Step-by-Step Guide to Establishing a Branch Office in India
India, with its status as one of the world’s largest consumer markets and a thriving global economy, is a highly attractive destination for companies worldwide looking to invest and establish business operations. As a rapidly developing economy, India presents an appealing opportunity for foreign companies aiming to expand their business interests.
For those based outside of India, setting up a branch office structure is often the preferred choice when they wish to extend their existing head office business into India or when they seek to establish a temporary presence in the country. Many international enterprises adopt this approach to explore the Indian market without committing to long-term obligations.
As a result, there is a noticeable increase in the number of foreign companies opting to register branch offices in India as a strategic move to tap into the country’s growth potential and expand their market footprint.
What is a Branch Office?
A branch office in India functions as an extension of a foreign company, enabling it to carry out business activities while remaining a separate legal entity. Unlike a liaison office, a branch office is allowed to engage in commercial operations such as research and development, technical services, consultancy, trading, and acting as an intermediary. However, the scope of its activities is confined to the parent company’s business. It is important to note that the directors of the foreign parent company are held responsible for the actions of the branch office.
Eligibility Criteria
To open a branch office in India, the foreign company must have a proven track record of profitability for the past five financial years and a minimum net worth of USD 100,000 or its equivalent. In the case of subsidiaries with weaker financials, a Letter of Comfort from the parent company can be provided as long as it meets the specified criteria.
Step-by-Step Process to Set Up a Branch Office
- Submit Application to RBI via Authorized Dealer (“AD”) Bank
The process begins by submitting an application to the Reserve Bank of India (“RBI”) through an AD Bank. The application must include documents such as the parent company’s board resolution, certificate of incorporation, and details of the intended activities. - Know Your Customer (“KYC”) Verification
The parent company must provide KYC details from its banking institution. These documents are reviewed by the AD Bank to confirm the financial stability of the company. - Prior RBI Approval in Exceptional Cases
If the branch’s activities do not fit the automated approval process, the RBI may require additional justification for prior approval. - Register with the Registrar of Companies (“ROC”)
After RBI approval, the next step is to register the branch office with the ROC in the relevant state. Required documents include the RBI permission letter, the parent company’s certificate of incorporation, and the Articles of Association and Memorandum of Association. - Obtain PAN, TAN, and Open a Bank Account
The branch must apply for a Permanent Account Number (“PAN”) from the Income Tax Department and a Tax Deduction Number (“TAN”). A local bank account must also be opened for financial transactions. - GST and Import-Export Code Registration
If the branch will be involved in trading or providing services, it must register for the Goods and Services Tax (“GST”). For those involved in importing or exporting goods, an Import-Export (“IE”) code must be obtained from the Directorate General of Foreign Trade (“DGFT”).
Required Documents
To set up a branch office in India, the following documents are required:
- Board resolution authorizing the establishment of the branch office.
- Proof of the parent company’s incorporation.
- Formal application to the RBI for approval.
- Memorandum and Articles of Association.
- Details of the company’s business, key stakeholders, and directors.
- KYC information from the parent company’s bank.
Conclusion: Is Branch Office Right for You?
Establishing a branch office in India can be a strategic move for foreign companies looking to explore the Indian market and expand their presence. By following the proper procedures and complying with regulatory requirements, businesses can tap into the growth potential of this dynamic economy. For a smooth and successful setup, consulting with professionals familiar with Indian laws and regulations is recommended.
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