Setting up a Branch Office in India: Step-by-Step Guide for Foreign Companies

India is one of the fastest-growing economies in the world. With its huge population, skilled workforce, and strong demand for products and services, many foreign companies are looking to expand their business in India. One of the easiest ways to start operations without creating a new company is by setting up a Branch Office in India.

This guide will explain everything you need to know about opening a branch office in India, its meaning, benefits, legal requirements, documents needed, process, and compliance.

What is a Branch Office in India?

A Branch Office is an extension of a foreign company in India. It allows overseas businesses to carry out specific business activities while remaining under the parent company’s control. The branch office is not a separate legal entity. Instead, it operates as a part of the foreign company.

The main purpose of a branch office is to represent the parent company in India and carry out permitted commercial activities. However, it cannot engage in manufacturing directly in India.

Who Can Open a Branch Office in India?

Not every foreign company can open a branch office in India. Certain conditions must be met:

1. The parent company must have a profitable track record for the last 5 years.
2. The company must have a net worth of at least USD 100,000.
3. Approval from the Reserve Bank of India (RBI) is mandatory before starting operations.

Permitted Activities of a Branch Office

The Reserve Bank of India allows a branch office to conduct the following activities:

• Export or import of goods.
• Providing professional or consultancy services.
• Conducting research work in sectors where the parent company is engaged.
• Promoting technical or financial collaborations between Indian companies and parent/group companies abroad.
• Representing the parent company in India.
• Acting as a buying/selling agent in India.
• Providing IT services and software development.
• Acting as a foreign airline or shipping company.

Activities Not Allowed for a Branch Office

A branch office in India cannot:

• Carry out retail trading.
• Engage directly in manufacturing.
• Earn income from activities not permitted by the RBI.

Advantages of Setting up a Branch Office in India

Opening a branch office in India has several benefits for foreign companies:

1. Market Entry – It provides easy access to the growing Indian market.
2. Brand Presence – The company can promote its brand directly in India.
3. Profit Repatriation – Profits earned by the branch office can be sent back to the parent company after paying taxes.
4. Skilled Workforce – India has a large pool of skilled professionals, which helps in business growth.
5. Networking Opportunities – Direct access to Indian partners, customers, and government bodies.

Documents Required for Setting up a Branch Office

To open a branch office in India, the following documents are required:

• Certificate of Incorporation of the parent company.
• Memorandum of Association (MOA) and Articles of Association (AOA).
• Audited financial statements of the parent company for the last 5 years.
• Letter of authority from the parent company for setting up the branch.
• Details of directors of the parent company.
• Passport copies of directors and authorized representatives.
• KYC details of the parent company.

All documents must be notarized and apostilled or consularized in the home country.

Approval Process for Branch Office in India

There are two routes for setting up a branch office:

1. RBI Automatic Route – If the business sector is open for 100% Foreign Direct Investment (FDI), approval comes under the automatic route.
2. RBI Approval Route – If the sector is restricted or not fully open for FDI, specific approval is required from the RBI.

The application for approval is filed with the Foreign Exchange Department of RBI through an Authorized Dealer Category-I Bank.

Step-by-Step Process to Set up a Branch Office in India

Here is a simplified step-by-step process:

1. Hire a Professional Consultant – Get professional help to prepare documents and ensure compliance.
2. Prepare Documents – Collect and notarize the required documents of the parent company.
3. File Application with RBI – Apply through an Authorized Dealer Bank to the RBI for branch office approval.
4. RBI Approval – RBI reviews the application and grants approval.
5. Register with ROC – After RBI approval, register the branch office with the Registrar of Companies (ROC) under the Companies Act, 2013.
6. PAN and TAN Application – Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
7. Open Bank Account – Open a bank account for business transactions in India.
8. Register for GST – If applicable, register under GST laws.
9. Start Operations – Once all registrations are complete, the branch office can begin business activities.

Compliance Requirements for Branch Office in India

After starting operations, a branch office must follow certain compliance rules:

1. Annual Filings with ROC – File annual returns and audited financial statements.
2. Annual Activity Certificate (AAC) – Submit to the RBI through an Authorized Dealer Bank.
3. Income Tax Compliance – File income tax returns every year.
4. GST Compliance – If registered under GST, file regular GST returns.
5. Other Sector-Specific Compliance – Depending on the industry, additional approvals may be required.

Taxation of a Branch Office in India

A branch office is treated as a foreign company under Indian tax laws. The current corporate tax rate for a branch office is 40% plus surcharge and cess.

Since a branch office is not considered a separate entity, profits earned in India can be repatriated back to the parent company after paying taxes.

Challenges in Setting up a Branch Office

While setting up a branch office is beneficial, companies may face some challenges:

• Approval process with RBI may take time.
• High compliance and taxation compared to other entities.
• Restrictions on activities (no manufacturing and retail trading).
• Limited scope of operations compared to subsidiaries.

Alternative to Branch Office

If a foreign company wants more freedom and flexibility, it can also consider:

• Liaison Office – Only for communication and coordination, not for earning revenue.
• Project Office – For executing specific projects in India.
• Wholly Owned Subsidiary (WOS) – A separate Indian company with full control of the parent company.

Conclusion

India offers vast opportunities for global businesses. Setting up a Branch Office in India is one of the most effective ways for foreign companies to establish their presence in the Indian market. It allows them to explore business opportunities, connect with Indian customers, and expand operations while remaining under the parent company’s structure.

However, the process involves RBI approval, strict compliance, and proper documentation. That is why expert guidance is always recommended to avoid delays and legal issues.

If you are planning to expand your business in India through a branch office, taking professional support can make the process smooth and stress-free.

Groom Tax can help you with complete branch office setup, RBI approvals, ROC registration, taxation, and compliance support. With the right guidance, your business can grow successfully in India.