What is meaning of branch activities?
It means undertaking of business activities of the foreign company in India by establishing a local place of business known as branch office. Branch activity is the activity carried on by the branch office in India, which is permitted by RBI and usually the one in which the parent company is engaged.
Who is eligible to open a branch office in India?
A company registered in a foreign country can open a branch office in India for carrying out permitted activities. Further, the foreign company should have a profit making track record during immediately preceding 5 financial years in its home country and minimum net worth of USD 100,000 or its equivalent.
Whether companies in all foreign countries are allowed to open branch office in India?
All foreign companies are allowed to open branch office in India except companies registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong kong or Macau. Companies registered in these countries need prior approval of RBI. Further, entities registered in Nepal are not allowed to establish branch office in India.
Who is the approving authority for a branch office in India?
Reserve Bank of India is the approving authority for branch offices in India. Applications for opening branch office are considered by RBI under two routes-
a. Automatic route- Where principal business of the foreign entity falls under any sector where 100% Foreign Direct Investment (FDI) is permitted under automatic route, approval is granted by RBI.
b. Government route- Where principal business of the foreign entity falls under any sector where 100% Foreign Direct Investment (FDI) is not permitted under automatic route and application is from non-government/ non-profit organizations/ government bodies, approval is granted by RBI with clearance from Ministry of Finance, Government of India.
What is an Authorized dealer?
Authorized dealer is a bank/ entity authorized by the Reserve Bank of India to deal in foreign exchange/ currency or any other transaction as may be allowed. An application to open a branch office is required to be made to Reserve Bank of India through an Authorized dealer. Usually, an authorized dealer is a bank.
Whether companies which do not fulfil eligibility criteria can make an application?
Companies which do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria.
Can a branch office make a request for undertaking any additional activity?
Yes, a branch office can make a request for undertaking activities in addition to what has been permitted initially by the Reserve Bank by making an application to RBI through an authorized dealer.
What is the role of authorized dealer in scrutiny of application?
The authorized dealer exercises due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensures compliance with the KYC norms before forwarding the application together with its comments/ recommendations to the RBI.
Can a branch office acquire property in India?
Branch offices of a foreign entity are permitted to acquire immovable property, in their own name, by way of purchase for their own use and to carry out permitted/incidental activities. They are not allowed to acquire immovable property for purpose of renting.
However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan or China are not allowed to acquire immovable property in India for a Branch office without prior RBI approval. These entities are allowed to lease immovable property for a period not exceeding five years at one time.
Can a foreign company establish more than one branch offices in India?
Yes, a foreign company can establish more than one branch office in India subject to approval of RBI. In case the number of offices exceeds 4, the applicant has to justify the need for additional office.
Can a branch office open a bank account in India?
Branch offices are allowed to open non-interest bearing INR current account with authorized dealer bank.
What is a UIN number?
UIN- Unique Identification Number is allotted by RBI to branch office once it is approved. This number is used for all correspondence, compliance and filings of branch office in India.
How are the expenses of a branch office taken care of?
Expenses of a branch office are met either through inward remittance of foreign exchange from the Head Office of foreign company situated outside India or from income earned by it in India or both.
Whether there is any additional requirement for foreign banks desirous of opening a branch office in India?
Foreign banks do not require separate approval for opening branch office in India. Approval from RBI is sufficient.
Whether branch office is also required to be registered with Ministry of Corporate Affairs?
Yes, branch office is required to be registered with MCA through concerned Registrar of Companies (ROC). Once branch office is registered with RBI, it is required to get itself registered with Ministry of Corporate Affairs as an establishment of foreign company in India.
What are the compliances/ returns that are applicable to a branch office?
- Information report to DGP of concerned state within 5 days of BO becoming functional and then on a yearly basis
- Information report to AD on yearly basis
- Annual Activity certificate to RBI & DGP on yearly basis
- Annual Activity certificate & Annual audited accounts to AD & Directorate General of Income Tax on yearly basis
- Annual return and accounts with ROC
What are other business licenses applicable to a branch office?
Apart from registration with RBI, a branch office is required to obtain following registrations-
- Permanent Account Number
- Tax Deduction Number, if required
- VAT & CST registration, if required
- Registrations under applicable tax laws
- MCA approval
What is the procedure regarding closure of branch office?
The branch office is required to approach the authorized dealer along with prescribed documents, the authorized dealer after detailed verification of the documents and subject to prescribed process will forward the application for closure to Reserve Bank of India for approval.