized Dealer (AD) Bank

• Submit the application to RBI through an AD Category-I bank.
• Attach supporting documents such as Certificate of Incorporation, Memorandum & Articles of Association (MOA/AOA), and audited financials.
• Obtain Know Your Customer (KYC) verification from the parent company’s banker.

Step 2: Prior Approval from RBI (if Required)

• In exceptional cases, where the proposed activity is not under the automatic route, prior RBI approval is needed.

Step 3: Registration with Registrar of Companies (ROC)

• File Form FC-1 within 30 days of RBI approval.
• Attach RBI permission letter and company incorporation documents.
• Obtain Corporate Identity Number (CIN).

Step 4: Obtain PAN, TAN, and Bank Account

• Apply for Permanent Account Number (PAN) with the Income Tax Department.
• Obtain Tax Deduction Account Number (TAN) for withholding tax compliance.
• Open a bank account in India for financial transactions.

Step 5: Obtain GST & Import Export Code (if applicable)

• Register under Goods and Services Tax (GST) if engaging in taxable transactions.
• Obtain Import Export Code (IEC) if involved in import/export activities.

6. Compliance Requirements for a Branch Office

Once operational, a BO must comply with the following regulatory obligations:

Annual Compliance Requirements

1. Annual Activity Certificate (AAC) submission to RBI.
2. Filing Form FC with details of accounts and place of business with ROC.
3. Annual tax return filing on the Income Tax Portal.
4. Transfer Pricing Compliance if transactions occur between the BO and the parent company.

Regular Tax and Financial Filings

• Income Tax Return (ITR): Taxable at corporate tax rates applicable to foreign companies.
• TDS (Tax Deducted at Source): Deduct tax at source where applicable.
• GST Returns (if applicable).

7. Documents Required for Setting Up a Branch Office

Document	Requirement
Board Resolution	Authorizing Branch Office setup in India
Certificate of Incorporation	From the foreign parent company
MOA & AOA	Duly notarized and apostilled copies
Letter of Comfort (LoC)	If financials don’t meet RBI criteria
Audited Financials	For last five years, duly certified
KYC of Parent Company	Letter from foreign bank validating credentials
RBI Approval Letter	Mandatory for further registrations
Form FC-1	For ROC registration

8. Taxation for Branch Offices in India

• Branch Offices are taxed as foreign companies.
• Corporate tax rate: 40% + surcharge + cess.
• No repatriation tax on remittance of profits to the parent company.

9. Advantages & Limitations of a Branch Office

Advantages:

• Ease of Market Entry: Establishing a BO is simpler than incorporating a subsidiary.
• Operational Control: Full control remains with the parent company.
• Revenue-Generating: Unlike a Liaison Office, BOs can earn revenue.
• Tax Benefits: No additional tax on repatriation of profits.

Limitations:

• Limited Business Scope: Activities must align with the parent company’s operations.
• Full Liability: The parent company is fully liable for BO actions.
• Stringent Regulatory Compliance: Regular reporting to RBI and ROC.

10. Case Study: Successful Branch Office Setup in India

Case Study: XYZ Ltd., a US-based technology firm, set up a BO in Bangalore to provide technical support to Indian customers. By leveraging India’s cost-effective talent pool, XYZ Ltd. reduced operational costs by 30%, while ensuring compliance with RBI and MCA regulations.

A Branch Office registration / incorporation is ideal for businesses looking to expand in India. However, it comes with increased compliance and regulatory requirements. With expert assistance from Return Filings, you can ensure a smooth registration and compliance process for your Branch Office registration / incorporation and compliance in India. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.

11. Conclusion

Setting up a Branch Office in India is an excellent way for foreign companies to establish a presence in the Indian market. However, businesses must carefully navigate RBI, ROC, and tax compliance requirements to ensure smooth operations. With proper planning and execution, a BO can serve as a gateway for international businesses to thrive in India.

12. Additional Resources

For further reading, explore:

          ·       Understanding the Role of RBI in Foreign Business Setup in India

          ·       Comprehensive Guide on Foreign Direct Investment (FDI) in India

          ·       International Tax Advisory: Optimize Global Tax Compliance & Savings

          ·       Import Export Code (IEC): Essential Guide for Hassle-Free Global Trade

Frequently Asked Questions (FAQs) on Branch Office Registration in India

A. General Information about Branch Offices

1. What is a Branch Office (BO) in India?

A Branch Office is an extension of a foreign company in India. It is not a separate legal entity but rather a local office of the foreign parent company. It can engage in commercial activities, unlike a Liaison Office.  

2. What are the permitted activities of a Branch Office?

Permitted activities depend on the RBI’s approval but typically include:

2. • Manufacturing (if subcontracted to an Indian manufacturer).
   • Export and import activities.  
   • Providing professional or consultancy services.  
   • Engaging in research and development activities.  
3. What are the prohibited activities of a Branch Office?

Generally, Branch Offices are not permitted to:

3. • Engage in retail trading activities of any nature.
   • Directly engage in manufacturing or processing activities (though subcontracting is permitted).
4. What is the difference between a Branch Office and a Subsidiary?

Feature	Branch Office	Subsidiary
Legal Status	Acts as an extension of the foreign company in India	A separate legal entity incorporated in India
Ownership	Wholly owned by the foreign company	Can be 100% owned by the foreign company (except in restricted sectors)
Liability	Foreign company bears unlimited liability for its branch office	Limited liability for the parent company; liability restricted to investment in the subsidiary
Management	Managed directly by the foreign company	Managed by its own Board of Directors in India
Taxation	Taxed as a foreign entity in India at higher tax rates (typically 40% + surcharge & cess)	Taxed as a domestic Indian company (typically 25-30% + surcharge & cess)
Compliance Requirements	Higher regulatory burden, including RBI approval and periodic filings with the Registrar of Companies (RoC) and RBI	Must comply with Indian Companies Act, 2013 and regulatory filings with RoC, but operates with more independence
Permitted Activities	Can engage only in activities approved by RBI, mainly liaison, export/import facilitation, R&D, and technical support	Can conduct any business activity except those restricted for FDI
Fundraising	Cannot raise funds from the Indian market; must rely on the parent company	Can raise capital through debt, equity, or bank loans in India
Repatriation of Profits	Profits can be repatriated after applicable taxes and RBI approval	Subsidiary can repatriate dividends to the foreign parent after paying dividend distribution tax (if applicable)
Suitability	Suitable for foreign companies wanting only a presence in India without full-fledged operations	Ideal for businesses planning long-term operations and market expansion in India

 

B. Registration and Regulatory Aspects

5. Who regulates the registration of Branch Offices in India?

The Reserve Bank of India (RBI) through Authorized Dealer (AD) banks regulates the establishment of Branch Offices.  

6. What is the process for registering a Branch Office in India?

The process involves:

6. • Applying to the RBI through an AD bank with a detailed proposal.  
   • Submitting required documents, including the parent company’s incorporation certificate, details of its activities, and a plan for the Branch Office.  
   • Obtaining approval from the RBI.
7. What documents are required for Branch Office registration?

Typical documents include:

7. • Application form.
   • Parent company’s incorporation certificate.
   • Details of the parent company’s activities.
   • Detailed plan for the Branch Office’s activities in India.
   • Details of the Chief Representative of the BO.
   • Proof of registered office address in India.
8. Is there any fee for registering a Branch Office?

Yes, fees is associated with the application process and professional services.

9. How long does it take to register a Branch Office?

The registration process can take several weeks or even months, depending on RBI processing times and the completeness of the application.  

10. How long is the registration of a Branch Office valid for?

The initial approval is usually for a period of 3 years and can be renewed.

C. Operations and Compliance

11. Can a Branch Office open a bank account in India?

Yes, a Branch Office can open a bank account in India to manage its operations.  

12. How is a Branch Office funded?

The parent company funds the Branch Office’s operations through inward remittances.  

13. What are the compliance requirements for a Branch Office?

Branch Offices need to comply with RBI regulations, including submitting annual activity reports to the AD bank. They also need to comply with Indian tax laws.  

14. Can a foreign national be the head of a Branch Office?

Yes, a foreign national can be the Chief Representative of a Branch Office.

15. Can a Branch Office employ local staff?

Yes, a Branch Office can employ local staff.

16. Can a Branch Office enter into contracts?

Yes, a Branch Office can enter into commercial contracts in its own name, unlike a Liaison Office.

17. Can a branch office repatriate profits to its parent company?

Yes, after paying applicable taxes, a Branch Office can repatriate its profits to the parent company with RBI permission.  

D. Taxation

18. Is a Branch Office required to pay taxes in India?

Yes, a Branch Office is taxed on the profits it earns in India, similar to a subsidiary company.  

E. Other generally asked questions related to Branch Office registration:

           19.   How do I set up a Branch Office in India?

           Covered in the registration process details.

20. What are the advantages and disadvantages of a Branch Office?

Advantages: Direct commercial activity, access to the Indian market. Disadvantages: Higher compliance burden, limited operational flexibility compared to a subsidiary.

21. What are the RBI guidelines for Branch Offices?

Refer to the RBI website for the latest guidelines.

22. How do I renew the registration of my Branch Office?

Application shall be made to the RBI through the AD bank before the expiry of the existing approval.

23. Can a Branch Office engage in retail trading activities?

Generally no, though specific permissions might be granted in some cases.

24. What are the tax implications for a foreign company with a Branch Office in India?

Contact us for specific advice.

25. Can a Branch Office open multiple bank accounts in India?

Usually, one bank account is sufficient for a Branch Office.

26. What is the process for closing down a Branch Office in India?

Involves informing the RBI through the AD bank and complying with other formalities.