A branch office setup is most suitable for person resident outside India who wants to extent their head office business in India also or need a temporary business setup in India. Most foreign companies use this mode to explore Indian market without having any long-term commitment.
Eligibility for opening a Branch office
A person resident outside India can establish a branch office in India provided it meets the criteria of profit-making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent.
Provided that a person resident outside India that is not financially sound and are subsidiaries of other companies may submit a Letter of Comfort from their parent company subject to the condition that the parent company satisfies the prescribed criterion for net worth and profit.
Application to AD category-I Bank for opening of Branch Office
a) A person resident outside India desiring to establish a branch office shall submit an application in Form FNC to an Authorised Dealer Category-I bank
b) Bank may, subject to the provisions of Regulation 5, grant approval as per the directions and/or guidelines issued by the Reserve Bank in this regard.
c) In case no office is opened by the person resident outside India within six months from the date of approval letter, the approval for establishing the office in India shall be cancelled.
d) In cases where the person resident outside India is not able to open the office within the stipulated time frame due to reasons beyond their control, the Authorised Dealer Category-I bank may consider granting extension of time for setting up the office by a further period of six months.
e) Any further extension of time shall require the prior approval of the Reserve Bank in this regard.
Information and Documents required along with application
a) Name and address of applicant along with registration and contact details
b) Details of capital and free reserves as per last audited balance sheet
c) Description of the activities of the applicant
d) Value of goods imported or exported form/to India
e) Details of bankers in home country
f) Details of Branch Office- Address of office, Email, contact no. and expected no. of employees
g) Copy of the Certificate of Incorporation / Registration; Memorandum of Association and Articles of Association attested by the Notary Public in the country of registration. [If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country]
h) Audited Balance sheet of the applicant company for the last five years in case of branch office. [If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]
i) 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.
j) Power of Attorney in favour of signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC.
Additional information and documents also required if application falls under regulation 5.
Prior approval of RBI required in below cases (Regulation 5)
a) the applicant is a citizen of or is registered/incorporated in Pakistan;
b) the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a branch office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
c) the principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting:
Provided that approval of the Reserve Bank of India is not required in case where Government approval or license/permission by the concerned Ministry/ Regulator has already been granted
A person resident outside India desiring to establish additional branch office may submit to the Authorised Dealer Category-I bank a fresh FNC Form along with the justification for the need for additional office/s.
Who can open Branch office without approval of Reserve bank of India?
a) A banking company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained necessary approval under the provisions of the Banking Regulation Act, 1949.
b) An insurance company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained approval from the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999.
c) A company resident outside India shall not require any approval under these Regulations to establish a branch office in the Special Economic Zones (SEZs) to undertake manufacturing and service activities, subject to the conditions that:
i) such branch offices are functioning in those sectors where 100% FDI is permitted;
ii) such branch offices comply with Chapter XXII of the Companies Act, 2013; and
iii) such branch offices function on a stand-alone basis.
‘Stand-alone basis’ means such branch offices would be isolated and restricted to the Special Economic Zone alone and no business activity/ transaction wil be allowed outside the Special Economic Zones in India which includes branches/subsidiaries of its parent office in India.
ROC filing after opening of Branch office
Every foreign company shall, within 30 days of establishment of its branch office in India submit the following documents along with Form-FC-1:
a) Attested copy of approval from the Reserve Bank of India under Foreign Exchange Management Act or Regulations, and also from other regulators, if any, approval is required by such foreign company to establish a place of business in India or a declaration from the authorised representative of such foreign company that no such approval is required.
b) Certified copy of the charter, statutes, or memorandum and articles of the company or other instrument constituting or defining the constitution of the company.
c) List of directors and secretary of the foreign company.
d) Power of attorney or board resolution in favor of the authorized representative(s).
Where any alteration is made or occurs in the document delivered to the Registrar for registration the foreign company shall file with the Registrar, a return in Form FC-2 within a period of thirty days from the date on which the alteration was made or occurred.
Registration with State Police Authorities
A person from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau opening a branch office in India shall have to register with the concerned State Police Authorities. Copy of approval letter for ‘persons’ from these countries shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi.
A person resident outside India permitted by the Reserve Bank under these Regulations to establish a branch in India may undertake or carry on any activity specified below:
i. Export/import of goods.
ii. Rendering professional or consultancy services.
iii. Carrying out research work in which the parent company is engaged.
iv. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
v. Representing the parent company in India and acting as buying/ selling agent in India.
vi. Rendering services in Information Technology and development of software in India.
vii. Rendering technical support to the products supplied by parent/group companies.
viii. Representing a foreign airline/shipping company.
Remittance of profit or surplus
Branch office may remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorised Dealer Category-I bank through whom the remittance is effected:
i. A certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year.
ii. A Chartered Accountant’s certificate certifying
1. the manner of arriving at the remittable profit;
2. that the entire remittable profit has been earned by undertaking the permitted activities and
3. that the profit does not include any profit on revaluation of the assets of the branch.
Annual Activity Certificate (AAC)
The branch office may submit the Annual Activity Certificate as at the end of March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year. In case the annual accounts of the office are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheets to the Authorised Dealer Category-bank and the Director General of Income Tax (International Taxation), Drum Shape Building, I.P. Estate, New Delhi 110002.
Roc Annual Compliances/filings
i. Filing of form FC-3 (Financials): Every foreign company have to file form within a period of six months of the close of the financial year to ROC along with below documents:
1. Copy of balance sheet and profit and loss account duly authenticated along with list of all the places of business established by the foreign company in India as on the date of balance sheet
2. Copy of latest consolidated financial statement of parent company (Provided that where such documents are not in English language, there shall be annexed to it a certified translation thereof in the English language).
3. Statement of Related party transaction
4. Statement of Repatriation of profits
5. Statement of transfer of funds (including dividends if any) which shall, in relation of any fund transfer between
place of business of foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company
6. Approval letter obtained for every establishment in India by a foreign company.
ii. Filing of form FC (Annual Return): Every foreign company shall prepare and file, within sixty days from the last day of its financial year, to the Registrar annual return in Form FC-4 along with below documents
1. Details of Promoters, Directors and Key managerial personnel and changes therein since close of previous financial year.
2. Details of directors and key managerial personnel and their remuneration.
3. Details of the meeting of the members or class thereof, board and its various committees along with attendance details.
4. Particulars of members and debenture holders along with changes therein since the close of previous financial year.
5. Particulars of Holding, subsidiary and associate companies and firms. (Mandatory in case number of entities is more than seven)
6. Details of Penalties / punishment/ Compounding of offences, if any.
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
Closure of office and remittance of winding up proceeds
Requests for closure of the branch office office may be submitted to the Authorised Dealer Category – I bank along with the following documents:
i. Copy of the Reserve Bank’s/Authorised Dealer Category-I bank’s approval for establishing the office.
ii. Auditor’s certificate:
1. indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been either fully met or adequately provided for;
3. confirming that no income accruing from sources outside India (including proceeds of exports) has remained unrepatriated to India.
iii. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the office and there is no legal impediment to the remittance.
iv. A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the branch office in India.
v. Any other document/s, specified by the Reserve Bank/Authorised Dealer Category-I bank while granting approval.
About the Author
Author is Ashish Bansal, FCA, Forensic Auditor and Registered Valuer, assisting foreign company and nationals in setting up business in India and taking care of all the applicable legal compliances including RBI, ROC, Income tax and GST etc. He is partner in SVARAJ and Associates, established in 1996 with its head office in Delhi and can be reached at [email protected]