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A Branch office (“BO”) is an outlet setup by a foreign company in India to carry out the branch activity for its business. The foreign company can earn revenue through its Indian Branch office undertaking activities as allowed by the Reserve Bank of India (“RBI”). It has to meet all its Indian office expenses through remittances from the head office or through the revenue generated from the Indian operation permitted by RBI.

Foreign companies are permitted to set up a BO in India. But unlike the case of setting up a company, a BO requires an approval from RBI. The foreign company is allowed to commence the operations upon getting the Branch License (“License”) from RBI.

BO is suitable for a foreign company to test and understand the Indian market with a very strict control by RBI, as it does allow the companies to do business but just to do the activity which are mentioned in the application of BO, any additional activity to be carried by the BO shall be illegal. The establishment of a BO is regulated as per Section 6(6) of Foreign Exchange Management Act (FEMA), 1999 read along with notification no FEMA 22/2000-RB dated May 3, 2000.

Activities allowed to BO in India
Foreign companies, including US companies, are allowed to set up BOs in India for the following purpose:

  • Export or import of goods
  • Rendering professional or consultancy services
  • Carrying out research work in respect of the areas in which the parent company is engaged.
  • Engage in activities promoting technical or financial collaborations between Indian companies and parent company or overseas group company.
  • Acting as buying or selling agents in India or representing the parent company in India.
  • Rendering information technology and software development services in India.
  • Rendering technical support in respect of the products supplied by the parent company / group companies.
  • Foreign airline / shipping company
  • Foreign banks

BO is prohibited to carry out manufacturing activities on its own but allowed to subcontract these to an Indian manufacturer. BOs that are established with the approval of RBI are allowed to remit profit of the branch (net of applicable Indian taxes) outside India, subject to RBI guidelines.

Prohibited activities
BO is prohibited from carrying out, directly or indirectly, retail trading activities of any nature or manufacturing or processing activities in India.

Requirements and conditions of a BO

  • The name of Indian BO shall be same as parent company.
  • The BO does not have any ownership; it is just extension of the exiting company in the foreign country.
  • All the expenses of the BO are met by the head office, if it does not have the revenue from Indian operations.
  • In order to start a BO in India, the foreign parent company shall have a profitable track record during immediately preceding three years in the home country.
  • The Net Worth (total of paid-up capital and free reserves, less intangible assets) shall be not less than or equal to USD 100,000. Net Worth shall be as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called.
  • It is suitable for foreign companies looking to setup a temporary office in India and not interested or not planning to have long term plans for the Indian operations; except banking, shipping and airlines etc. mentioned above, to operate through BO.

Rights of a Branch Office

  • Immovable property: BO of a foreign company has the right to acquire immovable property in India for their use, to carry out the permitted activities and the various supplementary functions. In the case of the companies from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan and China, this right is contingent and can be exercised only with prior RBI approval. BO is allowed to carry out permitted activities from leased property, however the lease period is not allowed to be over five years.
  • INR current accounts (non-interest bearing): BOs are required to approach their ADs for opening such bank accounts.
  • Remittance of profits: BOs are allowed to remit profits outside India subject to applicable taxes and on producing the required documents to AD. The documents required are:
  • A certified copy of the audited balance sheet and certified profit and loss account of the relevant financial year.
  • A chartered accountant’s certificate certifying that the profit has been earned from the permitted activities, not by the revaluation of the assets of the branch along with the manner of arriving at the remittance.
  • Term deposit account: Such an account can be sanctioned by the AD for a branch office of a foreign company to the satisfaction of the bank that the term deposit is out of the temporary surplus funds. BO must deliver an undertaking to the effect that the maturity proceeds of the term deposit will be utilized for their Indian office(s) within three months of maturity. This type of account is permitted for six months and is not available to shipping / airline companies.

A foreign company is allowed to operate through four BO’s, in the four zones of the country, without any hassles. Any number offices over and above that have to be justified with an explanation. The company may identify a ‘Nodal Office’ in India from amongst the BOs, that will overlook the functioning and activities of all the other BOs in the country.

FAQs

What is a branch office?

A branch office is an outlet setup by a foreign company in India to carry out the branch activity for its business. The foreign company can earn revenue through its Indian branch office undertaking activities as the Reserve Bank of India allows. However, it has to meet all its Indian office expenses through remittances from the head office or through the profit generated from the Indian operation allowed by RBI.

What activities are not permitted to a branch office?

A branch office is not allowed to transport out manufacturing activities but is prescribed to sub-contract these to an Indian manufacturer. The revenue of the branch may be remitted outside India for branch offices to the approval from RBI. The remittance is net of applicable Indian taxes and subject to RBI guidelines.

What are the activities that a branch office in India can perform?

The activities that are allowed to a branch office in India are:

  • Export or import of goods
  • Rendering professional or consultancy services
  • Carrying out research work in respect of the areas in which the parent company is engaged
  • Engage in activities promoting technical or financial collaborations between Indian companies and parent companies or overseas group companies.
  • Acting as buying or selling representative in India or representing the parent company in India
  • Rendering information technology and software development services in India
  • Rendering technical support in respect of the products supplied by the parent company/group companies.
  • Foreign airline/ shipping company
  • Foreign banks
What are the conditions and requirements of a branch office?

The conditions and requirements of a Branch Office are as follows:

  • The name of Indian BO shall be the same as the parent company
  • The BO does not have any ownership; it is just an extension of the exiting company in the foreign country
  • The head office meets all the expenses of the BO if it does not have the revenue from Indian operations
  • To start a BO in India, the foreign parent company shall have a profitable track record during the immediately preceding three years in the home country
  • The net worth shall be not less than or equal to USD 100,000. Net worth shall be as per the brand new audited balance sheet or account statement verified by a guaranteed public accountant or any registered accounts practitioner by whatever name is called.
  • It is appropriate for foreign companies looking to setup a temporary office in India and not interested or not planning to have long term plans for the Indian operations, except banking, shipping and airlines etc., mentioned above, to operate through BO.
What are the rights of a branch office?

The rights of a BO are as follows:

  • Immovable property: BO of a foreign company has the right to obtain immovable assets in India for their use, to carry out the permitted activities and the various supplementary functions. In the case of the companies from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan and China, this right is contingent and can be exercised only with prior RBI approval. BO can carry out permitted activities from the leased property; however, the lease period cannot be over five years.
  • INR current accounts (non-interest bearing): BOs must approach their ADs to open such bank accounts.
  • Remittance of profits: BOs are allowed to remit profits outside India subject to applicable taxes and produce the required documents to AD. The documents required are
    • A verified reprint of the audited balance sheet and accredited profit and loss account of the relevant financial year.
    • A charted accountants’ certificate certifies that the profit has been earned from the permitted activities, not by the revaluation of the branch’s assets and the manner of arriving at the settlement.
  • Term deposit account: such an account can be authorized by the AD for a branch office of a foreign company to the contentment of the bank that the term deposit is out of the temporary surplus funds. BO must deliver an agreement to the effect that the maturity earnings of the term deposit are out of the interim surplus funds. In addition, BO must provide an undertaking to the effect that the maturity proceeds of the term deposit will be utilized for their Indian office(s) within three months of maturity. This type of account is allowed for six months and is not available to shipping/ airline companies.
What documents need to be submitted to the AD bank at the time of closure of the branch office?

At the time of closing of branch offices, the company has to approach the designated AD category- 1 bank with the following reports:

  • Duplicate of the Reserve Bank’s permission/approval from the sectoral regulator(s) for establishing the BO.
  • Auditor’s certificate:
    • Showing how the remittable sum has been arrived at and supported by a statement of assets and liabilities of the applicant and showing the manner of discarding of assets;
    • Confirming that all liabilities in India, counting arrears of gratuity and other advantages to workers etc., of the workplace, have been either fully met or adequately provided for; and
    • Confirming that no earnings arising from sources outside India has remained un-repatriated to India.
  • No- objection/ tax clearance certificate from income- tax authority for the remittance/s.
  • Proof from the applicant/ parent company that no legal proceedings in any court in India are unresolved, and there is no legal impediment to the remittance.
  • A report from the registrar of companies concerning compliance with the Companies Act, 1956, in case of closing of the office in India.
  • Any more document/s, listed by the Reserve Bank while granting acceptance.
How to register a branch office in India?

To open a branch office in India, a foreign company must apply for acceptance from the Reserve Bank Of India under the Foreign Exchange Management Act (FEMA), 1999. The procedures for registration require a foreign company to deposit the following set of forms:

  • FNC form duly signed by AR;
  • Details about the parent company along with its certificate of incorporation attested by a Notary Public or the Indian embassy in the country of registration;
  • The incorporation documents of the branch office to be established in India;
  • Evidence of registered office;
  • Note on place or proposed activity;
  • The brand new audited balance sheet of the application entity;
  • Board resolution to open a branch office;
  • KYC of the authorized signatory; and