Branch Office
A Branch Office (BO) is one of the strategies available to foreign companies to establish a foothold in the Indian market and expand its business in diverse locations to increase the customer base. With a strict control, the Reserve Bank of India (RBI) does allow the foreign companies to test and do business in India subject to certain conditions. Foreign companies planning to open a branch in India are required to seek approval from Reserve Bank of India “RBI” for setting up their Branch Office in India.
The Foreign Company has to make application to RBI in Form FNC through the Authorized Dealer Bank.
Establishment of a Branch Office of a foreign entity in India is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 (“FEMA”) read with Notification No. FEMA 22/2000-RB dated May 3, 2000, as amended from time to time. A branch office of a foreign company in India upon approval from the RBI must be compulsorily registered under the (Indian) Companies Act, 2013. Upon registration under the Companies Act 2013, the branch office can carry on its business activities in the same way as a domestic company.
Features of Liason Office
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
Rendering professional or consultancy services
Carrying out research work in area which its parent company is engaged
Import & Export of goods
Promoting technical/ financial collaborations on behalf of parent company/ overseas group company
Providing IT services and developing software in India
Representing parent companies in India and acting as buying/selling agent in India
Foreign airline/shipping company
Providing technical support for products supplied by parent company/group
Investment Entry Routes In India
A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening a Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. The applications from such entities in Form FNC (Annex-1) will be considered by Reserve Bank under two routes:
Automatic Route
Where the principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
Government Route
Where the principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organisations / Non-Profit Organisations / Government Bodies / Departments require government approval.
Criteria
Foreign parent company must have profit making track record in the home country
Net Worth of not less than USD 100,000 or its equivalent [total of paid-up capital and free reserves, less intangible assets] as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner.
Proprietary concerns set up abroad are not allowed to establish Branch Offices in India
Indian Branch office’s name must be same as parent company’s name.
Restrictions
Any Branch Office established in India is prohibited from the following activities:
Retail trading activities of any nature.
Manufacturing or processing activities, directly or indirectly.