How a foreign company can open a branch office in India and what are the compliances of operating a branch office?
The Indian economy is an extremely vast one. This provides multiple scopes for foreign investors and organisations to start their businesses in India. There are a lot of different ways in which foreign companies can operate in India. One of the most common ways would be to open up a branch office in India. By doing so, the company will be able to carry out its branch activities for the business in a streamlined manner.
The foreign company can earn revenue from the Indian branch office for the activities allowed by the Reserve Bank of India. It also has to bear the expenses of the Indian office. We have two different acts which allow the establishment of a branch office of a foreign company in India: the Companies Act 2013 and the RBI Act. Foreign companies may also opt for private limited company registration to operate in India.
Opening a Branch Office in India:
- Obtaining RBI Approval: Before opening a branch office in India, a company needs the required approvals from the Foreign Exchange Department of the Reserve Bank of India (RBI), Mumbai. The branch office will only be permitted to carry out various additional activities in India after receiving prior approval from the Reserve Bank of India.
- Appointing an Authorized Dealer (AD) Bank: Once the company receives the required approval from the RBI, it is time to appoint an authorised dealer bank. The authorised dealer bank can allow branch offices to remit profit outside India. All applications for branch office registration will be submitted to the RBI through the AD Bank. These banks also facilitate foreign transactions in India.
- Company Registration: The next job is to get the company registration. This is again done through the RBI. The company needs to submit all the required documents along with the necessary registration fee to get their brand office registered in India. Upon successful company registration, the company will receive a Permanent Account Number (PAN) and a Tax Registration Number (TRN).
- Taxation and Compliance: The branch office owner needs to acquire a clear understanding of the tax liabilities of the branch office. The best option here would be to hire a tax consultant who has a complete understanding of the tax rules and regulations. The tax consultant would also ensure compliance with the Indian tax laws.
Operating a Branch Office in India:
- Branch Activities: A branch office can only perform those activities that are approved by the Reserve Bank of India (RBI). So, before performing any activity, the brand office needs to acquire the required approvals. That way, the business operations can be carried out smoothly. The company will also not have to face any kind of hindrance at the later stages.
- Financial Reporting and Audits: As per the Companies Act 2013, all branch offices are required to adhere to certain financial reporting requirements. This includes maintaining proper books, preparing financial returns, and preparing financial statements. All these aspects will have to be taken care of minutely in order to avoid any compliance issues.
- Branch Management and Governance: There needs to be a branch head who will supervise all the activities that take place at the branch. Other than that, a branch committee will also have to be formed to take care of brand-related activities. The branch should adhere to the corporate governance principles of the parent company.
And this is how a foreign company can open a branch in India. Opening a branch office comes with multiple advantages like broader market access, improved brand recognition, etc. However, there are certain challenges as well that you might need to navigate like regulatory compliances, taxation, etc. To know more about the startup registration process in India, you may contact the specialists at BC Shetty and they will provide you the necessary details.
1. Can a foreign company have a branch office in India?
Yes, as per the Companies Act 2013, a foreign company can have a registered office in India.
2. How can I close my foreign company branch office in India?
You can close your foreign company branch office in India after getting the required approvals from the RBI through an Authorized Dealer Bank. The RBI requires a report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the branch office/liaison in India. The validity period of a branch office in India is typically 3 years, but it can be extended by a further period of 3 years if required
3. Do foreign companies need to register in India?
Yes, foreign companies would need to register in India. The type of registration will depend on the type of office the foreign company wants to open in India.
4. What is compliance applicable to foreign subsidiaries in India?
Foreign subsidiaries in India are subjected to various compliance laws, like Companies Act 2013, Income Tax Act, 1962, GST, PF, PT, FEMA, Gratuity, Customs, Shops and Establishment, Trade Licence, Pollution Control, Competition Act, etc
5. What is a branch office of a foreign company?
A branch office of a foreign company is an extension of the foreign company that operates in India. It can be set up only for specific sectors where 100% FDI is permitted.