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).
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 following 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; meanwhile, in the case of India, this rate is 25% if turnover is up to 50 crores in a financial year.
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.