A BRANCH OFFICE (“BO”) is one of the models for a foreign company to enter India and understand the Indian market with a very strict control by the Reserve Bank of India (RBI), as it does allow the foreign companies to test and do business in India; subject to certain conditions.
In the present article the procedure of registration of BO, nature of business, related regulations, reporting’s, permissible activities and the closure of BO have been discussed.
Application to RBI
The RBI may consider the application for setting up a BO in prescribed format [application in Form FNC with documents to be filed with Authorized Dealer Bank (AD Bank) for onward transmission to RBI] under two routes, i.e. automatic route or the approval route.2
There are certain criterions which are considered by the RBI while entertaining an application for registration of a BO, namely:
- Profit making track record of the foreign entity during the immediately preceding five financial years in the home country;
- Net Worth of the foreign entity of not less than USD 100,000 or its equivalent.
The prescribed documentation to be filed for registration of a BO will generally include the following:
- Request letter detailing the facts of the company, proposed activities in India by the Branch Office. Any other information, which a company wishes to furnish, that would strengthen the application;
- Duly filled Form FNC (in three copies);
- Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration [if the original certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country];
- Memorandum of Association and Articles of Association [if the original certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country];
- Audited Balance sheet of immediate 5 financial years;
- Certificate issued by Chartered Accountant (CA) / Certified Public Accountant (CPA) summarizing the FY-wise Profit/Loss details of the preceding 5 years;
- Name, Address, email ID and telephone number of the authorized person in Home Country;
- Details of Bankers of the Organization the Country of Origin along with the bank account number;
- Commitment from the Organization to the effect that it will be open to report / opinion sought from its banker by the Government of India / Reserve Bank of India;
- Expected funding level for operations in India;
- Details Relating to address of the proposed local office, number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided;
- Details of Activity carried out in Home Country by the applicant organization in brief about the product and services of company in Brief.
- Banker’s Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank;
- CA certificate confirming the Net Worth (total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance);
- Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per Annex-2 (as provided in RBI’s Master Circular dated July, 01, 2014), subject to the condition that the parent company satisfies the eligibility criteria as prescribed in the Master Circular of RBI;
- Power of Attorney / Board Resolution authorizing the concerned person to sign the Form FNC (along with Passport copy to validate the signatures).
The AD Bank (through which an applicant liaison with the RBI) may seek further documentation, including the above mentioned documents, in order to fulfill its KYC requirement, namely:
- Valid addresses proof of parent entity for registered address;
- Photograph, photo ID and Address Proof of all authorized signatories, key individuals, such as two senior most directors, all partners, all office bearers in case of society / association of persons, all trustees, settlers, protectors, ultimate individual shareholders/beneficiaries holding 10% and above shares/interest etc. of the parent entity as applicable;
- Individuals related to the account as authorized signatories /POA holders/directors are required to self-attest all identity and residence address proofs and their photographs duly signed on the face of the photograph;
- All entity documents to be duly certified by director/company secretary/trustee as applicable.
The above stated list of documents / information is not exhaustive and may differ depending upon the requirement from the AD Bank. It is to be noted that all foreign documents have to be notarized and self attested. Further, KYC review has to be completed for all the accounts maintained by the applicant organization.
The BOs established with the RBI’s approval are allotted a Unique Identification Number (UIN). BOs are also required to obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.
Section 380 of Companies Act, 2013:
- Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration—
- A certified copy of the charter, statutes or memorandum and articles, of the company or other instrument constituting or defining the constitution of the company and, if the instrument is not in the English language, a certified translation thereof in the English language;
- The full address of the registered or principal office of the company;
- A list of the directors and secretary of the company containing such particulars as may be prescribed;
- The name and address or the names and addresses of one or more persons resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company;
- The full address of the office of the company in India which is deemed to be its principal place of business in India;
- (f) Particulars of opening and closing of a place of business in India on earlier occasion or occasions;
- Declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of companies and management in India or abroad; and
- Any other information as may be prescribed.
Every BO after being registered with the RBI ought to get itself registered with the Ministry of Corporate Affairs (MCA), for it to be registered as an establishment of a foreign company in India within 30days after the establishment of the Company. The following documents shall be filled with the Registrar of Companies (RoC):
- Form FC-1;
- Charter, statutes or memorandum and articles of association or other Instrument constituting or defining the constitution of the company(In the manner provided under Rule 16, 17 of the Companies (Central Government’s) General Rules and Forms, 1956);
- Director(s) details – individuals;
- Director(s) details – bodies corporate;
- Reserve bank of India approval letter;
- Secretary(s) details;
- Power of attorney or board resolution in favor of the authorized representative(s).
Once registered with the MCA, a Corporate Identity Number (CIN) is allotted to the BO by the RoC.
Other business licenses which are applicable and are required to be obtained by a BO include:
- Permanent account number (PAN);
- Tax deduction number (TAN);
- Shop & Establishment Registration;
- Service Tax Registration (if the BO provides any services in India);
- VAT & CST Registration (if the Branch carries out trading activities in India).
A BO is permitted to acquire immovable property by way of purchase for its own use and to carry out permitted/incidental activities.5 BOs have general permission to carry out permitted / incidental activities from lease property subject to lease period not exceeding five years.
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