UncategorizedIncorporation of Branch Office in India – Procedures and Eligibility

INTRODUCTION

The establishment of a branch office in India by a foreign entity is governed by Section 6(6) of the Foreign Exchange Management Act, 1999. The process is further regulated by the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or Any Other Place of Business) Regulations, 2016. Opening a branch office requires prior approval from the Reserve Bank of India (RBI), except in specific cases such as:

• A foreign banking company has obtained the necessary approvals under the Banking Regulation Act, 1949.
• A foreign insurance company has obtained approval from the Insurance Regulatory and Development Authority (“IRDA”) under the IRDA Act, 1999.
• A company wants to establish an office in the SEZ for manufacturing and service activities, subject to the following conditions that:

1. Such branch offices are functioning in those sectors where 100% FDI is permitted;
2. Such branch offices comply with Chapter XXII of the Companies Act, 2013; and

• Such branch offices function on a stand-alone basis.

PERMITTED ACTIVITIES OF A BRANCH OFFICE

A branch office in India can be set up only for specific activities, including:

• Export/import of goods.
• Rendering professional or consultancy services.
• Carrying out research work in which the parent company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group companies.
• Representing the parent company in India and acting as a buying/ selling agent in India.
• Rendering services in information technology and software development in India.
• Rendering technical support to the products supplied by parent/group companies.
• Representing a foreign airline/shipping company

Without prior permission of the Reserve Bank, no person being a citizen of / registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal, Bhutan, China, Hong Kong or Macau can establish a branch office in India. Also, it is essential to note that branch offices cannot be engaged in the activities that include retail trading activities of any nature; or any manufacturing or processing activities, directly or indirectly. Additionally, profits earned by the branch offices are freely remittable from India, subject to payment of applicable taxes.

APPLICATION PROCESS FOR ESTABLISHING A BRANCH OFFICE

In order to open a branch office in India by foreign company, such a company needs to submit the application to the RBI in Form FNC, which includes the following details:

1. Financial Information

• Details of capital; Paid-up capital; Free Reserves/Retained earnings as per last audited Balance Sheet/Financial Statement; and Intangible assets

1. Business Operations

• Brief description of the activities of the applicant
• Value of goods imported from and/or exported to India by the applicant during each of the last three years
• Particulars of existing arrangements if any, for representing the company in India

• Proposed Branch Office Details
• Particulars of the proposed branch office such as details of the activities, location of the office, etc
• Details of the banker of the applicant in the home country
• Details in respect of Company/ Firm
• Details in respect of Directors/Key Executives
• Details of the shareholders of the applicant company (all firms/companies/ entities/individuals having shareholding of more than 10 %)

1. Compliance and Legal Aspects

• Details of criminal cases, if any, against the company / Director (s) for which security clearance is sought
• Copy of the Certificate of Incorporation / Registration; Memorandum of Association and Articles of Association attested by the Notary Public in the country of registration
• Audited Balance sheet of the applicant company for the last three years
• 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
• Power of Attorney in favor of the signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC.

Subsequently, the RBI will consider the Form FNC by a foreign entity under the following two routes:

Reserve Bank Route: Where the business comes under the sector where 100% FDI is allowed under the automatic route.

Government Route: If 100% FDI is not permitted under the automatic route, RBI consults the Ministry of Finance before approving the application.

ELIGIBILITY CRITERIA FOR APPROVAL AND COMPLIANCE

RBI evaluates the following criteria before granting approval to a branch office:

• The foreign entity must have a profit-making track record for at least the last five financial years.
• The company must have a net worth of at least USD 100,000 (or equivalent).
• If the company is not financially strong, a Letter of Comfort from the parent company is required, provided the parent company meets the net worth and profitability criteria.

Thereafter the application for establishing a branch office in India should be forwarded by the foreign entity through a designated AD Category – I bank to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, along with the prescribed documents including:

1. English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by the Indian Embassy / Notary Public in the Country of Registration.
2. Latest Audited Balance Sheet of the applicant entity.

The branch office is also required to obtain the Permanent Account Number (PAN) from the Income Tax Authorities and are required to approach their Authorised Dealers to open non-interest-bearing INR current accounts in India.

In case no office is opened by the company within six months from the date of the approval letter, the approval for establishing the office in India shall be canceled. However, the AD Category-I bank may consider granting an extension of time for setting up the office by a further period of six months.

Herein it is pertinent to note that an entity from Pakistan, 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 as an additional compliance requirement, and copy of such approval letter shall be marked by the AD Category I bank to the Ministry of Home Affairs, Internal Security Division – I, Government of India, New Delhi, for necessary action and records.

Once the branch office has been successfully incorporated in India, additional branch offices can be established after the submission of a fresh Form FNC to AD Category-I bank with the justification for the need for additional offices.

AMLEGALS REMARKS

Setting up a branch office in India is a strategic move for foreign companies looking to expand their business presence in one of the world’s fastest-growing economies. However, setting up a branch office in India is subject to strict regulatory compliance and requires RBI approval, adherence to FEMA regulations, and fulfillment of financial and operational criteria.

While branch offices offer foreign companies a direct presence in India, they must operate within the prescribed permitted activities and comply with tax and legal requirements. Proper documentation, compliance with RBI norms, and strategic business planning are key to a successful establishment. With proper documentation, adherence to regulatory frameworks, and strategic planning, a branch office can serve as a strong foundation for growth, collaboration, and long-term investment in India’s thriving business landscape.

Team AMLEGALS 

For any queries or feedback, feel free to connect to mridusha.guha@amlegals.com