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.
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.
A foreign entity must meet the following criteria to establish a Branch Office:
a. Profitability: The parent company should have a profitable track record in the preceding five financial years in its home country.
b. Net Worth Requirement: The net worth of the parent company should be at least USD 100,000.
c. Regulatory Approval: The application must be submitted to the RBI via an Authorized Dealer (AD) Bank.
d. 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.
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).
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.
Once operational, a BO must comply with the following regulatory obligations:
Annual Compliance Requirements
a. Annual Activity Certificate (AAC) submission to RBI.
b. Filing Form FC with details of accounts and place of business with ROC.
c. Annual tax return filing on the Income Tax Portal.
d. 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).
| 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 |
• Branch Offices are taxed as foreign companies.
• Corporate tax rate: 40% + surcharge + cess.
• No repatriation tax on remittance of profits to the parent company.
• 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.
• 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.
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.
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.
