Contact Us
    ×

    Published Fri, 05 Aug 2022 | Updated Fri, 05 Aug 2022 Income Tax

    A Branch Office (BO) is set up by a foreign company to undertake all type of profit-making activity to promote its business and work as a channel of communication between the parent/ foreign company and business entities in India.
     
    After BO has received approval for the establishment from AD Category –I Bank as per guidelines of Reserve Bank of India (RBI), it will be subject to the following compliance requirements:

    Key Points:

    1. Compliance under Companies Act, 2013 read with allied Rules
    2.  Compliance under FEMA Regulations
    3. Compliance under Income Tax Act, 1961
    4. Compliance under Goods and Services Tax Act, 2017

    A. Compliance under Companies Act, 2013 read with allied Rules

    1. Registration with Ministry of Corporate Affairs [Section 380]

    Every foreign company establishing its Branch Office in India is required to register itself with the Ministry of Corporate Affairs (MCA) by filing Form FC-1 within a period of thirty days of the establishment of BO. List of documents required to be submitted along with Form FC-1 include:

    1. Certified true copy of the charter, statues or memorandum and articles of the foreign company or other instrument constituting or defining the constitution of the company
    2. List of directors and secretary of the foreign company
    3. Power of attorney or board resolution in favour of authorized representative in India
    4. RBI approval letter
    5. Declaration that none of the directors of the company or the authorised representative in India has ever been convicted or debarred from formation of companies and management in India or abroad
    6. Complete address of registered or principal office

    2. Preparation and filing of Financial Statement [Section 381]

    The foreign company shall prepare Financial Statement of its BO in India in accordance with Schedule III or as near thereto as may be possible for each financial year. A copy of such Financial Statement shall be filed with the Registrar of Companies in Form FC-3 within a period of six months of the close of every financial year of the foreign company. Along with Financial Statement, in Form FC-3, a list of all the places of business established by the foreign company in India as on the date of Balance Sheet is required to be submitted with the Registrar.

    3. Audit of accounts [Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014]

    Every foreign company shall get its accounts, pertaining to the BO audited by a practicing Chartered Accountant in India or a firm or limited liability partnership of practicing chartered accountants.

    4. Filing of Annual Return [Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014]

    Every foreign company shall prepare and file annual return of its BO within a period of sixty days from the last day of its financial year with the Registrar in Form FC-4.

    Compliances under FEMA Regulations

    1. Foreign Liabilities and Assets (FLA) Return: Every Branch Office is required to file FLA return on or before July 15 of each year, if any foreign assets or foreign liabilities are outstanding as on reporting date.
    2. Annual Activity Certificate (AAC): Every BO is required to file Annual Activity Certificate as at March 31 each year with the designated AD Category -I bank as well as Director-General of Income Tax (International Taxation), New Delhi.

    Compliance under Income Tax Act, 1961

    1. Obtaining Permanent Account Number (PAN): A BO must obtain PAN from Income Tax Authorities
    2. Statutory Audit: Financials are liable for Statutory Audit by a Chartered Accountant
    3. Filing of Income Tax Return: A Branch Office registered and operating in India is treated as a foreign company and is accordingly liable to file an Income Tax return every year under Section 139(1) of the Income Tax Act, 1961. 
    4. Tax Audit of accounts: If the gross receipts or turnover of the foreign company from BO exceed the threshold as provided under Section 44AB, then it has to get its accounts audited by a chartered accountant in practice by 30th September and submit the Tax Audit Report by 30th November of following year. At present, the threshold for Tax Audit is as provided below:
    5. Rs. 1 Crore- in case of business;
    6. Rs. 50 Lacs- in case of profession;
    7. Rs. 10 Crore (applicable from AY 2022-23): For business whose aggregate of all receipts in cash does not exceed 5% of such receipts during the previous year and aggregate of all payments in cash does not exceed 5% of such payment during the previous year

    D. Compliances under Goods and Services Tax (GST) Act, 2017


    S. No.
                             Compliance     Form                Due-date                         Remarks
      Immediately after Incorporation

    1.

    GST Registration   Within 30 days of crossing the threshold limit Mandatory if annual turnover exceeds the specified limit.
    Currently, Rs 40 Lacs for businesses other than the specified state and Rs 20 Lacs for service providers
      Monthly

    1.

    Reporting of Outward Supply (in case turnover exceeds Rs. 5 Crore or person who has not opted QRMP* scheme) GSTR-1 By 11th of the following month -

    2.

    Reporting of Invoices (for the person who opted QRMP scheme) GSTR-1 IFF By 13th of the following month  -

    3.

    Payment of tax and filing of return having summary of outwards supplies, tax credits etc (for the person other than who opted QRMP scheme)

    GSTR- 3B By 20th of the following month -
    4.  Payment of tax (for the person who opted QRMP scheme)   By 22nd/24th of the following month   
      Quarterly

    1.

    Reporting of Outward Supply (in case turnover is up to Rs. 5 Crore & who have opted for QRMP Scheme)

    GSTR-1

    By 13th of the month following the quarter -
    2. Payment of tax and filing of return having summary of outwards supplies, tax credits etc (for person who opted for QRMP Scheme) GSTR-3B 22nd/24th of the following  month of the quarter -
      Annually

    1.

    Filing of GST Annual return (if turnover exceeds 2 crores) GSTR-9 By 31st December of following year -

    2.

    Filing of GST reconciliation statement (if turnover exceeds Rs. 5 crores) GSTR-9C By 31st December of following year  

    * QRMP Scheme: The Central Board of Indirect Taxes & Customs (CBIC) introduced the Quarterly Return Filing and Monthly Payment of Taxes (QRMP) scheme under Goods and Services Tax (GST) to help small taxpayers whose turnover is less than Rs.5 crores. The QRMP scheme allows the taxpayers to file GSTR-3B on a quarterly basis and pay tax every month.

    These are broad compliances which need to be ensured by a foreign company establishing its Branch Office in India. However, there may be some additional compliance required under different laws depending upon industry, nature of business and other factors. The list may not be exhaustive and subject to vary with various amendments in relevant laws, accordingly it is advisable to take professional opinion before acting upon the same.