register-branch-india-of-foreign-company



To Register Branch of foreign company in India

 

If your foreign company wishes to carry out trading / commercial activities in India,   it may establish a branch office in India, with the prior approval of RBI, for undertaking only certain restricted / specified activities. 

Advantages of branch

  • A Branch offices can generate revenue from the sales in the local market and repatriate the profits to the foreign parent company (prima facie, a ‘liaison office’ can not generate own sales from local market).
  • Funding is possible through the receipts from the parent company and from business operations in India.
  • Branch offices set up with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.

Disadvantages of branch

  • Branch can only carry out limited restricted activities such as :-

                        i.                A branch office cannot carry on any manufacturing activities. Manufacturing activities can be carried on only through the means of a company incorporated in India.

                      ii.                Undertake the export and import of goods;

                      iii.                Render professional or consultancy services;

                     iv.                Carry out research work in which the parent company is engaged;

                       v.                Promote technical and financial collaborations between Indian companies and parent/overseas group companies;

                     vi.                Represent the parent company in India and act as buying and selling agents;

                    vii.                Render services in information technology and development of software in India;

                   viii.                Render technical support to the products supplied by the parent/group companies;

                     ix.                Operate as a foreign airline/shipping company.

  • Transfer pricing income tax regulations like arm’s length pricing etc. for transactions with Parent are applicable.
  • Branch will be taxed at rates applicable to foreign companies i.e. 40% which is higher than a private limited company (which will be at 30%)
  • In case taxation as per Double taxation treaty between India and country of parent company are more beneficial, one can opt for those rates stated in the treaty.
  • ROC has to be intimated of certificate of establishment once branch is formed in India
  • Branch office takes long time for approval of RBI (around 4-8 weeks)
  • Remittances though allowed, but are subject to  RBI guidelines and terms if stated in approval letter from RBI, if any


Our view

"Generally, (subject to facts of each case), a private limited company is a better option than a branch" for  above disadvantages and especially below disadvantages :- 

  • Branch cannot do manufacturing activity in India
  • There is no RBI approval required for private limited company
  • The status of a company is higher than a branch (in terms of status in eyes of  general public, bankers, financial institutions, government etc. as its having own independent corporate existence and a residential status in India.)
  • A company is a resident for all laws in India whereas a branch of a foreign company is a non-domestic company in Indian laws.


However, if you still wish to go for branch below are the broad steps :-


General process:-
  1. An application seeking permission for establishing a branch in the prescribed form has to be submitted to RBI for establishing a branch office in India.
  2. The lead time for processing a branch office approval typically ranges from 4-6 weeks
  3. The registrar of companies is to be intimated once branch is formed for intimating the "certificate of establishment."

Remittances to/from branch:

The RBI approval for establishing a branch office permits the opening of a bank account for meeting expenses related to Indian activities, as well as crediting proceeds/income generated in India. Branches are permitted to repatriate profits generated in India on an ongoing basis, after complying with certain procedural requirements.  

 


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