A branch would mean an establishment carrying on substantially the same activity as its Head Office.
As per the guidelines laid down by the RBI, the Branch Office in India is allowed to carry on only the following activities:
- Export / Import of goods
- Rendering professional or consultancy services
- Carrying out research work, in which the parent company is engaged
- Promoting technical or financial collaboration between Indian companies and parent or overseas group companies
- 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
Approval / Incorporation
Foreign companies intending to open a Branch Office in India need to obtain prior permission of RBI which would encompass even approval to the scope of activities that are intended to be carried out in India.
In addition to above, the foreign company is also required to obtain a Certificate of establishment of place of business in India from the Registrar of Companies (ROC).
Typical Points about Branch Office
- Branch Office is considered a part of the foreign company and is not treated as a separate legal entity.
- The office can undertake trading activities, but not manufacturing.
- It is subject to taxation in India at 42.23% on income accrued in India.
- If there is a double taxation agreement with the country in which the foreign company is incorporated, the tax paid in India can be set off against the total tax payable by the parent company abroad.
- Branch offices may repatriate profits to their Head Office without obtaining prior approval.
- The Branch Office would not expand its activities or undertake any new trading, commercial or industrial activity other than that is expressly approved by the RBI.
- The entire expenses of the Branch Office in India will be met either out of the funds received from abroad through normal banking channels or through income generated by it in India.
- The Branch Office will not accept any deposits in India.
Repatriation of Profits
A Branch Office can remit the profits (net of any withholding tax) generated out of its operations in India on production of the prescribed documents, and on establishing that it has earned a net profit by undertaking the permitted activities. The Branch Office need not retain any profits as reserves in India.