18 December 2017 • Prasanna Nagure
A. What is a Branch office?
The Branch office is setup by a foreign company (Parent Company) in India to carry out the branch activity for its business. As opposed to Liaison office, the branch office of the foreign company is allowed to earn revenue from the Indian Branch office. It has to meet its expenditure from funds of its head office or its own revenue.
B. Features of Branch Office
- The name of the branch shall be the same as Parent company name
- The regulatory body is Reserve Bank of India. RBI approval is required for setting up a Branch Office.
- Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an “AD Category I bank”.
- The branch office is not treated to be a distinct entity from its parent company. The parent company can be held liable for liability of Branch office.
- Permitted Activities: Import/Export of Goods, providing professional/ consultancy services, research work, representing and acting as buying/selling agent for parent company, rendering tech support for the products of parent company. The branch office cannot undertake manufacturing however it can outsource it to Indian manufacturers.
- A Branch office is allowed to acquire assets including immovable property in India.
C. Purpose of Branch Office
- It’s a tool used by foreign companies to understand Indian market before it makes the decision to invest in India.
- Based on its research it may take decision whether to incorporate a subsidiary or not.
- Minimal Compliances as compared to Wholly Owned Subsidiaries (WOS).
- Branch Offices also easier and faster to close at any time as compared to WOS.
D. Conditions for setting up (Parent Company)
- Parent Company shall have a profitable track record during immediately preceding three years in the home country.
- Parent company’s Net worth as per Latest Audited Balance Sheet not be less than USD 1,00,000/-.
E. How to set up a Branch Office?
Application to RBI can be made for Sectors in which 100% FDI is permissible. Sectors in which 100% FDI is not permissible such application is considered by RBI in consultation with Ministry of Finance.
- The applicant shall make application in form FNC to Authorized Dealer Category –I bank (a dealer having banking license).
- An authorized representative is needed as point of contact between the parent company and Indian authorities. An authorized representative can be appointed through Power of Attorney/ Board resolution.
- It shall attach documents such as Charter of the Parent Company, Parent company’s banker’s report and other relevant documents as may be required.
- We suggest the applicant to have the same bank (if possible) as an authorised dealer bank which is also the bank for parent company.
Upon registration, the RBI grants UIN (Unique Registration Number) to the branch office.
F. Application to Registrar of Companies (Ministry of Corporate Affairs)
The branch office of the foreign parent company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar of Companies for registration in form FC-1 along with the requisite documents.
MCA grants FCRN (Foreign Company Registration Number) to the branch as an Identification upon registration.
G. Registration with State Police Authorities
A person from China, Hong Kong etc opening a branch office in India shall have to register with the concerned State Police Authorities as well. Copy of approval letter for these ‘persons’ shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi.
H. Taxation and Remittances of Profits
The Branch office in India shall liable to pay income tax. The branch office is taxed at 40% plus Cess (for Assessment year 2018-19). Branch office can remit profits earned by it to its parent company after paying applicable tax.
I. Applicable Compliances
Upon registration the Branch office shall obtain PAN, TAN and such other License/registration as may be necessary.
- Maintenance of Books of Account and getting Annual Accounts audited
- Filling of Annual Activity Certificate with RBI
- Filling of Annual Return and Balance sheet with Registrar of Companies
- Intimating any change in constitution/ Directors of Parent Company to RBI & ROC
- Intimating each and every change in the Branch office to RBI & ROC
Note: Additional place of business can be started after approval is taken from RBI.
Source: Notification No. FEMA 22(R)/2016-RB dated March 31, 2016