Under FEMA and RBI Guidelines

Foreign companies seeking to establish a Branch Office (BO) in India for limited, non-retail, and non-manufacturing business purposes must comply with the rules and procedures prescribed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA).

This article outlines the step-by-step compliance framework for setting up and operating a Branch Office in India.

✅ Step-by-Step Checklist

1. Eligibility Criteria

Before initiating the application process:

• The foreign entity must have a profit-making track record of at least 5 years in its home country.
• It should have a net worth of not less than USD 1,00,000 (or equivalent).
• If these conditions are not met, a Letter of Comfort (LoC) from the parent company may be submitted.

2. Permitted Activities for BO

A Branch Office can only engage in the following activities in India:

• Export/import of goods.
• Rendering professional or consultancy services.
• Research in areas where the parent company is active.
• Promotion of technical or financial collaborations.
• Acting as a buying/selling agent in India.
• IT services and software development.
• Providing technical support for parent/group company products.
• Representation of foreign airlines or shipping companies.

❌ BOs cannot undertake retail trading or carry out manufacturing/processing activities in India.

3. Application Submission (Form FNC)

• File Form FNC (Form for New Companies) for registration.
• Submit the application to a designated AD Category-I Bank — the bank selected by the applicant for banking operations in India.

4. Document Preparation

Key documents to be filed with Form FNC include:

• Certificate of Incorporation (notarized/apostilled if applicable).
• Notarized Memorandum & Articles of Association.
• Audited financial statements for the last 5 years.
• Banker’s report from the applicant’s bank.
• Letter of Comfort, if eligibility criteria are not met.

5. Approval Process

• The AD Bank reviews and forwards the application to the RBI, if required.
• Prior approval of RBI is mandatory in the following cases:
  • Applicants from Pakistan.
  • Proposals falling under restricted sectors such as private security or telecom.

6. Bank Account Opening

• Once approved, the BO must open a bank account with the same AD Category-I Bank for receiving funds for its Indian operations.

7. Local Registration with Police Authorities

• In some cases (especially for entities from countries like China, Iran, Afghanistan), registration with the State Police Authority is mandatory.

8. Commencement Notification

• The BO must inform the AD Bank and the RBI within 6 months of receiving approval about the commencement of operations.

9. Ongoing Operational & Annual Compliance

• Operate strictly within the approved business activities.
• File Annual Activity Certificate (AAC) with the AD Bank at the end of every financial year.
• Notify RBI/AD Bank of:
  • Additional offices,
  • Change in office address,
  • Opening additional bank accounts,
  • Changes in business activity.

10. Profit Remittance

Profits and surplus funds can be remitted outside India after meeting all tax and regulatory obligations. The following must be submitted to the AD Bank:

• Audited financial statements.
• CA Certificate confirming:
  • Basis of computation of remittable profits,
  • Profits are from permitted activities only,
  • Excludes any gains from asset revaluation.

11. Closure of Branch Office

To wind up the BO, submit the following to the AD Bank:

• Copy of the original RBI approval.
• Auditor’s Certificate confirming:
  • Computation of remittable balance,
  • Disposal of assets,
  • No pending liabilities or employee dues,
  • No income accrued from foreign sources remains unrepatriated.
• A confirmation letter from the parent company declaring:
  • No ongoing litigation in India.
  • No legal impediment to closure/remittance.
• ROC compliance report under Companies Act, 2013.
• Copies of all previously filed Annual Activity Certificates (AACs).
• Sectoral regulator approval, if applicable.

🧾 Conclusion

Establishing and operating a Branch Office in India requires strict adherence to RBI and FEMA guidelines, and timely reporting and documentation at every stage. Non-compliance can lead to penalties and delays in remittance or closure.

Foreign entities are advised to work closely with:

• Authorised Dealer (AD) Banks,
• Company Secretaries or Legal Advisors, and
• Chartered Accountants for smooth navigation of the process.