Branch Office in India
Branch Office of Foreign company in India require RBI approval and comply with the provisions of Companies Act 2013. Initial step to open a Branch Office in India is to obtain approval from RBI (Reserve Bank of India).
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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:
- Profitability: The parent company should have a profitable track record in the preceding five financial years in its home country.
- Net Worth Requirement: The net worth of the parent company should be at least USD 100,000.
- Regulatory Approval: The application must be submitted to the RBI via an Authorized Dealer (AD) Bank.
- 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
- Annual Activity Certificate (AAC) submission to RBI.
- Filing Form FC with details of accounts and place of business with ROC.
- Annual tax return filing on the Income Tax Portal.
- 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
· 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
- 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.
- What are the permitted activities of a Branch Office?
Permitted activities depend on the RBI’s approval but typically include:
- Manufacturing (if subcontracted to an Indian manufacturer).
- Export and import activities.
- Providing professional or consultancy services.
- Engaging in research and development activities.
- What are the prohibited activities of a Branch Office?
Generally, Branch Offices are not permitted to:
- Engage in retail trading activities of any nature.
- Directly engage in manufacturing or processing activities (though subcontracting is permitted).
- 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
- 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.
- What is the process for registering a Branch Office in India?
The process involves:
- 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.
- What documents are required for Branch Office registration?
Typical documents include:
- 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.
- Is there any fee for registering a Branch Office?
Yes, fees is associated with the application process and professional services.
- 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.
- 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
- 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.
- How is a Branch Office funded?
The parent company funds the Branch Office’s operations through inward remittances.
- 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.
- Can a foreign national be the head of a Branch Office?
Yes, a foreign national can be the Chief Representative of a Branch Office.
- Can a Branch Office employ local staff?
Yes, a Branch Office can employ local staff.
- Can a Branch Office enter into contracts?
Yes, a Branch Office can enter into commercial contracts in its own name, unlike a Liaison Office.
- 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
- 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.
- 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.
- What are the RBI guidelines for Branch Offices?
Refer to the RBI website for the latest guidelines.
- 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.
- Can a Branch Office engage in retail trading activities?
Generally no, though specific permissions might be granted in some cases.
- What are the tax implications for a foreign company with a Branch Office in India?
Contact us for specific advice.
- Can a Branch Office open multiple bank accounts in India?
Usually, one bank account is sufficient for a Branch Office.
- 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.