What is a Branch Office in India?
A Branch Office is an extension of a foreign company, established in India to carry out specific business activities as permitted by the Reserve Bank of India (RBI). Unlike a subsidiary, a branch office is not a separate legal entity but operates under the parent company’s identity.
Benefits of Setting Up a Branch Office in India
Market Presence
Facilitates direct engagement with Indian customers and partners, enhancing brand visibility.
Operational Control
Allows the parent company to maintain direct oversight of operations in India.
Cost Efficiency
Avoids the complexities and expenses associated with incorporating a subsidiary.
Revenue Generation
Permits income generation through activities like export/import and consultancy services.
Tax Advantages
Branch offices are taxed as foreign entities, which may offer benefits under applicable tax treaties.
Permitted Activities for Branch Offices
– Export/import of goods.
– Rendering professional or consultancy services.
– Carrying out research work in areas where the parent company is engaged.
– Promoting technical or financial collaborations between Indian companies and the parent or overseas group company.
– Representing the parent company in India and acting as a buying/selling agent.
– Rendering services in information technology and software development.
– Providing technical support for products supplied by parent/group companies.
– Operating as a foreign airline/shipping company.
Eligibility Criteria
Profitability
A track record of profit-making in the immediate preceding five financial years.
Net Worth
A minimum net worth of USD 100,000, as evidenced by the latest audited balance sheet.
Step-by-Step Process for Setting Up a Branch Office
Application to RBI:
Submit Form FNC-1 through an Authorized Dealer (AD) bank to the RBI, along with the required documents.
Approval from RBI:
Upon review, the RBI grants permission to establish the branch office.
Registration with ROC:
Register the branch office with the Registrar of Companies (ROC) by filing Form FC-1.
PAN and TAN Application:
Obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
Bank Account Opening:
Open a bank account in India for operational purposes.
Local Registrations:
Complete registrations under local laws, such as the Shops and Establishments Act, if applicable.
Documents Required
From the Parent Company:
– Certificate of Incorporation (duly attested).
– Memorandum and Articles of Association (MOA and AOA).
– Audited financial statements for the last five years.
– Board resolution approving the establishment of the branch office.
For Indian Operations:
– Details of activities to be undertaken.
– Address proof of the branch office in India.
– KYC documents of the authorized signatory in India.
Taxation of Branch Offices
Branch offices in India are subject to taxation as foreign entities. The corporate tax rate applicable to branch offices is 40%, plus applicable surcharge and cess. Additionally, branch offices are liable for Goods and Services Tax (GST) on the supply of goods and services within India.
Annual Compliance Requirements
Annual Activity Certificate (AAC):
Branch offices must submit an AAC to the RBI, certified by a Chartered Accountant, within six months of the end of the financial year.
Filing with ROC:
Annual financial statements and annual return must be filed with the Registrar of Companies.
Income Tax Return
An annual income tax return must be filed with the Income Tax Department.
Statutory Audit
The branch office’s accounts must be audited annually by a qualified Chartered Accountant.
Who Should Opt for a Branch Office?
Project-Based Operations
Companies executing specific projects in India.
Consultancy Services:
Firms providing professional or consultancy services.
Market Exploration
Businesses aiming to explore the Indian market without significant investment.
Technical Support
Companies offering technical support for products supplied by the parent company.
Comparison: Subsidiary vs. Branch Office vs. Liaison Office
Feature | Subsidiary | Branch Office | Liaison Office |
Legal Status | Separate legal entity | Extension of parent company | Extension of parent company |
Activities Allowed | Broad range, including manufacturing | Limited to specified activities | Restricted to liaison activities |
Taxation | Taxed as an Indian company | Taxed as a foreign entity | Not taxable (no income generation |
Control | Parent company retains control | Full control by parent company | No operational control |
Compliance Level | High (annual filings, audits, etc.) | Medium | Low |
FDI Approval | Automatic route (most sectors) | RBI approval required | RBI approval required |
Best For | Long-term presence, local operations | Short-term specific projects | Initial market entry |
Frequently Asked Questions (FAQs)
Can a branch office engage in retail trading in India?
No, branch offices are not permitted to engage in retail trading activities.
Is it mandatory to appoint a local representative for a branch office?
Yes, a branch office must appoint a local authorized representative in India.
What is the validity period of RBI approval for a branch office?
RBI approval is typically granted for three years and can be renewed upon request.
Can a branch office remit profits to the parent company?
Yes, after meeting tax liabilities, a branch office can remit profits to its parent company.
Are branch offices required to maintain books of accounts in India?
Yes, branch offices must maintain proper books of accounts and undergo annual audits.