UncategorizedAuthorities Governing Branch Office Establishment in India

INTRODUCTION

The establishment of a Branch Office in India by foreign entities is regulated by Section 6(6) of Foreign Exchange Management Act, 1999 (“FEMA”) read with Notification No. FEMA 22(R)/2016-RB dated March 31, 2016. Additionally, Reserve Bank of India (“RBI”) under Section 11 of FEMA is also entitled to issue directions to Authorized persons on how the foreign exchange business must be conducted with their customers.

To apply for a Branch Office in India in the first place, a non-resident entity must demonstrate financial stability including: –

• A proven track record for making profits during the immediately preceding five financial years in its home country.
• A minimum Net Worth of USD 100,000 or its equivalent amount, subject to certain alternative measures for financially weaker entities.

PROCEDURES FOR ESTABLISHING A BRANCH OFFICE IN INDIA

1. Selecting an Authorized Dealer Bank

The applicant company must first select a bank in India to act as its Authorized Dealer Bank. Authorized Dealers are financial institutions licensed to conduct banking activities.

2. Obtaining Approval from the Reserve Bank of India (RBI)

Thereafter the foreign entity needs to apply in Form FNC to a designated Authorized Dealer (AD) Category-I bank. This is the bank with whom the applicant plans to pursue business relations. The AD Category-I bank will do its due diligence by checking:

• The applicant’s background and eligibility.
• Details about the promoter, the nature of the business, location of activities, and sources of funds.
• Compliance with Know Your Customer (KYC) norms.

If everything is in order, the bank will grant approval to the foreign entity to set up the Branch Office in India.

However, before issuing the approval letter to the applicant, the Authorized Dealer (AD) Category-I bank must send a copy of the Form FNC and details of the proposed approval to the General Manager, Reserve Bank of India (RBI), CO Cell, New Delhi. This is done to get a Unique Identification Number (UIN) for each Branch Office or Liaison Office (LO). Once the RBI provides the UIN, the AD Category-I bank can issue the approval letter to the foreign entity to establish the Branch Office or LO in India. This process ensures the RBI has an up-to-date list of all foreign entities permitted to set up BOs or LOs in India, which is published on its website.

The applicant who has received a permission for the setting up of a Branch Office shall inform the designated AD Category I bank the date on which the BO has been set up. If the approval is surrendered or expired without the office being set up the AD Category I bank shall inform the RBI accordingly.

The approval letter granted by the AD Category I bank will include a condition stating that if the office is not opened within six months from the date of the approval letter the permission will expire. If the non-resident entity cannot open the office within six months due to unavoidable reasons, the AD bank may grant an additional six months. Any further extensions will require prior approval from the RBI.

REQUIRED DOCUMENTS FOR BRANCH OFFICE SETUP

The following documents are required for setting up a branch office:

1. Three copies of Form FNC.
2. A letter from the principal officer of the parent company to the RBI.
3. Authorization letter from the parent company for the local representative.
4. Letter of authorization from the parent company for establishing the branch office.
5. Comfort letter from the parent company to support operations in India (if needed).
6. Two copies of the English-translated Certificate of Incorporation, Memorandum, and Articles of Association, which are duly attested by the Indian Embassy or the notary in the country of registration.
7. Certificate of Incorporation translated and duly notarized and certified by the Indian consulate.
8. The latest audited balance sheet and annual accounts of the parent company for the past three years, duly translated, notarized, and certified by the Indian consulate.
9. Name, address, Email Id and telephone number of the authorized representative in the home country.
10. Details of Bankers of the organization in the country of origin along with the account numbers.
11. Commitment from the organization to comply with inquiries from the Government of India/RBI.
12. Expected funding levels for Indian operations.
13. Details regarding the address of proposed local office, number of foreigners to be employed, persons who are likely to be employees and the address of the head of the local office.
14. Brief on the activities and products/services of the parent company carried out by them in their home country.
15. Banker’s certificate.
16. Latest proofs of identity and address of all the directors- certified by the consulate and bankers in the home country.
17. Details of individuals in the company holding more than 10% of equity.
18. The structure of the organisation with respect to shareholding pattern.
19. A resolution for opening bank account with the banker.
20. Duly signed bank account opening form for an Indian bank.

This list is indicative and may vary based on the Authorized Dealer’s requirements.

Once RBI approval is obtained, the Branch Office must register with the Ministry of Corporate Affairs (Registrar of Companies, Delhi) as an establishment of a foreign company in India. This registration assigns a Foreign Company Registration Number (FCRN) by the registrar.

Required Documents for Registrar of Companies:

1. Form FC-1 (via MCA V3 portal).
2. Charter, statutes, or Memorandum and Articles of Association of the parent company.
3. Translated versions of non-English documents.
4. Details of individual and corporate directors.
5. RBI approval letter.
6. Details of the company secretary.
7. Power of attorney or board resolution authorizing representatives.
8. KYC documents for director/secretary of a foreign company.
9. KYC of authorized persons in India.
10. All foreign documents (e.g., ID proofs, COI) must be apostilled and notarized in the home country.
11. The Registrar of Companies in Delhi handles all FC-1 applications, as delegated by the Ministry of Corporate Affairs.

TAX AND REGULATORY COMPLIANCE

When the registration with the registrar of companies is completed, the next step should be ensuring tax and regulatory compliance of the Branch Office. This involves obtaining several registrations and adhering to the Indian tax laws.

1. Permanent Account Number (PAN)- Every Branch office must obtain a PAN from the Income tax department for filling taxes and conducting financial transactions in India.
2. Tax Deduction and Collection Account Number (TAN)- Branch office is required to apply for a TAN, to ensure tax deductions are made appropriately and remitted to the government.
3. Goods and Services Tax Registration (GST)- The Branch Office may need to register for GST if they are involved in sales of goods or services within India.
4. Annual Filings and Audits- A Branch Office is required to submit annual financial statements to both ROC and Income tax department.

ANNUAL ACTIVITY CERTIFICATE BY BRANCH OFFICE

A Branch Office must submit an Annual Activity Certificate (AAC) as of March 31 each year, along with the necessary documents. If there would be only one Branch Office, then the AAC must be submitted by that Branch Office. In case there are multiple Branch Offices, a combined AAC must be submitted by the nodal office.

The AAC needs to be submitted to: –

• Designated Authorized Dealer (AD) Category-I bank.
• Director General of Income Tax (International Taxation), New Delhi.

The designated AD Category-I bank shall scrutinize the AAC and ensure that the activities are carried out in accordance with the approval given. If any adverse findings are reported by the auditor or noticed by the designated AD Category -I bank, that should be immediately reported to General Manager, Reserve Bank of India, CO Cell, New Delhi, along with the copy of the AAC and their comments thereon.

AMLEGALS REMARKS

Establishing a Branch Office in India offers foreign entities a gateway to expand their business presence while maintaining compliance with FEMA, RBI, and corporate regulations. The process involves obtaining RBI approval, registering with the Registrar of Companies, and ensuring tax and regulatory compliance.

While a Branch Office allows direct engagement in permitted business activities, it is subject to stringent reporting and operational guidelines. Foreign entities must carefully assess their business objectives and ensure alignment with the eligibility criteria, financial requirements, and regulatory obligations before establishing a Branch Office. By maintaining transparency, financial stability, and compliance with Indian laws, a Branch Office can serve as a strategic extension of the parent company, fostering trade, investment, and long-term business growth in India.

Team AMLEGALS 

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