SETTING UP OF A BRANCH OFFICE IN INDIA

Gaurav Shanker    |   

A foreign company is “a company or a body corporate incorporated outside India and which has a place of business whether by itself or through an agent in India, physically or through an electronic mode and which conducts any business activity in India in any manner", this includes a Branch Office (BO). A branch office shall be regulated by the Reserve Bank of India (RBI) under the applicable FEMA regulations

Pre-requisites for a foreign company to have branch office in India

The following points are considered by the RBI while accepting the application and sanctioning establishment of BO of foreign entities:

  • Profit making track record during the immediately preceding five financial years in the home country.
  • Net Worth of not less than USD 100,000 or its equivalent as per the latest audited balance sheet or account statement certified by a Certified Public Accountant or any registered accounts practitioner.
  • Proprietary concerns set up abroad are not allowed to establish BO in India

A BO can be established by a body incorporated outside India, including a firm or association of persons, involved in manufacturing or trading activities. Foreign company has to make an application to the RBI in e-Form FNC through the authorized dealer bank (AD bank). The applications for BO approval are considered by the RBI through two routes:

  • Automatic 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.
  • Government 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.

Permission to set up BO is initially granted for a period of 3 years, which may be extended from time to time by the AD Bank under whose jurisdiction the office is situated.

PERMITTED ACTIVITIES OF BO IN INDIA

A BO is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. The activities permitted for BO are as under:

  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 IT & development of software in India
  7. Rendering technical support to the products supplied by parent company
  8. Foreign airline/shipping company.

 The BO should be engaged in the activity in which the parent company is engaged.

Digital Signature Certificate (DSC) of the Authorized Representative.

The Information Technology Act, 2000 provides for the use of digital signatures on the documents submitted in electronic form to the prescribed authority so as to ensure the security and authenticity of the documents filed electronically. Hence, all filings prior to making of the application to the RBI for a BO will require affixation of the DSC of the authorized representative of the foreign company.

DOCUMENTS REQUIRED FOR SUBMISSION TO THE RBI.

Following documents are required from the foreign company for obtaining approval from RBI:

  • Copy of the Certificate of Incorporation / Registration attested by the Public Notary 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.
  • Latest audited balance sheet of the applicant company. 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 whatever name, clearly showing the net worth may be submitted.
  • A bankers' report will be required from the applicant’s banker in the host country / country of registration stating the number of years the applicant foreign company has had banking relations with that particular bank.

If all the documents are duly submitted and approved by the RBI, then, a BO is established in India. The BOs established with the RBI's approval are thereafter allotted a Unique Identification Number (UIN).

FEE STRUCTURE IN CASE OF FILING e-FORM FNC WITH THE RBI

There is no such prescribed fee charged by the RBI for filing the e-form FNC. The fee depends upon the net worth of the applicant company at the time of filing of the application in e-form FNC.

Filing documents with the Registrar of Companies (ROC)

  1. Immediate Filing

After the establishment of BO in India the applicant foreign company shall within 30 days file following with the ROC through e-Form FC-1:

  1. a certified copy of the charter, statutes or memorandum & articles of the company or other instrument constituting the constitution of the applicant  foreign company ( in English language);
  2. the full address of the registered office of the applicant foreign company ;
  3. a list of the directors & secretary of the applicant foreign company (complete details);
  4. name & address of one or more persons resident in India , authorized to accept on behalf of the company service of process and any notices or other documents for the applicant foreign company;
  5. full address of the BO of the company in India which is to be deemed to be the principal base in India;
  6. particulars of opening and closing of a place of business in India on earlier occasion(s);
  7. declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of a company and management in India or abroad;
  8. the RBI’s approval letter; and
  9. power of attorney or board resolution of the applicant foreign company in favor of the authorized representative(s) as nominated by it.

In case no office is opened by the person resident outside India within six months from the date of approval letter, the approval for establishing the office in India shall be cancelled. In cases where the person resident outside India is not able to open the office within the stipulated time frame due to reasons beyond their control, the AD Bank may consider granting extension of time for setting up the office by a further period of six months. Any further extension of time shall require the prior approval of the RBI in this regard.

2. Annual Filing

Foreign companies having branch office in India shall, in each calendar year are required to make certain filings with the ROC as regards to accounts (including its subsidiaries) as per the Companies Act.

Issuance of Certificate by ROC.

Registrar of Companies (ROC) shall issue a certificate of place of business if it has no objection in e-form FC-1 filled. Once registered with the MCA, a Corporate Identity Number (CIN) is allotted to BO by the ROC.

Post Incorporation Procedural Requirements

Other business licenses which are applicable and are required to be obtained by a BO include:

  1. Permanent account number (PAN).
  2. Tax deduction number (TAN).
  3. Shop & Establishment Registration.
  4. Goods & Service Tax Registration (if the BO provides any services in India).
 Annual Compliance Activities required for a Branch Office.

Every year a branch office is required to undertake the following activities:

  1. Maintenance of books of account
  2. Getting annual accounts audited
  3. Filling of annual activity certificate with the RBI
  4. Filling of annual return and balance sheet with ROC
  5. Intimating any change in constitution of foreign company to the RBI & ROC
  6. Intimating any change in directors of foreign company to the RBI & ROC
  7. Intimating each and every change in the BO to the RBI & ROC
  8. No additional place of business can be started unless approval is taken from the RBI.
FEE STRUCTURE IN CASE OF FILING e- FORM FC-1 WITH THE ROC

The normal fees applicable for filing e-form FC-1 with the ROC is Rs. 6000/ and incase of delay in filing the form, the additional fees shall be applicable as follows:

Period of delays

Fee applicable

Up to 30 days

2 times of normal fees

More than 30 days and up to 60 days

4 times of normal fees

More than 60 days and up to 90 days

6 times of normal fees

More than 90 days and up to 180 days

10 times of normal fees

More than 180 days

12 times of normal fees

TAX RATE

For Income tax purposes, a BO is treated as an extension of the parent foreign company in India and is taxed at the rate applicable to foreign companies. The present tax rate applicable on BO is 40% (plus cess and surcharge as applicable).

TIME PERIOD FOR REGISTRATION OF BO IN INDIA

The time period required for obtaining the approval of RBI for setting up BO is 3 to 4 weeks. The period specified may vary from case to case.

 

DATED: 21st March 2018

 

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