How to Set Up a Branch Office?

To set up a branch office is a strategic and planned decision for companies who are looking to expand their footprint into new markets, whether domestic or international. In India, many foreign companies, as well as Indian businesses, establish branch offices to conduct specific business activities, enhance market access, or provide improved customer service.

This blog explains the complete process of setting up a branch office in India in simple words, including the legal requirements, key steps, documents, and frequently asked questions.

What is a Branch Office?

A Branch Office is an extension of an existing company. It is not a separate legal entity but functions as part of the parent company. The branch office can perform specific operations such as providing customer service, marketing, import/export, consultancy, and more—depending on the permissions granted.

Foreign companies can open the branch offices in India with the required approval from the Reserve Bank of India (RBI) and under the certain provisions of the Foreign Exchange Management Act (FEMA), 1999. Indian companies can also open branch offices in different states or cities to expand operations.

Key Features of a Branch Office

• Not a separate legal entity.
• Operates as an extension of the parent company.
• Liable for the parent company’s obligations.
• Requires approval (especially in the case of foreign companies).
• Limited to permitted activities.

Who Can Open a Branch Office?

1. For Indian Companies:

• Any registered Indian company (Private Limited, LLP, or Public Company) can open a branch office in another city or state in India.

2. For Foreign Companies:

Foreign companies can engage in the manufacturing or trading activities are allowed to open a branch office in India. The parent company must have:

• A profitable track record for the last 5 financial years.
• A net worth of at least USD 100,000 (excluding intangible assets) as per the latest audited balance sheet.

If the foreign company does not meet the above criteria, its parent company may issue a Letter of Comfort (LoC), provided the parent meets the eligibility requirements and agrees to support the branch office’s operations in India.

Permitted Activities for a Foreign Branch Office in India

According to RBI guidelines, a branch office in India can carry out the following:

• Export/import of goods.
• Rendering professional or consultancy services.
• Research work in areas of interest to the parent company.
• Promoting technical or financial collaborations.
• Representing the parent company in India.
• Acting as a buying/selling agent for the parent company.
• Providing IT services and software development.
• Technical support for the products which is supplied by the parent company.

Activities Not Allowed

A branch office is not permitted to:

• Carry out retail trading.
• Undertake manufacturing activities (directly).
• Earn income from any activity not expressly permitted by RBI.

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

1. Determine Eligibility

To ensure the parent company meets the required financial criteria (profit-making track record and net worth). Also, determine if the business activities are permitted.

2. Choose a Location

Decide the city/state where the branch office will be located. It should be accessible and suited to the business operations.

3. Apply for Approval from RBI

Foreign companies must need to obtain permission from the Reserve Bank of India (RBI) by submitting Form FNC through an Authorised Dealer Category-I Bank (usually their banker). The Authorised dealer Bank reviews and examine the documents and forwards the application to the RBI for further processing.

4. File Form FNC

Submit the Form FNC (Foreign Company) to the RBI through the designated bank. The form must include:

• Company incorporation documents.
• Board resolution.
• Power of Attorney in the favour of an authorized representative.
• Audited financials of the parent company.
• Details of business activities and purpose.

5. Registration with ROC (Registrar of Companies)

Once the approval from RBI is received, then branch office must need to register with the Registrar of Companies (ROC) under Section 380 of the Companies Act, 2013 by filing Form FC-1 through the MCA21 online portal within 30 days of receiving RBI approval. This step ensures compliance with Indian company laws.

6. PAN and TAN Application

Apply for a Permanent Account Number, viz. (PAN) and the Tax Deduction and Collection Account Number viz. (TAN) from the Income Tax Department.

7. Open a Bank Account

Open a current account in the name of the branch office. This will be used for all financial transactions.

8. Obtain Other Registrations

Depending on the nature of the business, you may need:

• GST Registration.
• Shops and Establishment License.
• Professional Tax Registration.
• Import Export Code (IEC), if applicable.

9. Lease or Rent Office Space

Select and rent/lease a physical space. Keep a copy of the rental agreement and utility bill for use in address proof documents.

Foreign companies are generally permitted to lease property in India for business operations. However, in certain cases—such as companies from countries sharing land borders with India—ownership of property may be restricted and allowed only on a lease basis, subject to RBI approval

10. Start Operations

Once all formalities are completed, you may commence business operations as per the permitted activities.

Documents Required for Setting up Branch office

• Certificate of Incorporation of the parent company.
• Memorandum & Articles of Association.
• Audited financial statements for the last 5 years.
• Board Resolution authorizing setup in India.
• Power of Attorney for the Indian representative.
• KYC of authorized signatories.
• Details of the proposed branch office.
• RBI approval letter.
• Address proof and NOC from the landlord (for office premises).

Timeline

The entire process of setting up a foreign branch office in India can typically take around 4 to 8 weeks, not guaranteed, depending on the approvals and documentation accuracy.

Compliance After Setting Up a Branch Office

Once the branch office is set up, it must comply with ongoing regulations, such as:

• Filing annual financial statements with ROC.
• Filing Annual Activity Certificate with RBI.
• Maintaining books of accounts.
• Deducting TDS and filing GST returns, if applicable.
• Fulfilling labour law obligations.

The Annual Activity Certificate (AAC) must be submitted to the RBI through the Authorised Dealer Bank within six months from the end of the financial year (i.e., by September 30 for most companies).

Advantages of a Branch Office

• Direct control by the parent company.
• Suitable for service-oriented businesses.
• Ability to conduct business in India without incorporating a separate entity.
• Better brand presence in local markets.

Disadvantages of a Branch Office

• Cannot engage in manufacturing or retail trading.
• Liabilities extend to the parent company.
• Limited autonomy for local operations.
• Regulatory approvals take time.

Conclusion

To set up a branch office in India can be a smart way to expand and enhance your business and reach to the wider level audience. It allows companies—both Indian and foreign—to explore new markets while staying connected to their core operations. However, it is essential to follow the legal framework laid out by authorities like the RBI and ROC, and ensure full compliance with the law. If you need any professional assistance then do contact to CRSPL Business Consultants, we will guide you at every step.

While the process might seem challenging at first, but with the help of proper planning, strategy, documentation, and professional assistance, it can be completed in a smooth manner. Branch offices are an effective manner to scale up operations without the need to form a new legal entity.

Frequently Asked Questions (FAQs)

Q1: Can a branch office generate revenue in India?

Yes, but only from activities that are expressly permitted by the RBI. For foreign companies, this includes consultancy, export/import, and services—not retail or manufacturing.

Q2: What is the validity of branch office approval in India?

There is no specific validity period, but RBI approval may specify conditions. Continued operation depends on compliance with applicable laws.

Q3: Is it mandatory to appoint an Indian citizen as the representative of a branch office?

No, but the authorized signatory or representative must reside in India and be responsible for the office’s operations.

Q4: Can a branch office hire local employees?

Yes, a branch office is allowed to hire staff locally to manage and operate the branch.

Q5: Do Indian companies need RBI approval to open a branch office in another state?

No. Indian companies can open branches anywhere in India without RBI approval but must inform the ROC and other authorities, as required.