As foreign companies grow, they seek to expand their business overseas. Establishment of a Branch Office (BO) helps foreign companies to achieve strategic growth by enabling easier management of the business in the particular country or area.A foreign company can set up a Branch Office in India after getting approval from the regulatory authority i.e., Reserve Bank of India (RBI). However, it can earn revenue from the Branch Office only by way of activities allowed by the RBI.
Branch office has been defined as per Companies Act 2013 and FEMA Act 1999.
A Branch Office is an extension of the parent company. It is suitable for foreign companies which are looking to set up a temporary office in India and not planning for long-term operations in India.
ADVANTAGES OF BRANCH OFFICE REGISTRATION IN INDIA
A branch office in India can earn revenue from sales made in the local market and repatriate the profits to the parent company.
It is beneficial for foreign companies which are willing to have a temporary office setup in India and do not have long term business operation plans in India.
It is incredibly cost-efficient. Branch office is small in size and has limited annual turnover, hence the tax liability is less. Also, because of fewer operations, the overhead cost is also less.
NUMBRO’S ROLE :
Procedural aspects in Setting up Branch Office in India
Advice on tax matters and legal issues before starting Branch Office operations in India
Documentation, Coordinating with Reserve Bank of India in, getting requisite Approvals. Assistance with post incorporation formalities and periodical compliances which are specified as per the laws
A Branch Office represents a parent company and usually carries out same activities as that of the parent company. However, RBI permits only the following activities to be undertaken by the Branch Office in India:
- Export or Import of goods
- Rendering consultancy or professional services
- Acting as a representative of a buyer or seller in India of the overseas parent company
- Providing technical support to the customers of the parent company in India
- Carrying out research work in areas in which the overseas parent company is already engaged
- Providing Information Technology services and developing software in India
- Promoting technical or financial collaborations on behalf of the parent company
- Foreign airline or shipping company
- Foreign Banks
(The permitted activities are subject to change from time to time as per the decision of Govt of India)
A Branch Office is not allowed to undertake the following activities:
- Retail trading of any kind
- Direct or indirect manufacturing or processing
If a Branch Office is willing to undertake an activity in addition to what has been permitted initially by the RBI, then it has to take the necessary permission from the RBI. The Branch Office is also required to justify the need along with comments of the designated AD Category – I bank through which it is filing the request.
(The prohibited activities are subject to change from time to time as per the decision of Govt of India)
The eligibility criteria of the Parent company for opening a branch office in India are:
- Net worth equal to USD 100,000 or more.
- Profitable financial track record of the immediately preceding five years in the base country of registration.
Other requirements and conditions for establishing Branch Office in India:
- The name of the Branch Office shall be same as that of the parent company.
- The Branch Office does not have any ownership or the legal identity of its own. It is just an extension of the existing foreign company.
- If a Branch Office does not have any revenue from Indian operations, then all of its costs are reimbursed by the head office.
After Incorporation, following are the mandatory requirements for a Branch Office in India:
- Obtaining Permanent Account Number (PAN)
- Obtaining Tax Deduction Number (TAN)
- Obtaining GST Registration, if the branch provides any kind of services in India or carries out trading activities in India