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Branch Office as the name suggests signify that this is an extension of parent company and carrying the same business activities as that of parent company. Ordinarily, branches in India are set up by those corporation/companies having their base outside India which are engaged in manufacturing or trading activities and want to capture Indian markets as well. Therefore RBI allows them to set up branch offices in India on case to case basis. Therefore branch offices are extended office in a sense and therefore represent the parent company and undertake activities in India like export / import of goods, rendering professional or consultancy services, carrying out research work in areas in which the parent company is engaged, promoting technical or financial collaborations between Indian companies and parent or overseas group company so on in accordance with the norms as laid down in FDI Policy/ FEMA Regulations.

Reserve Bank has given general permission to foreign companies for establishing branch office in Special Economic Zones (SEZs) to undertake manufacturing and service activities subject to certain guidelines. Similarly Foreign Banks intending to set up branch office in India are required to obtain necessary approval under the provisions of the Banking Regulation Act, 1949 from department of Banking Operations & Development Reserve Bank of India.

Foreign Company has to get itself registered with the Registrar of Companies with in 30 days of the establishment of Branch office in India.

Routes Available: There are two routes for setting Branch office in India:

1.    RBI Route: Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route then the branch office shall be approved by the Reserve Bank of India.

2.    Government Route: Where principal business of the foreign entity falls under the sectors where 100% FDI is not permissible under the automatic route. Applications from such entities and those from Non–Government Organisations / Government Bodies / Non-Profit Organisations are considered by the Reserve Bank of India in consultation with the Ministry of Finance, Government of India.

Eligibility Criteria: Reserve Bank of India has prescribed certain limits for setting Branch office in India:

1.    Parent Company must have a profit making track record in the immediate preceding five financial years in the home Country.

2.    Parent Company must have a minimum net worth of USD 100,000 as per latest audited balance sheet and account statement certified by a Public Accountant or any Registered Accounts Practitioner.

[Net worth means total of paid-up capital and free reserves, less intangible assets.]

In case applicant that does not meet the aforesaid criteria and if it is a subsidiary of other company, then the applicant can submit a letter of comfort from the parent company and in that case the parent company must satisfy the above mentioned criteria.

Documents Requirement

1.    Form FNC-1

2.    Copies of the English version of the Memorandum and Articles of Association of the Parent Company attested by Indian Embassy/ Notary public in the Country of Registration.

3.    The latest audited Balance sheet of the Parent Company.

4.    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.

Please note that the aforesaid list is only indicative in nature and not exhaustive. RBI may demand additional documents as it may deem fit.

Key Considerations

1.    Branch Office is advised to carry on only that activity which has been specifically specified by the RBI.

2.    Branch office is not allowed to carry out any manufacturing or processing activities in India, directly or indirectly.

3.    Branch office can acquire immovable properties for its own use only and to carry out incidental activity but not for leasing or renting such property.

4.    However it can carry out permitted / incidental activities from lease property subject to lease period not exceeding five years.

 5.    As this is involved in commercial or professional side of the business, it is treated as a taxable entity in India. Therefore any profits earned by branch office may be remitted from India, subject to payment of taxes.

 Reporting Requirement

 1.  All new entities setting up Branch Office shall submit a report within five working days of the BO becoming functional to the Director General of Police (DGP) of the state concerned in which BO has established its office, if there is more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India. 

 2.    Branch Offices have to file Annual Activity Certificates (AAC) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank, and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.

 3.  Branch has to file Report with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate, and also with the AD concerned.

 Closure

The concerned branch office has to approach to the concerned AD for the closure of Branch office and the AD has to ensure that the Branch office had filed Annual Activity Certificate with the RBI for previous years. The AD shall report the same to the Reserve bank (the Central office concerned for Branch office) along with a declaration that all the necessary documents submitted by the branch office have been scrutinized and found to be in order. If the documents are not found in order the AD shall forward the same to the RBI with his comments for necessary action.

Following documents are required for closure of Branch Office:

1.    Copy of the Reserve Bank's permission and/or approval from the sectoral regulator(s) for establishing the Liaison Office.

2.    Auditor’s certificate

A      Indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities and indicating the manner of disposal of assets;

B.     Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the office have been either fully met or adequately provided for;

C.     Confirming that no income accruing from sources outside India (including proceeds of exports) has remained unrepatriated to India.

3.    No objection / Tax Clearance Certificate from Income Tax authority

4.    Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

5.   A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act,2013 in case of winding up of the office in India.

 6.    Any other document/s, specified by the Reserve Bank while granting approval.

 

 

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