Can a foreign company open a branch office in India?

Foreign companies are allowed to set up a branch office in India. But unlike the case of setting up a company, a branch office requires an approval from the Reserve Bank of India (RBI). Only upon getting the branch license from RBI, the foreign company is allowed to commence the operations. This article gives you an overview of setting up a branch office in India.

The Basics –

• Approval from RBI – Permission for setting up branch offices is granted by the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai (note – Not by the RBI offices in respective state capitals)
• Track Record of the company – Reserve Bank of India considers the track record of the applicant company, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinizing the application. (note – for setting up a company, there is no criteria of checking the track record or financial position of the parent company)
• The application in the prescribed form (Form FNC) should be submitted to the RBI through the Authorized Dealer bank along with (a)English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration  (b) Latest Audited Balance Sheet of the applicant entity
• Upon approval to set up the Branch, RBI will allot a Unique Identification Number (UIN)

Permitted activities by the Branch –

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India and undertake the following activities in India

• Export / Import of goods.
• Rendering professional or consultancy services.
• Carrying out research work, in areas in which the parent company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
• Representing the parent company in India and acting as buying / selling agent in India.
• Rendering services in information technology and development of software in India.
• Rendering technical support to the products supplied by parent/group companies.
• Foreign airline / shipping company.

Prohibited activities by the Branch –

• Retail trading activities of any nature is not allowed for a Branch Office in India
• A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly

Pre-requisites for a foreign company to have branch office in India –

• Profit making track record during the immediately preceding five financial years in the home country
• Net Worth of not less than USD 100,000 or its equivalent  [total of paid-up capital and free reserves, less intangible assets] as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name.
• Proprietary concerns set up abroad are not allowed to establish Branch Offices in India

Acquiring property in India

• Branch Offices of a foreign entity are permitted to acquire property for their own use and to carry out permitted/incidental activities but not allowed to buy for the purpose of renting it out
• Entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India even for a Branch Office. These entities are allowed to lease such property for a period not exceeding five years

Reporting to Director General of Police (DGP)

• Submit a report containing information in the prescribed format within five working days of the Branch Office becoming functional to the Director General of Police (DGP) of the state concerned in which Branch office has established its office;
• If there is more than one office of such a foreign entity, submit report to each of the DGP concerned of the state where it has established office in India

Annual Reporting by Branch Office

• File an Annual Activity Certificate (AACs) with RBI
• File return and pay applicable taxes along with AAC with Income Tax department.
• File annual return with Registrar of Companies (ROC) – write more about it
• A copy of the report as per the prescribed format to DGP of concerned state.

Repatriation of funds

• Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes

Read other related articles

• The basics of Foreign Investment in India – one must know
• Naming ceremony of your Dream Company!
• Sectors where Foreign Direct Investment (FDI) is prohibited
• Can Non Resident Indian (NRI) invest in Partnership firm or a proprietary concern?

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