The principals and procedure to be followed while establishing a branch office in India is governed by the Section 6(6) of Foreign Exchange Management Act ,1999 r/w Notification No FEMA 22/2000-RB dated May3, 2000 as amended from time to time.
The branch office as per notification no FEMA 22 (R) RB-2016 dated 31/03/2016 means any establishment described as such by the company.
Opening a branch office of Foreign company
A foreign company intends to open a branch in India required to obtain a prior approval from the Reserve Bank of India. However, the following companies need not required a prior approval of the RBI for establishing a branch in India for establishing a branch office:
- The banking company if it has taken a necessary approval under the provisions of banking regulation Act.
- An Insurance company if it has taken a necessary approval under the provisions of IRDA Act 1999.
- A company resident outside India if it intends to establish a branch office in the Special Economic Zones (SEZs) to undertake manufacturing and service activities, subject to the conditions that: i) such branch offices are functioning in those sectors where 100% FDI is permitted; ii) such branch offices comply with Chapter XXII of the Companies Act, 2013; and iii) such branch offices function on a stand-alone basis.
For opening an additional branch the application may be made to the AD category-I bank with prescribed FNC form with a justification and need for additional branch office.
The relevant law is enumerated in the provisions of Foreign Exchange Management Act, 1999.
The foreign company desirous of opening a branch in India has to full fill a following criteria as per the Master Circular No.7/2015-16:
- The foreign company should have a profit-making track record for the period of 5 years in the home country.
- Net worth of the foreign company should not be less than 100,000 USD or equivalent as per the latest audited balance sheet.
The application for opening a branch should be forwarded by the foreign company through AD category-I bank to the reserve bank of India in a prescribed form with prescribed documents.
Permissible activities for Branch offices
The foreign companies engaged in trading and manufacturing companies outside India can set up branch office with specific approval from the RBI. Branch office should be engaged in the activity in which parent company is engaged. On such approval, such branches will be permitted to represent their parent / group companies in India. Such branches are permitted to undertake following activities:
- Export / Import of goods.
- Rendering professional or consultancy services.
- Carrying out research work, in areas in which the parent company is engaged.
- Promoting technical or financial collaborations 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.
Fund based and non- fund based activities
Authorised Dealer Category-I bank may extend fund and/or non-fund based facilities to branch office and project offices based on the guidelines issued by the Reserve Bank in this regard.
Activities not allowed
- Cannot engaged in any activity other than the activity in which parent is engaged.
- Retail trading is not allowed to the branch.
- Cannot carry out manufacturing and processing activities in India.