Foreign Company can open branch office in India due to several reasons:
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:
Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.
a.Retail trading activities of any nature is not allowed for a Branch Office in India.
b.A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
c. Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.
• 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.• In addition to this, the foreign company is also required to obtain a Certificate of establishment of place of business in India from the Registrar of Companies (ROC).• 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.
The applications from such entities in Form FNC will be considered by the Reserve Bank under two routes:
• Reserve Bank Route – Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
• Government Route – Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organisations / Non – Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.
The following additional criteria are also considered by the Reserve Bank while sanctioning Branch Offices of foreign entities:
• A profit making track record during the immediately preceding five financial years in the home country.
• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name]not less than USD 100,000 or its equivalent.