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.
Relaxed norms
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:
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:-
Process and documents required: For registration of Branch Office, following documents are required to be submitted to Authorized Dealer Category-I Banks: –
Route:
| Automatic | Approval |
| 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: –
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:
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: –
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.
