Branch Office in India

A branch office is a suitable business model for foreign companies looking to establish a temporary presence in India. The branch office serves as an extension of the head office business and carries on the same business as that of its parent company. With India possessing vast natural and human resources and being among the fastest-growing nations in the world, it provides immense opportunities for foreign companies to grow their business. Therefore, there is a lot of interest among foreign companies and foreign nationals to open a branch office in India or start a business in India.

Establishing a Branch Office in India:
Businesses that would like to set up a branch office in India the following conditions are :

  1. The applicant company must be a body corporate- incorporated outside India;
  2. The name of the Indian branch office must be the same as the parent company (if the branch office does not have revenue from India operations.
  3.  Its expenses must be met by the head office.
  4.  The net worth of the branch office must not be less than US $100,000.
  5.  The parent company should have a profit making record in the immediately preceding five financial years in the home country.
    *In cases, where the applicant foreign entity does not meet the financial criteria, the parent company may issue a Letter of Comfort (LoC), given the company satisfies the prescribed criteria for net worth and profit.

Objectives of Setting Up the Branch Office:

  • Export of Goods
  • Import of Goods
  • Rendering professional or consultancy services
  • Carrying out research work, 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
  • Acting as buying/selling agent in India
  • Rendering technical support to the products supplied by parent/group companies
  • Foreign Airline/shipping Company

How to register a branch office in India

  1. To open a branch office in India a foreign company must apply for approval from the Reserve Bank of India (RBI) under provisions of the Foreign Exchange Management Act (FEMA), 1999.
  2.  Foreign entities whose principal business falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route must complete the form FNC and submit it to the RBI, along with the associated documents.
  3. For other sectors, the form must be submitted to the Ministry of Finance. In this case, the application for establishing branch office must be forwarded by the foreign entity through a designated AD Category – I bank to the RBI.
  4. If the foreign entity wishes to establish a branch office in more than one location in India, it must register the branch, or seek approval from the RBI for each of the location separately. The RBI approval is also necessary for each activity the branch office intends to undertake in India.

The procedures for registration requires a foreign company to deposit the following set of forms:

  • FNC form duly signed by AR;
  • Information about the parent company along with its certificate of incorporation attested by a Notary Public or the Indian Embassy in the country of registration;
  • The incorporation documents of the branch office to be established in India;
  • Proof of registered office;
  • Note on location or proposed activity;
  • The latest audited balance sheet of the applicant entity;
  • Board resolution to open a branch office;
  • KYC of the authorized signatory; and
  • Information about the local representatives of the parent company in the branch office.
  • Taxation
  • A branch office does not have a separate legal entity and is subject to the law governing its parent office. As a result, in India, a branch office is taxed as a foreign company and is liable to pay tax at the rate of 40 percent plus applicable surcharge and cess.

Remittances
A branch office in India may remit outside India the profit (net of applicable Indian taxes) of the branch.However, it must produce the following documents and establish the net profit or surplus to the authorized dealer through whom the remittance is affected:

  1. A certified copy of the audited balance sheet and profit and loss account for the relevant year; and
  2.  A chartered accountant’s certificate certifying the manner of arriving at the remittable profit, that the entire remittable profit has been earned by undertaking the permitted activities, and that the profit does not include any profit on revaluation of the assets of the branch.

Taxation
A branch office does not have a separate legal entity and is subject to the law governing its parent office. As a result, in India, a branch office is taxed as a foreign company and is liable to pay tax at the rate of 40 percent plus applicable surcharge and process.

At SC Bhagat & CO., we assist our clients with various matters i.e Income tax advisors, Goods and Services tax, TDS, payroll outsourcing, Professional tax consultants providing them with adequate support and guidance from our end. If you have any questions or would like to know more about works contract, kindly contact us.