(08^th December 2023)

SHORT SUMMARY:

The author will cover the "Process of Establishment of Branch Office in India" in this column.

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of starting of business in India. They can conduct as followings:

·      Branch Office

·      Liaison Office

·      Project Office

For opening a Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. After approval from RBI these entities are required to register with the Registrar of Companies, Delhi. The process of the same is discussed below.

'Foreign Company' means a body corporate incorporated outside India and includes a firm or other association of individuals.

'Branch Office' in relation to a company, means any establishment described as such by the company.

INTRODUCTION OF BRANCH OFFICE:

BRANCH office is setup by a foreign Company in India to carry out the BRANCH activity for its business. The foreign Company can have any revenue from the Indian Branch office only from the activity allowed by the Reserve Bank of India; It has to meet all its expenses of Indian office through remittances from the Head office or through the revenue generated from the Indian operation permitted by the Reserve Bank of India.

Foreign companies are allowed to set up a branch office in India. But unlike the case of setting up a Company, a branch office requires approval from the Reserve Bank of India (RBI). Only upon getting the branch license from RBI, the foreign Company is allowed to commence the operations.

BRANCH office is suitable for a foreign Company to test and understand the Indian market with a very strict control by the Reserve Bank of India, as it does allow the companies to do business but just to do the activity which are mentioned in the application of Branch office, any additional activity to be carried by the Branch office shall be illegal.

PERMITTED ACTIVITY OF BRANCH OFFICE IN INDIA:

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India and undertake the following activities in India;

• Export/Import of goods
• Rendering professional or consultancy services.
• Carrying out research work, in which the parent Company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent or overseas group Company.
• Representing the parent Company in India and acting as buying/selling agent in India.
• Rendering services in Information Technology and development of software in India.
• Rendering technical support to the products supplied by parent/group companies.
• Foreign Airline/shipping Company.

Prohibited activities by the Branch –

Companies incorporated outside India prohibited doing following activities through branch office in India.

Procedure by which Branch Offices are permitted to remit profit outside India:

Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction ofthe Authorized Dealer through whom the remittance is affected:

a)   A Certified copy of the audited Balance Sheet and Profit and Loss account for the

b)   Relevant year;

c)   A Chartered Accountant’s certificate certifying -

i. The manner of arriving at the remittable profit

ii. That the entire remittable profit has been earned by undertaking the permitted activities

GENERAL FEATURES OF BRANCH OFFICE

Pre-requisites for a foreign Company to have branch office in India –

The following additional criteria are also considered by the Reserve Bank while sanctioning Branch Offices of foreign entities

·       Profit making track record during the immediately preceding five financial years 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 by whatever name.

·       Proprietary concerns set up abroad are not allowed to establish Branch Offices in India

I.        First the applicant Company have to select a Bank in India. Who will work as Authorized Dealer Bank. The authorized dealer means the various institution having banking licenses.

II.        Approval from RBI- Permission for setting up branch offices is granted by the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai (note – Not by the RBI offices in respective state capitals)

     Track Record of the Company - Reserve Bank of India considers the track record of the applicant Company, the activity of the Company proposing to set up office in India as well as the financial position of the Company while scrutinizing the application.(note – for setting up a Company, there is no criteria of checking the track record or financial position of the parent Company)

     The applications from such entities in Form FNC (Annex-1) will be considered by Reserve Bank under two routes: The application in the prescribed form (Form FNC) should be submitted to the RBI through the Authorized Dealer bank.

Ø  Reserve Bank 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.

Ø  Government Route— where 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 Organizations / Non - Profit Organizations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

Procedure for Approval from RBI:

Ø  Currently as per the RBI Requirement the application for the branch office and BRANCH office is submitted through the Authorized dealer. The authorized dealer means the various institution having banking licenses.

III.        DOCUMENTS REQUIRED FOR BRANCH OFFICE SETUP:

·      Form FNC – Three copies*

·      Letter from the principal officer of the Parent Company to RBI. *

·      Letter of authority from the parent Company in favor of Local Representative.

·      Letter of authority/ Resolution from parent Company for setting up BRANCH office in India.

·      Comfort letter from the parent Company intending to support the operation in India.

·      Two copies of the English version of the Certificate of Incorporation, Memorandum & Articles of association (Charter Document) of the parent Company duly attested by the Indian embassy or notary public in the country of registration.

·      Certification of Incorporation - Translated & Duly Notarized and Certified by Indian Consulate

·      The Latest audited Balance sheet and annual accounts of parent Company duly Translated notarized for past Three years. & Certified by Indian Consulate & Directors

·      Name, Address, email ID and telephone number of the authorized person in Home Country.

·      Details of Bankers of the Organization the Country of Origin along with the bank account number.

·      Commitment from the Organization to the effect that it will be open to report / opinion sought from its banker by the Government of India / Reserve Bank of India

·      Expected funding level for operations in India.

·      Details Relating to address of the proposed local office, number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided

·      Details of Activity carried out in Home Country by the applicant organization in brief about the product and services of Company in Brief.

·      Bankers Certificate

·      Latest Proof of identity of all the Directors - Certified by Consulate and Banker in Home Country

·      Latest Proof of address all of Directors - Certified by Consulate and Banker in Home Country

·      Details of the Individuals / Company holding more 10% of Equity

·      Structure of the Organization w.r.t Shareholding pattern

·      Complete KYC of Shareholders holding more than 10% Equity in the Applicant Company 1. 2. 3. 4. 5. 6.

·      Resolution for Opening up Bank Account with the Banker

PROCEDURE AFTER GETTING THE RBI APPROVAL:

Every BRANCH office registered with RBI shall get itself registered with the Ministry of Corporate Affairs ie. Registrar of Companies, Delhi. it is a registration by the BRANCH office as an establishment of foreign Company in India. On such registration a FCRN i.e. Foreign Company Registration Number is allotted by the Registrar of Companies.

The following documents shall be filled with the Registrar of Companies: -

• Form FC-1 (on MCA V3 portal)
• Charter, statutes or memorandum and articles of association or other Instrument constituting or defining the constitution of the Company.
• If the above documents are not in English then the translated version of the documents.
• Director(s) details – individuals
• Director(s) details - bodies corporate
• Reserve bank of India approval letter
• Secretary(s) details
• Power of attorney or board resolution in favor of the authorized representative(s).

·       KYC of Director/ secretary of foreign Company

·       KYC of Authorized Person in India

·       List of Director and Secretary as per Rule 3(2)

·       DSC of Authorized representative

NOTE – All the documents of foreign individual and entity (including ID proofs, COI etc.) should be apostille and notarized in their home country.

Further, The application in FC-1 is always dealt with by the Registrar of Companies, Delhi. As the power has been assigned to them by the Ministry.

THINGS REQURIED TO BE DONE ALONG WITH APPROVAL FROM RBI:

v Acquiring property in India

·       Branch Offices of a foreign entity are permitted to acquire property for their own use and to carry out permitted/incidental activities but not allowed to buy for the purpose of renting it out

·       Entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India even for a Branch Office. These entities are allowed to lease such property for a period not exceeding five years

v Annual Reporting by Branch Office TO VARIOUS DEPARMENTS:

·       File an Annual Activity Certificate (AACs) with RBI from the Auditors, as at end of March 31, along with the audited Balance Sheet on or before September 30^th of that year, stating that the Branch Office has undertaken only those activities permitted by Reserve Bank of India.

(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.)

·       Filling of accounts along with the list of all principal places of business in India established by foreign Company- In form FC-3

·       File annual return with Registrar of Companies (ROC) – In form FC-4- Normal ROC Fees Rs. 6,000/- (Rupees Six Thousand)

·       Getting Annual Accounts audited.

·       Maintenance of Books of Account

·       File return and pay applicable taxes along with AAC with Income Tax department.

·       A copy of the report as per the prescribed format to DGP of concerned state.

Periodic Reporting by Branch Office:

It will also need to inform ROC of certain changes as and when there is made.

In form FC-2

·      Intimating any change in constitution of Foreign Company to RBI & ROC

·      Intimating any change in Directors of Foreign Company to RBI & ROC

·      Intimating each and every change in the BRANCH office to RBI & ROC

·      No additional place of business can be started unless approval is taken from RBI.

·      No addition activity can be started unless approval is taken from RBI.

v Repatriation of funds

·       Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes

v OTHER BUSINESS LICENSES APPLICABLE TO BRANCH OFFICE

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. 

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