India has become an attractive destination for investors from around the world. Foreign companies looking to establish a business set-up in India can start a private limited company with up to 100% foreign direct investment (FDI) in most sectors. Another way is to open a branch office in India for promoting the business of the overseas entity. Such an outlet can be started for specific purposes and only after fulfilling certain conditions. A branch office is treated as an extension of the parent foreign organization and therefore, is not a separate legal entity. In this article, we are presenting valuable information about all the aspects of opening such an office in the country. This will be useful for overseas entrepreneurs looking to enter the lucrative Indian market.
What Are The Activities That A Branch Office Can Conduct?
A branch office is allowed to conduct only a few specified activities. Following is a list of operations that such an office can be used for:
- Exporting and importing of goods.
- Providing professional or consultancy services.
iii. Conducting research work, in the subjects in which the parent organization is involved.
- Encouraging financial or technical collaborations between Indian businesses and the parent or
foreign group company.
- Representing the parent organization in India and acting as its purchasing or selling agent in the country.
- Involved in the development of software in India or providing information technology services in the country.
vii. Engaged In providing technical support to the products or services supplied by the parent or group organizations.
viii. Running a foreign airline or a shipping company.
- Foreign banks are also allowed to open their branches in India.
Such offices are not allowed to undertake any kind of manufacturing activities on their own. They can, however, engage Indian entities for the purpose and sub-contract the work to them. These offices are also not allowed to conduct any kind of retail or trading activities.
What Are The Conditions That A Branch Office Must Follow?
Foreign companies looking to open a branch office in the country must ensure that the following conditions are followed:
- The corporation must have a profit-making record for the preceding five financial years in the home country.
- The branch office cannot have any ownership. According to Indian laws, it will be considered as an extension of the parent foreign organization.
iii. The net worth of the company, meaning the total of paid-up capital and free reserves, less intangible assets according to the latest audited balance sheet or account statement validated by a certified public accountant shall not be less than or equal to the amount of US$ 100,000.
- All the expenses of the branch office must be paid by the head office if it does not generate revenues from the Indian operations.
- the name of the branch office must not be different from that of the parent organization.
Companies which are not interested in running permanent operations can open a branch office in India to meet their temporary requirements.
What Are The Documents Required For Opening A Branch Office?
Following are the documents required for opening a branch office in the country:
- The copies of the certificate of incorporation, memorandum & articles of association of the parent company duly attested by the Indian embassy or notary public in the country of registration. The documents must be in the English language.
- The latest audited balance sheet and annual accounts of the parent organization of the past 3 years after proper authentication and translation.
iii. A letter of authority or a resolution from the parent company for setting up a branch office.
- A letter of authority from the parent entity in favor of the local representative.
- A written commitment from the company stating that it will be open to reporting or opinion can be sought from its banker by the Government of India or the Reserve Bank of India
In addition to this, companies must furnish a bankers certificate, details of entities holding more than 10% of its share, and the identity and address proofs of all the directors.
What Are The Routes Of Opening A Branch Office?
There are two possible routes for starting a branch office in India.
- When The Company Is Located In A Sector In Which 100% Automatic FDI Is Allowed: In such a case, the application must be made to the Reserve Bank Of India. The Application Form FNC-1 must be submitted with the RBI along with necessary documents by the person resident outside India. As mentioned earlier, important documents related to company incorporation and constitution need to be provided by the applicant. Successful applications are issued a Unique Identification Number (UIN) by the RBI. Once the office has been set up, a Permanent Account Number (PAN) must be acquired and a bank account must be opened.
- When The Company Is Located In A Sector Without 100% Automatic FDI: the RBI consults the ministry of Finance to decide the fate of such applicants.
What Are The Rights Enjoyed By A Branch Office?
A branch office enjoys the following rights:
- It can remit profits outside India after paying the applicable taxes.
- it is allowed to acquire immovable property in the country for conducting permitted activities and other associated functions. However, companies belonging to Pakistan, Bangladesh, Srilanka, Afghanistan, China, Iran, Nepal, and Bhutan must take permission from the RBI for the purpose.
Choosing to open a branch office in India is the best option for foreign commercial organizations who do not want to open a company in the country. It provides them with the flexibility of conducting necessary operations without too many compliance requirements.