India has become one of the fastest-growing economies in the world. With its large consumer base, skilled workforce, and business-friendly policies, many foreign companies are looking at India as an attractive market to expand their presence. One of the most common ways to enter the Indian market is by opening a branch office.
If you are a business owner outside India and planning to expand, this blog will guide you step by step. We will cover what a branch office is, its benefits, eligibility, documents required, approval process, compliance, and more.
What is a Branch Office in India?
A branch office is an extension of a foreign company in India. It is not a separate legal entity but works as an office of the parent company. This means the parent company is responsible for all its activities, profits, and losses.
A branch office in India can carry out activities like providing services, acting as a buying or selling agent, conducting research, and promoting technical or financial collaborations. However, it cannot engage in retail trading, manufacturing, or direct commercial sales.
Benefits of Opening a Branch Office in India
Opening a branch office in India offers many benefits to foreign companies.
- Market Expansion – A branch office allows the parent company to directly enter the Indian market and explore business opportunities.
- Brand Visibility – It helps in building brand recognition in one of the world’s largest markets.
- Easy Hiring – The office can employ local talent, which reduces costs and helps understand the local culture.
- Access to Consumers – With over 1.4 billion people, India provides access to a huge customer base.
- Smooth Operations – Since a branch office is an extension of the parent company, it is easier to manage compared to forming a new company.
Eligibility to Open a Branch Office
Not every company is allowed to set up a branch office in India. The parent company must meet certain conditions:
- The company should have a profitable track record for the last 5 years.
- The company’s net worth should be at least USD 100,000.
- Approval from the Reserve Bank of India (RBI) is mandatory before setting up the office.
Activities Permitted for a Branch Office in India
A branch office can carry out specific activities as permitted by the RBI:
- Import and export of goods.
- Acting as a buying or selling agent in India.
- Providing professional or consultancy services.
- Conducting research work in areas where the parent company is engaged.
- Promoting collaborations between Indian and foreign companies.
- Acting as a representative office of the parent company.
- Providing IT and software development services.
Activities Not Permitted for a Branch Office
The RBI has also placed some restrictions on branch offices. They cannot:
- Carry out manufacturing activities in India.
- Undertake retail trading directly with consumers.
- Generate income from any activity that is not approved by the RBI.
Documents Required for Setting up a Branch Office
To open a branch office in India, you will need to prepare and submit the following documents:
- Certificate of Incorporation of the parent company.
- Memorandum of Association (MOA) and Articles of Association (AOA).
- The latest audited financial statements of the parent company.
- Letter of authority from the parent company.
- Bankers’ report from the parent company’s home country.
- Details of directors and shareholders.
- KYC documents of directors (passport, address proof, etc.).
All these documents must be notarized and legalized, usually through the Indian embassy in the home country.
Process of Opening a Branch Office in India
The process involves multiple steps and approvals. Here is a simplified step-by-step guide:
Step 1: Application to RBI
The first step is filing an application with the Reserve Bank of India through the Authorized Dealer (Category I Bank).
Step 2: RBI Review
The RBI reviews the application, financial background, and proposed activities of the company.
Step 3: Approval from RBI
Once approved, the RBI issues a letter allowing the foreign company to set up its branch office in India.
Step 4: Registration with ROC
The company must register the branch office with the Registrar of Companies (ROC) under the Companies Act, 2013.
Step 5: PAN and TAN Application
The branch office needs to apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN).
Step 6: Opening a Bank Account
The branch office can open a bank account in India to carry out transactions.
Step 7: GST Registration and Other Licenses
Depending on the activities, the office may need GST registration, Professional Tax registration, or other local licenses.
Taxation of Branch Offices in India
A branch office in India is treated as a foreign company for tax purposes. The key points are:
- Income earned in India is taxable.
- Currently, the tax rate for branch offices is 40% plus surcharge and cess.
- A branch office must file annual income tax returns.
- Double Tax Avoidance Agreements (DTAA) may help reduce the tax burden.
Compliance Requirements
After setting up, a branch office must follow several compliance requirements:
- Filing annual accounts and audit reports with the RBI.
- Filing annual returns with the ROC.
- Regular income tax return filings.
- GST filings, if registered.
- Maintaining proper books of accounts in India.
Challenges in Opening a Branch Office
While opening a branch office offers great opportunities, it also comes with challenges:
- Lengthy approval process from RBI and other authorities.
- High compliance costs compared to a liaison office.
- Taxation at higher rates than domestic companies.
- Limited activities permitted under RBI guidelines.
Alternative Options to Enter India
If a branch office is not the right option, foreign companies can also consider:
- Liaison Office – For communication, networking, and promotion.
- Project Office – For temporary projects in India.
- Wholly Owned Subsidiary – For full control and a wider scope of operations.
- Joint Venture – For partnering with an Indian company.
Key Takeaways
India offers huge opportunities for foreign companies that want to expand globally. A branch office is one of the most effective ways to establish a presence in India while maintaining direct control from the parent company. However, the process involves multiple legal and regulatory requirements, including RBI and ROC approvals, taxation, and compliance.
Before setting up a branch office, companies should carefully analyze their long-term goals, business activities, and compliance costs. With the right planning and expert guidance, entering the Indian market can bring long-term success and growth.
If you are planning to open a branch office in India and want professional assistance with approvals, registrations, and compliance, you can get expert help from Groom Tax.
