Branch Office in India

A branch office refers to an institution which performs substantially the same business as is carried out by its Head Office. Such kind of offices help companies to expand their reach and widens their customer base. It makes available the company’s product to the customers more easily and quickly. Branch offices help in stimulating the growth of the company , hence adding to its profitability.

Branch Offices are allowed to represent the parent/group companies and can undertake the following activities in India:

• Export/Import of goods
• Foreign Banks
• Embodying the parent company in India and acting as buying and selling agents in India
• Providing professional or consultancy services
• Providing services in IT and development of software in India.
• Carrying out research work, in which the parent company is engaged.
• Supporting technical or financial alliances between Indian companies and parent or overseas group company.
• Rendering technical support to the products supplied by the parent/ group companies.

Procedure for opening Branch Office in India

To open a branch office in India the foreign company needs an approval from RBI. The instructions stated by RBI in this regard are:-

• The branch office is not permitted to diversify its operations or commence any new trading, commercial or industrial activity apart from those that are allowed by RBI.
• The whole expenditure of the branch office in India will be met either out of the funds collected by it from abroad through usual banking routes or through income earned by it in India.
• The branch office is not allowed to accept any deposits in India;
• The commission earned by the branch office from parties abroad for any agency business will be repatriated to India through normal banking channels.

Though the branch offices are allowed to undertake trading activities but they are not allowed to carry out manufacturing activities on their own, but they can sub- contract these to Indian manufacturers. Such offices are taken to be a part of the foreign company and are not considered as a separate legal entity.

For opening a branch office, the foreign company is required to file a formal request to the Chief General Manager, Exchange Control Department (Foreign Investment Division), RBI Central Office, Mumbai in the form FNC-1.The RBI grants permission in a time period of about 2 to 4 weeks. The application must include the following details:-

• Operating history of the company globally
• Proposed interests and operations in India
• Reasons for opening a branch office
• Any foreign exchange inferences for such matters.

Branch Offices are allowed to freely remit from India profits earned by them. They are not bound by law to retain any profits as reserves in India. But in cases where income is considered to have been originated in India and the income includes interest and capital gains, royalties, fees for technical services, capital gains from share capital in India, branch office might send back profits to their Head Office without acquiring any approval from RBI.

Branch Office in Special Economic Zones (SEZs)

RBI has granted a permission to foreign companies for setting up a branch office in Special Economic Zone (SEZ).The permission is subject to the following conditions:-

1. Such offices are operating in those sectors where 100% FDI is permitted,
2. Such units abide with part XI of the companies Act (Section 592 to 602),
3. Such units function on a stand-alone basis,