A body corporate incorporated outside India, desirous of opening a Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. The applications from such entities in Form FNC will be considered by Reserve Bank under two routes:
Reserve Bank Route
where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organizations / Non – Profit Organizations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.
Eligibility to set up Branch office
- The foreign entity must have a profit making track record during the immediately preceding five financial years in the home country.
- The foreign entity must have Net Worth of not less than USD 100,000 or its equivalent.
The application for establishing BO in India should be forwarded by the foreign entity through a designated AD Category – I bank to the Chief General Manager-in-Charge, Reserve Bank of India. along with the prescribed documents including
- English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.
- Latest Audited Balance Sheet of the applicant entity.
Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. The designated AD Category – I bank should exercise due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensure compliance with the KYC norms before forwarding the application together with their comments/ recommendations to the Reserve Bank. The Branch established with the Reserve Bank’s approval will be allotted a Unique Identification Number (UIN).
The BOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:
- Export / Import of goods
- Rendering professional or consultancy services
- Carrying out research work, in which the parent company is engaged
- Promoting technical or financial collaboration between Indian companies and parent or overseas group company
- Representing the parent company in India and acting as buying / selling agent in India
- Rendering services in Information Technology and development of software in India
- Rendering technical support to the products supplied by parent / group companies
- Foreign airline / shipping company
Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.
- Retail trading activities of any nature is not allowed for a Branch Office in India.
- A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
- Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.
Annual Activity Certificates to Be Submitted By Branch Offices
Branch Offices have to file Annual Activity Certificates (AAC) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation), New Delhi.
Closure of Branch Offices
At the time of winding up of Branch offices the company has to approach the designated AD Category – I bank with the following documents:
- Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the BO.
- Auditor’s certificate-
- indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
- confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for;
- confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
- Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.
- A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, in case of winding up of the Office in India.
- Any other document/s, specified by the Reserve Bank while granting approval.
The designated AD Category – I banks has to ensure that the BOs had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years.
Closure of such BO has to be reported by the designated AD Category – I bank to the Reserve Bank, along with a declaration stating that all the necessary documents submitted by the BO have been scrutinized and found to be in order. If the documents are not found in order or cases are not covered under delegated powers, the AD Category – I bank may forward the application to the Reserve Bank, with their observations, for necessary action. All the documents relating to the BO operations may be retained by the AD Category – I bank for verification by the internal auditors of the AD / inspecting officers of the Reserve Bank.
Branch Office in Special Economic Zones (SEZs)
- Reserve Bank has given general permission to foreign companies for establishing branch / unit in Special Economic Zones (SEZs). The general permission is subject to the following conditions:
- such units are functioning in those sectors where 100 per cent FDI is permitted;
- such units comply with part XI of the Companies Act;
- such units function on a stand-alone basis.
- In the event of winding-up of business and for remittance of winding-up proceeds, the branch shall approach an AD Category – I bank with the documents as mentioned under “Closure of Branch Office” except the copy of the letter granting approval by the Reserve Bank.
RMC will prepare relevant applications and liaise with the RBI to obtain permission under the Foreign Exchange Management Act (FEMA) with respect to investment into India by the foreign company.