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Branch Office

Branch Office are set up to represent the parent company engaged in manufacturing or trading activities in India and can work as a channel of communication between the parent company and business entities in India. It can undertake all types of profit making activity to promote business of its parent company unless specifically prohibited. Branch office are not allowed to do any type of manufacturing or retail trading activity in India except the activity permitted by RBI. Branch Office is more popular setup by foreign corporations to test and understand the Indian market or to carry out the research and development activities or to improve the relations with the authorities and business community, and to perform the activities permitted by RBI. It does not have any ownership of his own as it is just an extension of the existing foreign company in India therefore all its expenses met by Head Office if it fails to make sufficient profit from Indian operations. Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

Details About Branch Office

The set up and regulation of Branch Office are governed by Foreign Exchange Management Act, 1999 and guidelines issued by Reserve Bank of India time to time. Branch Office are generally set up by foreign entities engaged in manufacturing and trading activities to represent the parent company/group company in India. Company desirous for Setting up a Branch Office in India are required to show a profit making track record during the immediately preceding 5 financial years in the home country and net worth of not less than USD 100,000 or its equivalent. Permitted activities for a Branch Office in India of a person resident outside India are given below: i. Export/import of goods. ii. Rendering professional or consultancy services. iii. Carrying out research work in which the parent company is engaged. iv. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. v. Representing the parent company in India and acting as buying/ selling agent in India. vi. Rendering services in Information Technology and development of software in India. vii. Rendering technical support to the products supplied by parent/group companies. viii. Representing a foreign airline/shipping company. The applications for establishment of Branch Office in a sector in which 100% FDI is allowed are routed through designated AD Category I Bank. The application are submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable), as per the guidelines issued by the Reserve Bank of India. Before issuance of approval letter by AD Category-I, Reserve Bank of India shall allot a Unique Identification Number (UIN) to each Branch Office. BO can approach AD Category I Bank in India to open a Bank Account for its operations in India. The permissible credits in bank account are generally fund received from head office, for meeting its expenses and any legitimate receivables arising in the process of its business operations etc. While the permissible debits are the local expenses of the office and remittance of profit/winding up proceeds.

Features

  • Permissible Activities

    Branch Office can undertake all types of profit making activity to promote business of its parent company if permitted by RBI except the activities of manufacturing or retail trading.

  • Track Record

    Company desirous for opening a Branch Office in India are required to show a profit making track record during the immediately preceding 5 financial years in the home country and net worth of not less than USD 100,000 or its equivalent.

  • Expenses of Branch Office

    Branch office are a representative of foreign parent company, therefore expenses of such office may be met by the Head Office through inward remittances received in Convertible Foreign Exchange if it fails to make sufficient profits from Indian operations.

  • Application for set up

    The application are submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable). Before approval a Unique Identification Number (UIN) is allotted by the Reserve Bank of India to the Branch Office.

  • Bank Account

    Branch Office may open current account with designated AD Category I Bank in India to carry out all its between Branch Office in India to Head Office outside India.

  • Permissible debits and credits in bank

    The permissible credits in bank account are generally fund received from head office, for meeting its expenses and any legitimate receivables arising in the process of its business operations etc. While the permissible debits are the local expenses of the office and remittance of profit/winding up proceeds.

  • Remittance of Profit

    Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes. (Income Tax, Service Tax, TDS, Vat, Local Taxes as applicable).

  • Extension of Fund and Non Fund

    AD Category I Bank may extend Fund/Non Fund facilities to Branch Office on the basis of Board approved policy, business prudence and compliance to extant rules/regulations stipulated by DBR, RBI.

  • Closure of Branch Office

    Requests for closure of Branch Office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

Pros & Cons

Pros

  • Branch office can freely open account in any bank in India in its own name and avail the facilities like cash credit, overdraft etc. Prior Permission from RBI is not required to be obtained for opening of Bank Account.
  • Branch Office can undertake all types of profit making activity and earn income in India to promote business of its parent company unless specifically prohibited.
  • Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.
  • AD Category I Bank may consider extend of Fund/Non Fund facilities to Branch Office on the basis of Board approved policy, business prudence and compliance to extant rules/regulations stipulated by DBR, RBI.
  • In India, they are allowed to acquire or hold immovable property but not for leasing and renting out the property.

Cons

  • Branch office is not allowed to carry out any manufacturing or trading activity in India and for any additional activity not mentioned in application required a prior permission from RBI.
  • Annual Compliances and registration involved in Branch Office is slighter higher as compared to other forms of entities.
  • Branch Office in India is subject to Transfer Pricing Regulations.
  • Branch Office are liable to pay taxes in India as per the normal provisions applicable to foreign companies shall apply.
  • Proprietorship/partnership concerns set up abroad are not allowed to set up branch office in India.
  • Tax Audit applicable in case of branch office if the turnover of the entity exceeds INR 10 million and INR 1.5 million for company dealing in services.

Applicable Taxes & Compliances

Income Tax is a direct tax levied by Central Government on income of the assesse as per the normal provisions framed in Income Tax Act, 1961. Branch Office is liable to pay tax on income as per the normal provisions applicable to foreign entities shall apply.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. As Branch office engaged in all profit generating activity in India, except in certain cases hence liability to pay service tax arises on output services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level legislation attracts on intra state sale of goods in India and on Inter-state sale of goods Central sales shall apply. It is a type of consumption tax which is imposed on the value of goods and services on each stage of its production and at final sale. Normally, the rate of Vat varies from state to state. The standard rate of VAT is 20% on the selling price.
In India, excise duty is leviable on manufacturing of goods and it is ultimately borne by the consumer as it a consumption based tax. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. The Liability to pay excise duty to the government lies with the producer of goods. At present, the rate of excise duty is 12.5% as per the excise law.
Import Export (IE) Code is mandatorily required to be obtained by any person/business entity importing or exporting goods and services to/from India unless specifically exempted. IE Code is a 10 digit unique code issued by Director General of Foreign Trade, Ministry of Commerce and Industries, Government of India to facilitate and identify all import and export to/from India. Branch Office engaged in export/import activities for parent company is required to obtain IE Code.
Custom duty in India is chargeable to tax on the transaction value of goods imported in India and exported outside India. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. Custom Duties are usually levied with ad valorem rates on the base value of the transactions in the event of Import/Export of goods.
Branch office are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code, ROC registration, Professional Tax and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.

FAQ

  • What are the various forms of business structures available for doing business in India?

    Foreign Individuals seeking interest to start their operations in India can open a Foreign Representations in the form of Liaison Office, Branch Office and Project Office in India. Further, an incorporated entity can also be formed such as Wholly Owned Subsidiary, Joint Venture and Limited Liability Partnership etc.

  • What are the Conditions for establishing a Branch Office in India?

    Company desirous for setting up a Branch Office in India are required to show a profit making track record during the immediately preceding 5 financial years in the home country and net worth of not less than USD 1,00,000 or its equivalent.

  • What are the Conditions in which approval of RBI is required?

    Application who is a citizen of or is registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau required prior approval from RBI. Applications relating to Jammu and Kashmir, North East Region and Andaman and Nicobar Islands are routed through Reserve Bank of India. Where the principal business of the applicant falls in the sectors namely, Defense, Telecom, Private Security and Information and Broadcasting are also to be considered by Reserve Bank of India. An Applicant is an NGO/ Non- Profit Organisation, Body/Agency/Department of a foreign government.

  • What do you mean by issuance of UIN?

    UIN is a unique identification number allotted by Reserve Bank of India, before issuance of approval letter by AD Category I Bank to each Branch office.

  • Is there any additional Compliances also applicable on Branch Office?

    Branch office are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.

  • What is the procedure for closing a Branch Office?

    Requests for closure of Branch office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

  • Who can register a Branch Office?

    An individual seeking interest to start their business operations in India as a representative of its already existing foreign company without creating a subsidiary company can open a Branch Office in India by approaching AD Category –I Bank along with the application and requisite documents.

  • What are the procedural requirements for opening a Branch Office in India?

    An application to be submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable). Before approval a Unique Identification Number (UIN) is allotted by the Reserve Bank of India to the Branch office.

  • What are the activities permitted for a Branch Office in India?

    Permitted activities for a Branch Office in India of a person resident outside India are given below: i. Export/import of goods. ii. Rendering professional or consultancy services. iii. Carrying out research work in which the parent company is engaged. iv. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. v. Representing the parent company in India and acting as buying/ selling agent in India. vi. Rendering services in Information Technology and development of software in India. vii. Rendering technical support to the products supplied by parent/group companies. viii. Representing a foreign airline/shipping company.

  • Who all need to submit Annual Activity Certificate?

    Branch office are required to submit Annual Activity Certificate (AAC) as at the end of March 31 each year along with the prescribed documents to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi.

  • What are the procedure criteria to be met for setting up additional office?

    Request for opening an additional office to be submitted before the AD Category I Bank in a fresh Form FNC-I there is no need to resubmit the documents mentioned in the form. However, an applicant is allowed to open only 4 LO Office in each Zone otherwise prior approval from the RBI is required.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

  • 3 copies of Form FNC-1
  • Attested and Notarised english version of the Certificate of Incorporation or Memorandum & Article of Association in the country of registration.
  • Last 3 years details of export/ Import from/to India (On letter head, signed with stamp, five copies)
  • Last 3 years latest Audited Balance-sheet of the applicant entity.
  • Details of existing Indian Clients, if any
  • Details of activities proposed to be undertaken in India.
  • Power of Attorney in favour of signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC.
  • 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.