Branch Offices in India

What are the requirements for setting up a branch office in India?

The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a branch office, requiring that companies receive approval from the Reserve Bank of India (RBI) to establish a branch office.

What are the conditions for setting up a Branch Office in India?

According to the master directions given by Reserve Bank of India, a foreign enterprise must meet the following conditions to establish a Branch Office in India:

• A profit-making track record during the immediately preceding five financial years in the home country; and,
• Net worth not less than USD 100,000 or its equivalent

What happens if an enterprise doesn’t meet the requirements needed to establish a branch office in India?

If above conditions are not met by the applicant, and if the parent company satisfies the eligibility criteria as prescribed above, then the parent company of the applicant can submit a Letter of Comfort on its behalf.

If the parent company also does not meet these requirements, but a subsidiary of the company does, the parent company may also submit a Letter of Comfort on the subsidiary’s behalf during the application process.

What is the process for establishing a branch office in India?

The process for establishing a branch office is identical to the process of setting up a liaison office.

Under the Act, foreign enterprises must receive specific approval from the Reserve Bank of India (RBI) to operate a branch office in the country. Applications are to be submitted through Form FNC (Application for Establishment of Branch/Liaison Office in India).

A Permanent Account Number (PAN) must be acquired. Within 30 days of establishment, the branch office must register with the Registrar of Companies (RoC) by filing Form 44 through the Ministry of Corporate Affair’s online portal.

The following documents should be submitted:

• A copy of the liaison office charter or Memorandum & Articles of Association in English;
• Full address for the enterprise’s principal place of operation outside of India;
• Name and address of the liaison office in India;
• List of directors;
• Name and address of the company’s official representative based in India.

Each year, the branch office must file an Annual Activity Certificate (AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter. An AAC should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year.

All profits earned by the branch office may be remitted from India and will be subject to payment of all applicable taxes.

How can they allow foreign investors to remit profits from India?

Branch offices allow foreign investors to repatriate profits out of India after paying any applicable taxes as well as submitting documentation such as an auditor certified balance sheet and a Profit and Loss Account statement.

• Must have a five-year record of profitable operations in the home country; and
• Must have a minimum net worth of US$ 100,000 verified by the most recent audited balance sheet or account statement.

What activities is a branch office in India permitted to engage in?

Foreign companies, including those engaged in manufacturing and trading activities, can establish branch offices to carry out business activities substantially the same as those carried out by their parent company.

According to the master directions given by Reserve Bank of India, a Branch Office (BO) is permitted to undertake the following activities in India:

• Export/import of goods.
• Provision of professional/consultancy services.
• Research work, in areas in which the parent company is engaged.
• Promotion of technical or financial collaborations between Indian companies and parent company.
• Representation of the parent company in India and assuming the role of buying/ selling agent in India.
• Provision of services in Information Technology and development of software in India.
• Provision of technical support to the products supplied by parent company.
• Foreign airline/shipping company.

Branch office is forbidden to engage in retail trading, manufacturing or processing activities in India, unless the location of the branch office is in a special economic zone.

Also, anything outside the project designated for the project office is prohibited.

Normally, the BO cannot engage in manufacturing activities either. However, there is a general permission to non-resident companies for establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing activities subject to following conditions:

• Sectors where 100% FDI is permitted;
• Compliance with Chapter XXII of the Companies Act, 2013;
• BOs functioning on a stand-alone basis.

How to close branch office in India?

The closure of a branch office from India involves the below steps:

• Obtain auditor’s certificate indicating the manner in which remittable amount has been calculated;
• Tax clearance certificate from tax authorities in India;
• Confirmation from the applicant that no legal proceedings are pending, and that there is no legal impediment to the remittance;
• Report and approval from Registrar of Companies; and
• Application to Authorized Dealer Bank with aforesaid documents for closure of branch office from India.