How to set up a branch office of a foreign company in India?

How to set up a branch office of a foreign company in India

How to set up a branch office of a foreign company in India?

How to set up a branch office of a foreign

company in India?

The Indian market has seen significant growth in the past few years and has turned out to be a lucrative workspace for companies in India as well as abroad. This has attracted foreign companies to start their branch office (BO) in India to boost profits. As India continues to grow at an unprecedented pace, arousing foreign companies’ keen interest to tap the resources and opportunities, there are a set of regulations, rules, and compliances that they need to follow to set up their branch office.


If the company follows all the rules and meets all the requirements leading to the right establishment presence, it can make all the difference between wasted efforts and success in setting up the branch. One of the main challenges is the lack of a viable and good commercial space in major cities of India under their budget. Therefore they can take the alternative of setting it up in business centers to establish a strong physical presence. The Government of India is making all the attempts to help foreign companies looking to set up a branch office in India. Let’s look at the important aspects that you need to consider while setting up a branch office of a foreign company in India.

Branch office of a foreign company in India

The main reason as to why foreign companies set up a branch office is to help them with easier management and carrying out activities in that particular area or country. It can be seen as an extension of the parent company, headquartered in a different country. The companies act, 2013, has all the provisions required for setting up a business in India. According to the companies act 2013, a foreign company is a company or body corporate incorporated outside India and which has a place of business, whether by itself or through an agent, in this country. The RBI under section 11 issues directions to the authorized person for conducting foreign exchange business, and this includes setting up a branch office as well. FEMA,1999 together with RBI, established the rules for the formation of a branch office.

Eligibility requirements for setting up of branch office by a foreign company in India

The foreign exchange management act (FEMA) governs the establishment of a branch office for a foreign company or corporation in India. There is a set of established regulations to which the foreign company has to adhere to in order to start a branch office. One of the most fundamental factors to become eligible is that the business must use its assets only to perform the company’s activities and other associated operations. Also, the foreign company cannot acquire any piece of land or purchase it for renting purposes and must strictly use it to carry out business activities. Two more important qualifications are

  • The net worth of the company must be equal to or more than $100,000.
  • The foreign company must have a continuous profitability record for 5 or more years.

Necessary registration requirements for setting up a branch office in India

The procedure of setting up a branch office of a foreign company in India can take up several weeks. Most of the time will be taken by RBI as it can take up to 4 weeks to approve and grant permission, given all the requirements are met, and all the documents are handed over on time. The company needs to provide a detailed history of all the activities and objectives of the parent company. A list of proposed and intended activities that are going to be carried out at the branch office in India is also needed to be informed. The company also needs to inform the main reason as to why they chose India to set up its branch office. Finally, they need to fill a number of forms provided by RBI and make sure that the company functions under a sector that fully allows foreign direct investments (FDI), and if the operations of the company do not fall under the required sector, then it should send the form to the foreign ministry. Once all the required and important information is disclosed, and transparency is maintained, the process of registrations gets easier.

What are the important documents required for setting up a branch office?

A wide set of documents are needed to be deposited by the branch office of the foreign company to set up in India. The company also needs to fill the required set of standard forms given by competent authorities while attaching a few more documents with it. Documents that are required by the parent company to be submitted are:
  • Certificate of incorporation or registration of the company
  • Memorandum of association (MOA) and article of association (AOA)
  • A detailed list of key executives or directors
  • A detailed list of shareholders of the parent company <
  • Certified public accountant (CPA) attested net worth certificate
  • An audited financial statement of the last five preceding years of the parent company
  • A banker's report by the banker of the parent company's host country
  • 5 color photographs of director and copy of passport each
  • Business visa copy with immigration stamp on arrival
  • Latest address proof and a national identity card

What is the procedure for setting up a branch office of a foreign company in India?

Once all the above-mentioned eligibility requirements, documents requirements, and other compliances are met, the company can submit the application of form FNC along with the mentioned documents. The official exercises due diligence with respect to the background of the applicant. If all the requirements are met satisfactorily by the applicant’s company, the branch office can be set up in India. However, before receiving the approval letter, a copy of the FNC form is forwarded to the reserve bank of India (RBI), and a unique identification number (UIN) is allotted to the branch office. Only after receiving the UIN, the approval letter is given to the branch office. The registration of the branch office can take up to 45 days, and renewal of the registration is not required for up to 2 to 3 years. Once the approval is given, the branch office needs to set up the office within 6 months, and in case the office is not set up within 6 months, the approval lapses. The branch offices are also allowed to shift their office from one city to another inside the territory of India without any special approval.

Compliances under the companies act, 2013

Under the companies act, 2013 if any foreign company establishes a branch office in India or any other place of business, it shall be treated as a foreign company under section 2(42). This act defines a foreign company as “A foreign company is a company or body corporate incorporated outside India having a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other manner.” The foreign companies are governed under the chapter XXII of the companies act, 2013 and companies (registration of foreign companies) rule, 2014. Every foreign company is required to file an eForm FC-1 to MCA or the ministry of corporate affairs within 1 month of the establishment of a branch office in India. In case there needs to be an altercation in the documents submitted, the company needs to submit the detailed list of altercations as prescribed by the format by the registrar of companies in eFORM FC-2 within 1 month of alteration.

Important conditions for setting up of branch office in India

Taxation in India

Income tax is applicable on the profits earned by the branch office of a foreign company in India that is 40%, and additional surcharges as applicable. Goods and services tax (GST) is also applicable to the supply of goods and services by the company.

Net worth requirement

The parent company or the foreign mother company must have a profitable past record for at least 5 continuous years. The company must be able to show a net worth of more than or equal to $100,000, which must be supported by a financial statement.

Permission for-profit remittances

The profits made by the branch office in India are freely allowed to remit from India to its parent company abroad without having to pay any additional charges or fines. However, before sending the remittances, it must make payment of applicable taxes and also audit the books of accounts.

What are the basic rights granted to branch offices in India?

Right to acquire a property

The branch office of a foreign company is allowed to acquire immovable property like buildings or plots of land for the purpose of setting up factories, offices, or any other infrastructure. But if the company originates from Pakistan, Bangladesh, Sri Lanka, Iran, Bhutan, China, and Afghanistan, they are not allowed to acquire or buy land in India. However, they are only allowed to carry out permitted activities supplemented to the operation of the parent company. One can also lease the property, but the lease period must not exceed a period of 5 years.

INR current accounts for carrying out business transactions

The branch offices of the foreign company are required to open their bank accounts with any bank in India. They must open a current account that is non-interest bearing and make all the transactions through that account.

Remittance of profit

The branch offices can remit profits to their parent company abroad after it’s subjected to taxes and after the documents are produced to authorized dealers.

Term deposit account

This type of account is sanctioned only by an authorized dealer to the satisfaction of the bank that the deposit is made out of surplus funds of the company. The branch office must, however, utilise the funds only for their Indian offices and within 3 months of maturity. These accounts are not available for shipping or airline companies.

Funding of branch office by a foreign company

There are three important way through which the funding of branch office can be raised in India-

Debentures and borrowings

These are redeemable and can be either convertible or non-convertible. Companies can issue bonds, debt securities, or debentures, and when these get converted into equity shares, they are treated as foreign direct investments.

Share capitals

These can either be equity shares, which is the most common way in which Indian companies usually finance. Another option is called preference share capital which is convertible shares, and such shares are regarded as FDI.

Implications of COVID-19 on internal auditing

Implications of COVID-19 on internal auditing

Implications of COVID-19 on internal auditing

Amidst the pandemic’s challenging time, the world seems to have paused, and we are in a situation where all we can do is fight and face the difficulties on the health and economic front. It is vital to note that during this period, internal auditing plays a crucial role. The disruptive and unprecedented effects on individuals, society, and government due to COVID 19 has shifted the employee’s workplace back to their homes. The companies in the process have developed a new business model to continue their operations. Consequently, internal auditing also requires a refreshed approach. Here, we have mentioned a few of such implications on the immediate risk areas during Covid 19, and the role of internal auditing.

Impacts of the pandemic on internal auditing

Reprioritizing activities

It’s important to adapt to new situations and challenges in front of us. It requires reassessing the priorities in order to take into account the newly emerged immediate threats. This can include, for example, the senior internal auditor to shift to a more consultive approach or actively taking part in emergency committee meetings and being close to management.


One of the other key roles can be engaging in pro-active activities like advising the business on workarounds and changes in the operations, limiting audit scope to key aspects to assure minimum controls that won’t be compromised despite the crisis.

Re-evaluating audit planning and engagement scope
The planning phase of any type of auditing is probably the most important phase in the auditing process. During the times of Covid 19, it’s imperative to acknowledge all the limitations and restrictions that companies might be facing due to the pandemic. The planned scope will help in reassessing whether or not the audits are still relevant to the business. This might include the addition of certain areas or deletion of some.
Fieldwork
The pandemic has brought life to a standstill and restricted movement in almost every part of the world. At such times, owing to travel restrictions, auditors are obliged to work from home. However, such travel restrictions should not affect the quality of work.

Therefore, careful considerations should be made to determine whether or not all the activities included in the phase of fieldwork can be performed on a remote basis such as conducting interviews, verifying the authenticity of documents, or assessing confidential data.

Communication within the auditors and between clients and managers can be a challenge. This can be solved by ensuring meetings and free communication through Skype, Zoom, or any other such medium.
Post audit follow up
The business operations are shaken up due to unprecedented pandemic, and the management is naturally devoting much of its time towards crisis management. This might leave the clients in a fix about how to implement the suggestions and remedies from the audit finding in time. Therefore, the auditors must permit the dispensation to let the client’s management focus on more urgent matters that pose a threat to the business.
Reporting
One of the most important and key elements of the reporting phase is communication. Clear and consistent communication is expected by audit teams during communications. However, the reporting must have some changes during this time pandemic on the basis of the frequency and the way the auditors report.

For example, they must focus on key risks rather than a distressing report with low-risk findings. Also, while reporting the audit teams must keep in mind that the management of clients has potentially limited capacity to revert back or work on issues reported by them on short notices owing to limited staff and mobilization due to Covid 19.
Some final thoughts
COVID pandemic is a black swan crisis that has successfully pushed businesses from almost every industry into unknown territories. The changing landscapes have left companies uncomfortable in uncovering unforeseen risks. It’s time to develop a flexible and creative outlook in order to manage the crisis. If the internal auditors keep in mind the possible challenges that they might face, it will help them give a plausible explanation and solution to the problems their clients are facing as well. The above-mentioned implications give the internal auditors a bird’s eye view of how during this exceptional time, they need to adopt a refreshed approach of internal auditing and assessing the problems.