Registration of Branch of a Foreign Company

A. Overview of Branch of a Foreign Company:

Any Foreign Body Corporate (incorporated outside India) /Firm/AOI (Association of Individuals) who wants to expand their business in India and wants to reach the Indian Customers, then it may be done by establishing a Liaison Office (LO)/ Branch Office under the provisions of Foreign Exchange Management Act, 1999 subject to RBI approval.

There are two routes available for setting up the BO/LO:

First one is called the Reserve Bank Route.

Second one is called the Government Route.

B. Liaison Office (LO)in India:

1. Liaison Office is also called Representative Office.

2. It carries only liaison activities.

3. It means a POB (Place of Business.)

4. Its main role is to act as a Channel of Communication between the Head-office located outside India and Business Entities in India.

5. It has limited role only.

6. No any branch activities have to undertake by this office.

7. Initially, permission to set up such office is granted only for 3 years.

8. An Authorized Category I  Bank  may extend the Initial time limit to set up such office from time to time

9. It has to collect the information about possible market opportunities.

10. It also has to provide the c information in regards to the Company (situated outside India) & the products manufactured by them to the Indian Customers.

C. Branch Office (BO) in India:

1. The Foreign Body Corporates also open the branch offices in India to expand their business.

2. Branch Offices could be opened in India by only that Foreign Body Corporate who has engaged in the manufacturing or trading activities.

3. Only branch activities may be carried by this office.

4. It does not have separate legal entity.

5. It is suitable for that Foreign Companies who wants to set up a temporary office in India.

6. Its main role to increase the number of prospective Indian Customers.

7. It has to expand the business of Foreign Company in India.

8. Activities related to Retail Trading of any nature cannot be undertaken by the BO.

9. Profits earned through the activities done by the BO in India, may be freely remitted from India subject to the Payment of Taxes to the Indian Government.

D. Requirements for establishment:

Some requirements have to fulfil by the Foreign Entities for establishing the BO/LO in India:

For establishment of LO:-

  • The Foreign Entities should have a profit making track record during the immediately preceding 3 financial years in the home country.
  • It should have minimum Networth of USD 50,000

For establishment of BO:-

  • The Foreign Entities should have a profit making track record during the immediately preceding 5 financial years in the home country.
  • It should have minimum Net worth of USD 1,00,000

Common requirements for both:

  • The applicant entity should have the Latest Audited Balance Sheet.
  • It should have the English Version of Certificate of Incorporation/Registration or Memorandum& Articles of Association.
  • COI/MOA & AOA should be attested by Indian Embassy / Notary Public in the Country of Registration.
  • The latest Balance Sheet has to be certified by a Certified Public Accountant/Any Registered Accounts Practitioner.
  • Bankers’ Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.

E. Procedure for setting up:

1. There are two routes available under the FEMA 1999 for setting up the BO/LO in India:

– Reserve Bank Route

– Government Route.

2. Before setting up the BO/LO, Foreign Entities have to check which route suitable for them.

3. The applications have to submit the prescribed Form FNC(As per Annexure A) to the Reserve Bank of India through a designated AD Category –I.

4. After getting approval by RBI, a Unique Identification Number (UIN) has been allotted to the BO/LO.

5. The BO/LO has also obtain Permanent Account Number (PAN) for setting up the offices in India.

6. Apart of that, if the Foreign Entity unable to fulfil the Eligible Criteria and subsidiaries of other companies, then it can submit a Letter of Comfort (As per Annexure-B)from their parent company

F. Permitted Activities for a Liaison Office:-

The following are the permissible activities:-

1. It can represent the Parent/Group companies in India.

2. It can promote export from India.

3. It can promote import to India.

4. It can promote the technical or financial collaborations between Indian companies and parent or overseas group company.

5. It can act as a communication channel.

6. It can render the insurance activities in India after getting IRDA approval.

G. Permitted Activities in India for a Branch Office:-

The following are the permissible activities:-

1. Branch office can import and export of goods to/from India.

2. It can render professional or consultancy services in India.

3. It can carry out the research work in which the Parent Company should have engaged.

4. It can promote the Technical or Financial collaborations between Indian Companies and Parent/Overseas Company.

5. Services related to Information Technology can also be provided by it.

6. It can also render the services related to development of software.

7. It can also render the Technical Support to the products supplied by its Parent/Group Companies.

8. Foreign Airline/Shipping Company.

H. Cases in which prior approval of RBI required:-

There are many cases in which Foreign Entities have to get prior approval before setting up LO/BO:-

1. If any Foreign Bank wants to set up LO/BO in India, then it has to take approval from the Department of Banking Regulation (DBR), RBI.

2. If the principal business of the Foreign Entity falls under the category of Defence, Telecom, Private Security & Broadcasting, then proor approval of RBI is required.

3. If any Foreign Entity wants to open Branch/Units in Special Economic Zone (SEZ) to undertake manufacturing and Service activities, then it has to take general permission from the RBI subject to following conditions:-

– such BOs are functioning in those sectors where 100% FDI is permitted;

– such BOs comply with Chapter XXII of the Companies Act, 2013; and

– such BOs function on a stand-alone basis.

I. General Conditions applicable to Branch/Liaison Offices:-

1. If any person being a citizen of/having registered in

– Pakistan

– Bangladesh

– Sri Lanka

– Afghanistan

– Iran

– China

– Hong Kong

– Macau

wants to establish BO/LO in India, then they have to take prior permission of RBI.

2. The entities registered in Nepal could set up only the LO in India. Permission of setting up the Branch Office has not allowed.

3. Any immovable property can be purchased by the Foreign Entities for their own use and to carry out the permissible activities.

4. But if Foreign Entities belong to the country of Pakistan/ Bangladesh/Sri Lanka/Afghanistan/Iran/China/Hong Kong/ Macau/ Nepal/ Bhutan/China wants to acquire Immovable Property in India, then prior approval of RBI is required.

5. Time period of carrying out the permitted activities by BO/LO from any Leased Property is maximum 5 years.

6. Any BO/LO could open non-interest bearing INR Current Accounts in India.

7. BO/LO could transfer their assets subject to the prescribed conditions.

8. Term Deposit for a period of maximum 6 months is allowed to the BO/LO of a person resident outside India.

9. Profit earned by BO subject to the payment of taxes in India may be remitted outside India subject to the condition that following documents have to produce before the AD:

– A certified copy of the Audited Balance Sheet & P/L A/c for the relevant year.

– A Chartered Accountant’s certificate certifying that

(i) The manner in which remittable profit arrived

(ii) The whole remittable profit earned through the permitted activities.

(iii) The profit does not include any profit on revaluation of the assets of the branch.

J. Opening of Bank Account by BO/LO:-

  • Any BO/LO may open an account in India through its AD to receive the remittance from its Head Office in India.
  • If any BO/LO wants to open more than one account, then it may have to take prior approval of the RBI.

K.Submission of Annual Activity Certificate (AAC):-

1. Every BO/LO have to file AAC at the end of 31st March in every year.

2. Audited Balance Sheet is also attached with AAC at the time of reporting.

3. AAC should be submitted to the designated AD Category-I bank as well as Director General of Income Tax (International Taxation), New Delhi.

4. In case, if the BO/LO is sole proprietor, then the concerned BO/LO has to file the AAC.

5. In case, there are multiple BO/LO, then a combined AAC in respect of all the offices situated in India has to submittedby the Nodal Officer.

L. Compliances under the Companies Act, 2013:-

Apart from the compliances under FEMA, 1999, the Foreign Entities have also to fulfil the compliances prescribed under the Companies Act, 2013:-

1. Under sub-section 42 of section 2 of the Companies Act, 2013 Foreign Companies have defined.

2. Such Foreign Companies who wants to set up BO/LO in India, shall be governed by the provisions of:

– Chapter XXII (Companies Incorporated Outside India) of Companies Act, 2013 &

– The Companies (Registration of Foreign Companies) Rules, 2014

3. After getting approval from the RBI, it has to get register itself under the Companies Act, 2013.

4. It has to file e-Form FC-1 to the MCA within 30 days of the establishment of its Place of Business (POB) i.e., LO/BO in India.

5. It also has to file e-Form FC-2 which is for Return of alteration in the documents filed for registration before the Ministry of Corporate Affairs (MCA).

6. e-Form FC-3 which is for reporting the Annual accounts along with the list of all principal places of business in India established by it to the MCA.

7. e-Form FC-4 which is for Annual Return of a Foreign Company has also filed by it.

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