Setting up of branch Office (BO) is one of the route for foreign companies to enter India and tap the promising potential of Indian markets. Foreign entities can set up offices in India without registering themselves as companies. Establishment of a branch office in India is regulated by the Foreign Exchange Management Act (FEMA) 1999. Companies desirous to open branch office in India are required to apply to the Reserve Bank of India (RBI) in the prescribed format along with associated documents.
Towards, moving ahead on the path of ease of doing business in India, the Government of India has relaxed the approval process of setting up of branch office by foreign companies. Earlier the RBI was the approving authority for applications related to setting up of branch office in India. Now, after the relaxed norms are in place, such approvals can be given by authorized dealer category-I banks. However, sectors like Defence, Telecom, Private security, Information and broadcasting and Non-Government Organisations (NGO) have been kept out of the domain of delegated approvals by authorized dealer Category-I banks. In such cases, RBI will continue to be approving authority.
Eligibility Criteria prescribed by RBI for opening Branch Office:
- The foreign entity must have profit making track record for preceding five financial years in the home country.
- Net worth should not be less than USD 100,000 or its equivalent.
Permitted activities of Branch Offices in India: A branch office cannot carry out manufacturing activities. However, these activities can be sub-contracted to Indian manufacturers. The activities permitted for branch offices are enumerated below:-
- Export / Import of goods
- Carrying out research work in which the parent company is engaged
- Rendering professional or consultancy services
- Promoting technical or financial collaborations
- Representing the parent company in India and acting as buying / selling agent
- Rendering services in IT
- Providing technical support to the products supplied by the parent company
- Airline / Shipping
Process and documents required: For registration of Branch Office, following documents are required to be submitted to Authorized Dealer Category-I Banks: –
- Request letter from the company stating the proposed activity and facts about the company
- Duly filled-in FNC
- Copy of certificate of incorporation attested by notary public of the country of registration. If the certificate happens to be in a language other than English, same me be translated, notarized and attested by Indian Embassy / Consulate in the home country.
- Memorandum of Association and Articles of Association.
- Audited balance sheet of immediately preceding five years
- Certificate by Chartered Accountant highlighting the profit / loss details financial year wise.
- Details (Name, Address, Phone number and e-mail id) of authorized person in the home country.
- Details of bankers in the country of origin along with account number
- Commitment to the effect that it will remain open to opinion ought from its banker by Reserve Bank of India.
- Expected funding level
- Details related to local address and number of persons likely to be employed
- Bankers report from the applicant’s banker
- Certificate from chartered accountant confirming net worth.
- Applicants who do not satisfy the criteria of eligibility but are subsidiaries of other company, must submit letter of comfort from the parent company
- Board Resolutions authorizing concerned person to file form FNC
|If principal business off foreign entity falls under sectors where 100% FDI is allowed, AD Category-I bank may consider such applications under delegated powers.
||If principal business falls under sectors where 100% FDI is not allowed. In such cases applications are considered by RBI in consultation with Ministry of Finance, Govt of India.
Note: The application form FNC is required to be forwarded to the RBI, even in case of automatic approval under delegated powers. Subsequently, RBI allots Unique Identification Number (UIN) to the Branch Office being registered in India. Post allotment of UIN number by RBI, AD Cat-I Banks issue the approval letter.
Subsequent Compliances: Every Branch office after being registered with the RBI is required to register itself with the Ministry of Corporate Affairs. Documents required to be filled with ROC are enumerated below: –
- Form FC-1
- MoA and AoA
- Full address of the company
- Directors’ declaration
- RBI Approval letter (In case of approval under delegated powers, approval letter issued by AD Cat-I banks to be furnished
- Board Resolution in favour of the authorized representative
- List of directors and secretary of the company
Annual Filings: Foreign Companies having Branch Office in India are required to adhere to certain annual filings related to accounts as per the law of the land.
Remittance of profit by Branch Office.
Branch Offices are permitted to remit profit (net of taxes) outside India on production of the following documents to the bank through which remittance is made:
- Certified copy of audited balance sheet and profit and loss account
- Certificate by a chartered accountant
Taxation of Branch Offices in India.
A Branch Office registered and operating in India is treated as a foreign company and currently being taxed at the rate off 40 % plus applicable cess. In case of Private Limited Companies registered in India, the tax rate is 30 % plus applicable cess.
Private Limited Company vis-à-vis Branch Office.
It is noteworthy to mention that the foreign companies are preferring to enter India through the mode of registering itself as a Private Limited Company rather than a Branch Office mainly due to the following two reasons: –
- Dual registration of the branch office (with the RBI and the ROC)
- Higher rate of tax for branch office as compared to Private Limited Company registered in India.
Assistance by B Samrish & Co.
Foreign companies desirous to open branch office in India are given seamless support and expert guidance in matters related to obtaining mandatary approvals by RBI and subsequent registration with Ministry of Corporate Affairs. We also offer our clients a robust system of compliances through our maintenance of statutory records and compliances services.