A Foreign Company can open branch offices in different countries. These branch offices carry out the activities of the parent company in the countries where these are set up. All the expenses of the branch office are paid off by the parent company, and all the revenue generated by it is transferred to the parent company as well. These branch offices are regulated under two most relevant Indian laws, namely, the Companies Act, and the RBI Act.
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A branch office of a foreign company or a body corporate incorporated outside India, including a firm or other association of individuals, are permitted to carry out only a certain set of activities. These activities have been notified by the Reserve Bank of India. In this blog, we are concerned with informing our readers about all the activities that the branch office set up in India by a foreign company can carry out.
What is a Branch Office?
Branch offices are alternative offices set up in locations other than the location where the head office or the main office of a business is located. It is not to be confused with a subsidiary office, as it does not have a legal identity separate from its parent company. Simply put, a branch office is an office which carries out the business of a company (Parent Company) without having a separate legal identity, in the location where it is set up. The main purpose of setting up a branch office by a company is to expand its business presence and consumer base in different locations, domestically and internationally.
Procedure for Setting up a Branch Office
The branch office of a foreign company can be set up in India, only after the approval of the Reserve Bank of India, under the Foreign Exchange Management Act, 1999. For obtaining the approval, an application is required to be filed to the RBI, which it either approves under the normal route, or the government approval route, depending on the sectoral FDI limits.
The normal approval is considered if the branch office is conducting activities which allow 100% FDI. However, an additional government approval is required if the branch office is carrying out activities where a 100% FDI is not permitted. Here, the RBI approves the application only after consultation with the Central Ministry of Finance. Upon approving the application, the RBI finally issues a licence for opening the branch office to the foreign company.
However, before approving the application for opening the branch office, the RBI also considers the track record of profit earning and the net worth of the parent company.
- A foreign company can open a branch office in India only if it has a track record of profit earning in the immediate five financial years in its country of origin.
- As far as the net worth is concerned, only foreign companies with net worth equal USD 100,000 or more than that, can set up a branch office in India.
Permitted Activities for Branch Office of a Foreign Company
Foreign Companies engaged in manufacturing or trading activities, can open their branch offices in India, only for activities permitted by the Reserve Bank of India. We have provided the entire list of such permitted activities below.
|S. No.||List of Permitted Activities for Branch Offices of Foreign Companies|
Export and Import Activities
Professional or Consultancy Services, subject to sectoral regulators policy or approval. Please note that Hon’ble Supreme Court of India vide its order dated July 4, 2012, and again on September 14, 2015, has barred foreign law firms from opening a branch office.
To carry on research work for the areas where the parent company is engaged
To engage in activities which promote technical or financial collaboration between Indian companies and parent or overseas group company
To act as a buying or selling agent in India or to represent the parent/group company
To engage in any business or technical activities for software development or for the rendering of any service related information technology.
To provide technical support services to the clients in India for the goods or services supplied by parent/group company
To act as an authorised representative for a foreign shipping or airline company in India
Opening a Branch Office of a Foreign Company is not an easy job but with correct information one can set up their branch office in India This article was aimed to help understand the basic requirements, procedure & documentations.
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