Opening a Branch Office in India- Checklist, Procedure, and Pre-Requisites
What is a Branch Office and what purpose does it serve?
A branch office is basically a supplementary building of the head office of a business entity which is established from the perspective of expansion. It serves more or less the same purpose as the head building however, daily tasks may differ depending on the company’s policies. In many cases, branch offices provide foreign companies the opportunity to establish their business in India on a temporary basis. However, companies can also go for inaugurating a branch office of their business to avoid demonstrating any long-term commitments.
How to know if you are eligible to set up a branch office?
In order to set up a branch office in India, there are certain terms and conditions your business needs to comply with. Let’s discuss them briefly:
- The name of your branch office must be the same as the name of your head office.
- An Indian company cannot establish a branch office. Meaning, that the company seeking permission to build a branch office but be from foreign origin.
- If you are not generating any revenue from Indian business activates through your branch office, then all the incurred expenses must be managed by your head branch.
- The annual capital of your branch cannot be less than 7 million.
- Your company’s 5-year financial records must not showcase losses. You won’t be able to establish a branch office if your business isn’t profitable.
What can you do if you are unable to meet the financial criteria?
In case you’re not able to fiscal benchmark, you can always seek assistance by issuing a Letter of Comfort (LoC). However, even after that, you at least need to standardize to net profit criteria.
What activities can you carry out as a branch office?
Even if you become a certified branch office, there are certain restrictions on the type of work you can carry out. That includes:
- You can only manufacture for export purposes in Special Economic Zones (SEZ) with proper licensing.
- If you are working in the manufacturing and trading sector through your branch office, you need to provide proof of conducting similar activities in your head office situated in your home country.
What is the procedure for establishing a branch office?
- Get your approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999.
- Next, you need to fill out the FNC form including all your certified documents. Once done, submit it to the RBI. This method is only applicable for potential foreign investors who conduct their business under permissible automatic route
- In the case of other sectors, the application must be submitted by the foreign entity through the AD category to the Ministry of Finance.
- If you wish to set up your branches in more than one location, then you need to taking permission for each branch separately.
Setting up your branch is a huge task, but the most efficient way to expand your business overseas!