Branch Office
A branch office (extension of business by the parent company to explore the market of the Indian economy) is suitable for foreign companies looking to set up a temporary office in India and want to observe the Indian economy by having their setup in India. Opening a Branch office in India is the most acceptable route for foreign companies who want to enter the growing Indian economy. In today’s business scenario, every company wants to have an office in an economy like India, as India is the world’s 4th fastest growing economy.
Legal Provisions for BO
The opening of the Branch Office in India is to be followed by sub-section (6) of section 6 of FEMA 1999 read with notification No. FEMA 22/2000, dated May 2000, as amended from time to time.
Permissible Activities
Foreign Companies who are engaged in Manufacturing or trading activities are `allowed to set up branch office in India for the following purposes:-
- Export /Import of goods.
- Rendering Professional or consultancy services.
- Carrying out research work in which the parent company is engaged.
- Promoting technical or financial collaboration between Indian companies and parent or overseas group company.
- Representing the parent company in India and acting buying or selling agent in India.
- Rendering services in information technology and development of software in India.
- Rendering technical support to the product supplied by parent or group companies.
- Representing a foreign airline or shipping company.
- Foreign Banking Company.
No, other activity can be carried out unless otherwise specifically permitted by Reserve Bank.
Prohibited Activities
The branch office cannot directly or indirectly carry out retail trading activities of any nature or manufacturing or processing activities in India.
Route to establish the Branch Office
- In the Industry where a 100% automatic route of Investment (Foreign Direct Investment) is allowed, the branch office will be approved by the Reserve Bank of India.
- For an Industry other than 100% automatic investment, the branch office shall be approved by the Reserve Bank of India in consultation with the Ministry of Finance.
Requirements and conditions for BO
- The Name of the branch office is to be given to the parent company’s name.
- The branch office is just an extension of the foreign company’s business; it does not have any ownership.
- The foreign parent company shall have Profit during the immediately preceding five financial years and
- Net Worth of USD 1,00,000 or more (Net Worth includes total of paid up capital and free reserves, less intangible assets as per the latest audited balance sheet or account statement).
- Latest Audited Balance Sheet.
Brief Procedure to be followed for opening a branch office in India
- Person resident outside India shall apply to RBI, in form FNC-1 along with prescribed documents through a designated AD category -I bank.
- Along with COI or memorandum & articles attested by Indian embassy or notary public.
- Latest audited balance sheet.
- RBI’s approval will be allotted with a Unique Identification Number (UIN)
For more details visit https://k2yindia.com/fdi/
Time Limit for opening branch office
- BO shall be opened within six months from the date of the approval letter.
- An extension of six months may be granted by AD category-1 bank for reasons beyond the control of PROI.
- RBI may grant further extension.
Bank Account
- BO must open a bank account in India to receive the remittance from its head office to meet the expenses.
- BO is not permitted to open more than one bank account without the permission of the RBI.
- Bank account to be opened with designated AD category-1 Bank.
Registration of BO with Registrar of Companies
Every Branch office shall register with MCA within 30 days from establishing its place of business in India and deliver the required documents to the Registrar of Companies.
The Branch office will get the Corporate Identification Number on registration by Registrar of Companies.
Expenses of Branch Office
Expenses of the Branch office are to be met by the head office if it does not have any revenue from the branch office.
Remittance of Funds
- Net of profit may be remitted outside India.
- Foreign companies are required to pay tax @ 40% of net profit plus applicable surcharge and cess.
Reporting by BO:
- BO shall submit a report containing information, as per format provided in Annex 3 within five working days of the BO becoming functional to the Director General of Police (DGP) of the state concerned in which BO has established its office; if there is more than one BO, in such cases to each of the DGP concerned of the state.
- BO have to file Annual Activity Certificates (AAC) (Annex 4) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank, and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.
- A copy of the report in Annex 3 shall be filed with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate, and also with the AD concerned.
Post Compliances
- The Branch office shall obtain PAN from the Income tax authorities on setting up of offices in India.
- Opening of Bank account.
- BO can acquire Assets.
- Transfer of Assets.
- Annual activity Certificate.
- Report to the respective Registrar of Companies.
- Application for additional office; if required.
Closure of BO:
At the time of winding up of Branch offices the company has to approach the designated AD Category – I bank with the following documents:
- Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the BO
- Auditor’s certificate:- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
- Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.
- A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.
- Any other document/s, specified by the Reserve Bank while granting approval
Along with a declaration stating that all the necessary documents submitted by the BO have been scrutinized and found to be in order.