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    Published Thu, 31 Dec 2020 | Updated Wed, 17 Mar 2021 Company Law

    In the recent past, India has emerged as a lucrative business destination and thus, attracting many foreign entities to establish their presence in India to tap the largest and fastest-growing market. One of the alternatives for a foreign entity to establish its business presence in India is to set up a Branch Office. But not all foreign entities are entitled to establish a Branch Office in India.
     
    The Branch office is an office established by a foreign entity that is engaged in manufacturing or trading activities. A branch office is permitted to carry out only the following activities:

    1. Export/Import of goods;
    2. Rendering professional or consultancy services;
    3. Carrying out research work, in which the parent company is engaged;
    4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company;
    5. Representing the parent company in India and acting as buying/selling agent in India;
    6. Rendering services in Information Technology and development of software in India;
    7. Rendering technical support to the products supplied by parent/group companies
    8. Foreign airline/shipping company

    In this Article, we have detailed out the complete procedure for setting up a branch office in India.

    ELIGIBILITY CRITERIA FOR SETTING UP A BRANCH OFFICE

    A person resident outside India can establish a Branch Office in India provided it meets the following criteria:

    1. A profit making track record during the immediately preceding five (5) financial years in the home country; and
    2. Net worth of the foreign company establishing the Branch Office shall not be less than USD 100,000 or its equivalent.

    Net Worth= [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 called]

    CASES IN WHICH PRIOR APPROVAL OF RBI IS REQUIRED FOR ESTABLISHMENT OF BRANCH OFFICE 

    An application from a foreign entity for opening of a branch office in India shall require prior approval of Reserve Bank of India and shall be forwarded by the AD Category-I bank to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi - 110 001 who shall process the applications in consultation with the Government of India in the following cases:

    1. The applicant is a citizen of or is registered/incorporated in Pakistan;
    2. The applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a branch office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
    3. The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting. However, prior approval of Reserve Bank of India shall not be required in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.
    4. The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016.

    PROCESS FOR REGISTRATION

    A Branch Office is entitled to carry the same or substantially the same trading activities as is carried out by its parent company. However, a Branch Office is not entitled to directly carry out manufacturing activities but the same may be outsourced to an Indian manufacturer.
     

    Submission of application in Form FNC with AD Category I Bank: A foreign entity which meets the eligibility criteria as provided above may establish a branch office in India by submitting an application in Form FNC to a designated AD Category-I bank along with the following documents:

    1. Copy of the Certificate of Incorporation / Registration along with Memorandum and Articles of Association attested by the Notary Public in the country of registration [If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross-verified/attested by the Indian Embassy/ Consulate in the home country].  
    2. The audited Balance sheet of the applicant company for the last three years. [If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]  
    3. Bankers' Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.
    4. Company profile (in English translation)
    5. List of Directors of Parent Company (in English translation, with notarisation and attestation by Indian Embassy)
    6. Power of Attorney in favour of an authorised signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC
    7. Letter of comfort from the parent/ group company of the foreign entity establishing branch office (required only when the applicant foreign company is not financially sound and is a subsidiary of another company which satisfies the eligibility criteria)
    8. Lease agreement as proof for Branch Office

    Verification of documents and allotment of UIN: AD Category – I bank on receipt of documents shall conduct a due diligence in respect of applicant’s background, antecedents of promoter, nature and location of activity of applicant. Before issuance of approval letter, AD Bank forwards a copy of Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO cell, New Delhi for allotment of Unique Identification Number (UIN) to such branch office.


    After issuance of UIN, AD Category-I bank issues the approval letter to the foreign entity for establishing its branch office in India.

    Intimation of Setting up BO with AD Bank: An applicant upon receiving the permission for setting up of a branch office shall inform the designated AD Bank as to the date on which the Branch Office has been set up which shall not be later than 6 months from the date of the approval letter. In case the foreign entity is not able to open its branch office within the period of six months due to reasons beyond its control, the AD Category-I bank may consider granting extension of time for a further period of six months for setting up the office. Any further extension of time shall require the prior approval of RBI.

    Intimation of Setup to Registrar of Companies: Every foreign company establishing its BO in India is required to register itself with Ministry of Corporate Affairs (MCA) by filing Form FC-1 within a period of thirty days of the establishment of BO. List of documents and details 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 (with translation of the document in English, in case the instrument is not in English language)
    2. List of directors and secretary of the foreign company duly notarised and apostilled by Indian Embassy
    3. Power of attorney or board resolution in favour of authorized representative in India and extracts of Board resolutions of Foreign Company
    4. RBI approval letter
    5. The 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.

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