Branch Office Registration in India, carried out and run in accordance with the guidelines of Reserve Bank of 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. Regulations in Foreign Exchange Management Act are revised time to time. Branch office Set Up in India by any foreign entity is established with the aim to understand the market and do business in India. It is imperative to note that retail trading activities of any nature and manufacturing activities whether directly or indirectly are prohibited to be carried out in India in terms of Branch office.
As India is among the rapidly growing nations in the world, there is a vast scope for foreign companies to grow, nurture and diversify their business on this land. This is the reason that foreign companies consistently look forward to open a branch office in India. All the profits that a branch office earns are freely allowed to be remitted from India with the payment of applicable taxes.
For any additional activities such as opening of an additional office in India, a new application duly signed by authorized signatory of the foreign entity needs to be filed to Reserve Bank of India with a justification to open the additional office . The application should also include the point stating that one of the offices shall be recognised as nodal office to coordinate the activities of all offices.
As far as Taxation is concerned, Branch office of foreign entities in India has to pay 40% (plus surcharges as applicable) of profits as income tax in the status of Foreign Company in India. The branch office may be required to pay different indirect taxes as well, according to its functioning. In case, the goods enter the state of Maharashtra, Local Body Tax is also imposed by the States.
Ans: Reserve Bank requires a profit making track record during the immediately preceding five financial years in the home country, Net Worth as per the latest Audited Balance Sheet which should be less than USD 100,000 or its equivalent, permission to set up Liaison office and copy of the Annual Activity Certificate to Director General of Income Tax.
Ans: Branch Offices can remit profit outside India net of applicable Indian taxes on production of below documents to the Authorised Dealer:
(a) A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year;
(b) A Chartered Accountant’s certificate stating -
(i) the manner of arriving at the remittable profit
(ii) the entire remittable profit has been earned by undertaking the permitted activities
(iii) the profit does not include any profit on revaluation of the assets of the branch.