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Registration of Branch Offices in India by Foreign Enities
SAHU & ASSOCIATES:Branch Office Registration Consultants in Bangalore
1. GENERAL CRITERIA
A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening a Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA. The Branch Office can get registered under any of the following two routes:
(i) Reserve Bank Route — Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
(ii) Government Route — Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organisations / Non - Profit Organisations / Government Bodies / Departments are considered after consultation with the Ministry of Finance, Government of India.
2. ADDITIONAL CRITERIA
(a) Track Record
For registration of branch office, the body corporate outside India must have a profit making track record during the immediately preceding five financial years in the home country.
(b) Net Worth
The net worth of the body corporate outside India shall not be less than USD 100,000 or its equivalent.
The net worth will be 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.
3. REGISTRATION PROCESS
The application for establishing BO / LO in India should be forwarded by the foreign entity in Form FNC (Application for establishment of Branch/Liaison Office in India)to Reserve Bank of India, along with the prescribed documents, which includes
• English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.
• Latest Audited Balance Sheet of the applicant entity.
• Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria as prescribed above.
The Branch offices established with the Reserve Bank's approval will be allotted a Unique Identification Number (UIN). The BOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India and report the same in the Annual Activity Certificate.
The Reserve Bank or the Government of India, as the case may be, reserves the right to reject an application for non-fulfilment of any other condition/s not specifically referred above, fulfilment of which, in the opinion of the Reserve Bank / the Government of India, is necessary for grant of such permission or in the public interest. The Reserve Bank or the Government of India, as the case may be, also reserves the right to verify / examine the activities of the BO of the foreign entities established in India and to withdraw the permission already granted, after due notice, if the circumstances so warrant or due to changes in the policy.
4. PERMISSIBLE ACTIVITIES
(a) Branch Offices are permitted to represent the parent / group companies 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.
Normally, the Branch Office should only be engaged in the activity in which the parent company is engaged.
(b) Retail trading activities of any nature is not allowed for a Branch Office in India.
(c) A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
(d) Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.
5. CLOSURE OF BRANCH OFFICE
At the time of winding up of Branch offices the company has to approach the designated AD Category - I bank with the following documents:
(a) Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for establishing the BO.
(b) Auditor’s certificate:
i) 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;
ii) 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, and
iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
(c) Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.
(d) A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.
(e) Any other document/s, specified by the Reserve Bank while granting approval.
With reference to the application made by a BOs for making remittance of its winding up proceeds, the designated AD Category - I bank may permit the remittance subject to the directions issued by the Reserve Bank in this regard from time to time and payment of applicable taxes in India, if any.
6. OTHER GENERAL CONDITIONS
(a) Under Income Tax Branch of Foreign Entity is considered as Foreign Company. The applicable rate of Income Tax for Branch Offices are 40% on their Profits as against to 30% of Income Tax in case of subsidiary companies of a Foreign Entity. For details on taxation of Branch Offices visit the following link:
(b) Without prior permission of the Reserve Bank, no person being a citizen of / registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish in India, a Branch or any other place of business.
(c) All new entities setting up BO in India shall submit a report containing information, as prescribed within five working days of the BO becoming functional to the Director General of Police (DGP) of the state concerned in which BO has established its office; if there is more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India.
(d) Branch Offices of a foreign entity are permitted to acquire immovable property by way of purchase for their own use and to carry out permitted/incidental activities. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan or China are not allowed to acquire immovable property in India for a Branch / Project Office without prior RBI approval.
(e) Branch Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers (Bank) for opening the accounts.
(f) Powers relating to transfer of assets of Branch Office have been delegated to AD Category-1 Banks subject to compliance with the stipulated guidelines.
(g) Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the required documents to the satisfaction of the Authorised Dealer (Bank) through whom the remittance is effected.
(h) Authorised Dealers can allow term deposit account for a period not exceeding 6 months in favor of a branch/office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.
For more details on setting up of Liaison/ Branch/ Project Offices in India by Foreign Entities visit: