The opening up of branch offices is one of the options by which a foreign company can set up its business operations in India. It needs to obtain a prior permission from Reserve Bank of India (RBI) for setting up such offices in India. As per the guidelines issued by RBI, these branch offices are subjected to the following conditions:-
- The branch office cannot expand its activities or undertake any new trading, commercial or industrial activity other than those which are expressly approved by the RBI
- The entire expense of the branch office in India will be met either out of the funds received by it from abroad through normal banking channels or through income generated by it in India
- The branch office cannot accept any deposits in India;
- The commission earned by the branch office from parties abroad for any agency business will be repatriated to India through normal banking channels.
Also, the foreign companies engaged in manufacturing and trading activities abroad are allowed to set up branch offices in India for the following purposes:
- Undertaking export or import of goods
- Rendering professional or consultancy services
- Carrying out research work, in which the parent company is engaged (provided that the results of the research work are made available to the Indian Companies)
- Promoting technical or financial collaborations between Indian companies and the parent or overseas group company
- Representing the parent company in India and acting as buying/selling agents in India
- Rendering services in information technology and development of software in India
- Rendering technical support to the products supplied by the parent/ overseas group companies
- Foreign airlines or shipping companies are also permitted to open their branch offices in India.
But, branch offices can undertake only trading activities and are not permitted to carry out manufacturing activities on its own, though it is permitted to sub contract these to Indian manufacturers. Such offices are a part of the foreign company and are not treated as a separate legal entity.
For opening a branch office, the foreign company needs to submit its formal application to the Chief General Manager, Exchange Control Department (Foreign Investment Division), RBI Central Office, Mumbai in the form FNC-1. These applications are considered on a case-to-case basis. The RBI generally gives permission in a time span of about 2 to 4 weeks. The application must include the following details:-
- Operating history of the company worldwide
- Proposed interests and activities in India
- Reasons for wanting to open a branch office and
- Any foreign exchange implications for such matters.
The branch offices may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines. They need not retain any profits as reserves in India. But in certain cases, where income is deemed to have originated in India and such income includes royalties, fees for technical services, interest and capital gains including capital gains from share of capital in India, branch offices may repatriate profits to their Head Office without obtaining prior approval from RBI.