A branch office in India allows a foreign company to carry out specified commercial activities, including export/import trading, professional and consultancy services, and research work, and to earn income taxable in India as a foreign company, unlike a liaison office.
A branch office sits between a liaison office and a full Indian subsidiary. It lets the foreign parent transact commercially in its own name in India, without incorporating a separate Indian legal entity, but it comes with a higher entry threshold, a narrower list of permitted activities, and exposure to Indian corporate tax at foreign-company rates. This article covers eligibility, the activities a branch office may legally undertake, the approval process, ongoing costs, and the tax and repatriation consequences that follow once the office is operational.
What Is a Branch Office and How Is It Different from a Subsidiary?
A branch office is an extension of the foreign parent, not a separately incorporated Indian company. It carries the same legal personality as its head office, meaning all contracts entered into by the branch bind the parent directly, and all liabilities of the branch are liabilities of the foreign company.
This is the central distinction from a wholly owned subsidiary, which is a separate Indian legal entity, incorporated under the Companies Act, 2013, with its own limited liability shield. A branch office offers faster market entry for companies that already have an established commercial relationship or contract in India and do not wish to set up a full subsidiary immediately, but it does not offer the liability insulation a subsidiary provides.
Who Is Eligible to Open a Branch Office in India?
A foreign company is eligible to open a branch office if it has a profit-making track record during each of the immediately preceding five financial years in its home country, and a net worth of not less than USD 100,000 or its equivalent, based on the latest audited balance sheet (Master Direction on Establishment of BO/LO/PO in India, RBI).
As with liaison offices, an applicant that does not independently meet these criteria but is a subsidiary of a larger group may rely on a Letter of Comfort from a parent or group company that satisfies the profitability and net worth tests.
Table 1: Eligibility criteria for a branch office in India
| Parameter | Requirement | Source |
|---|---|---|
| Profitability track record | Profit in each of the immediately preceding 5 financial years | RBI Master Direction on BO/LO/PO |
| Minimum net worth | USD 100,000 or equivalent | RBI Master Direction on BO/LO/PO |
| Net worth basis | Paid-up capital + free reserves − intangible assets | RBI Master Direction on BO/LO/PO |
| Alternative for subsidiaries | Letter of Comfort from qualifying parent/group company | RBI Master Direction on BO/LO/PO |
| Sector restriction | Manufacturing and retail trading are generally not permitted directly | FEMA 22(R)/2016-RB |
| Restricted-country applicants | Entities from bordering countries and certain other jurisdictions require Government route approval | FEMA 22(R)/2016-RB |
What Activities Can a Branch Office Undertake in India?
Permitted activities include export and import of goods, rendering professional or consultancy services, carrying out research work in areas in which the parent company is engaged, promoting technical and financial collaborations between Indian companies and the overseas parent or group company, and acting as a buying or selling agent in India.
A branch office may also render services in information technology and software development in India, provide technical support for products supplied by the parent group, represent a foreign airline or shipping line, and undertake activities incidental to these functions. It cannot, however, carry out manufacturing or processing activities directly in India, although it may subcontract these to an Indian manufacturer. Retail trading of any kind, in any form, is not permitted.
Table 2: Permitted vs prohibited activities for a branch office
| Category | Allowed | Not allowed |
|---|---|---|
| Trading | Export and import of goods | Retail trading in any form |
| Services | Professional/consultancy services, IT and software services | Activities outside RBI-approved scope for that office |
| Manufacturing | Subcontracting manufacturing to an Indian manufacturer | Direct manufacturing or processing in India |
| Research | Research work aligned with parent’s business | Unrelated commercial research for third parties |
| Representation | Acting as buying/selling agent, representing foreign airline/shipping line | Acting outside the specific activities approved in the licence |
| Income | Earning income from permitted activities, taxable in India | Undisclosed or unapproved revenue streams |
What Is the Approval Process and Timeline for a Branch Office?
Applications are filed in Form FNC with an AD Category-I Bank, along with the parent company’s incorporation documents, five years of audited financials, a banker’s report, and a description of the proposed activities and the commercial rationale, typically including the underlying contract or business relationship that justifies the Indian presence.
As with liaison offices, most applications proceed through the Reserve Bank route, with the AD Bank empowered to approve directly where eligibility norms are met and the proposed activities fall within the standard permitted list. Applications from restricted sectors, restricted countries, or those proposing activities outside the standard list, go through the Government route, involving RBI reference to the Department of Economic Affairs.
Table 3: Process to establish a branch office in India
| Step | Action | Responsible party | Typical deadline | Form/Portal | Typical turnaround |
|---|---|---|---|---|---|
| 1 | Prepare Form FNC with business rationale and financials | Applicant with Indian advisor | Before commencing activity | Form FNC | 2–4 weeks (indicative) |
| 2 | File with AD Category-I Bank | Applicant | At filing | AD Bank | Same day |
| 3 | AD Bank/RBI scrutiny (Government route where applicable) | RBI / AD Bank | Per internal timelines | RBI reference | 6–12 weeks (indicative) |
| 4 | Grant of approval and Unique Identification Number | RBI/AD Bank | On satisfaction of conditions | Approval letter | 6–14 weeks from filing (indicative) |
| 5 | Registrar of Companies registration | Branch office | Within 30 days of establishment | Form FC-1, MCA portal | 1–2 weeks (indicative) |
| 6 | PAN, TAN and GST registration | Branch office | Before commencing billing | Respective portals | 2–3 weeks (indicative) |
| 7 | Bank account opening and commencement of operations | Branch office, AD Bank | After UIN allotment | AD Bank | 1 week (indicative) |
Documents and Indicative Costs
Table 4: Key documents for a branch office application
| Document | Issued by | Apostille/notarisation required? | Validity |
|---|---|---|---|
| Certificate of Incorporation | Home country registrar | Yes | Not applicable |
| Memorandum/Articles of Association | Applicant company | Yes | Not applicable |
| Audited financials (5 years) | Applicant’s statutory auditor | Yes | Most recent 5 years |
| Banker’s report | Applicant’s home-country banker | Yes | Typically within 6 months |
| Description of proposed activities and underlying contracts | Applicant | No | Current at time of filing |
| Board resolution | Applicant’s board | Yes | Not applicable |
Table 5: Indicative costs of setting up a branch office in India
| Head | Statutory fee (₹) | Indicative professional fee | Frequency | Notes |
|---|---|---|---|---|
| Form FNC filing and approval support | No statutory government fee for filing | ₹1,50,000–₹3,00,000 | One-time | Higher for Government route |
| Registrar of Companies registration | As per Companies (ROC) Fees Rules | ₹30,000–₹60,000 | One-time | Includes Form FC-1/FC-3 support |
| PAN, TAN, GST registration | Nominal statutory fees | ₹20,000–₹45,000 | One-time | GST needed once billing begins |
| Annual tax return and transfer pricing compliance | No statutory fee for filing itself | ₹1,50,000–₹4,00,000 | Annual | Depends on transaction volume |
| Statutory audit | No statutory fee | ₹1,00,000–₹2,50,000 | Annual | Chartered Accountant firm |
Key Insights and Information
A branch office is taxed as a foreign company under Indian income tax law, which means its Indian-sourced profits are taxed at the higher foreign-company corporate tax rate, materially above the rate applicable to an Indian subsidiary.
Because a branch office and its head office are the same legal person, any transaction between them is not a related-party transaction in the company law sense, but transfer pricing provisions under the Income-tax Act, 1961, still apply to cross-border dealings between the branch and its head office or group companies.
Manufacturing is a common area of confusion: a branch office can commission manufacturing through an Indian third-party contractor under its own brand, but it cannot own or operate a manufacturing facility directly, which is a distinction that affects supply-chain structuring decisions from day one.
Retail trading, including e-commerce sales to Indian consumers, is not available to a branch office under any circumstance, regardless of the parent’s line of business elsewhere in the world.
Profits earned by a branch office are remittable to the head office after payment of applicable Indian taxes, but the remittance itself requires a chartered accountant’s certificate confirming tax compliance, filed through the AD Bank.
Extension of the branch office’s operating period, where a validity period is attached to the specific business or project, must be sought well before expiry, since operating beyond the approved period without extension is treated as operating without valid permission.
Penalties and Cure
Table 6: Penalties and regularisation for branch office defaults
| Default | Provision | Exposure | Regularisation route |
|---|---|---|---|
| Undertaking activity outside approved scope | FEMA 22(R)/2016-RB | Penalty up to thrice the sum involved or ₹2 lakh, plus ₹5,000/day continuing | Compounding application to RBI |
| Delay in ROC registration | Companies Act, 2013, Section 380 | Additional filing fees, prosecution risk | Belated filing with additional fee |
| Non-payment or short payment of corporate tax | Income-tax Act, 1961 | Interest, penalty, and potential prosecution for wilful default | Voluntary disclosure and payment with interest |
| Remittance of profits without tax clearance | FEMA/Income-tax Act, 1961 | AD Bank refusal, potential FEMA contravention | Obtain chartered accountant certificate and tax clearance before remittance |
A General Example
A Singapore-based trading company secures a long-term supply contract with an Indian industrial buyer and wants to invoice locally in rupees while retaining direct control, rather than routing everything through a distributor. It meets the USD 100,000 net worth and five-year profitability tests.
It applies for a branch office under the Reserve Bank route, with import/export trading and buying/selling agency listed as its permitted activities. Once approved and registered with the Registrar of Companies, it obtains PAN, TAN and GST registration, opens a rupee current account, and begins invoicing the Indian buyer directly from the branch. At year end, its Indian profits are taxed at the foreign-company corporate rate, and after filing its tax return and obtaining the requisite chartered accountant certificate, it remits the post-tax surplus back to Singapore through its AD Bank.
FAQ
What is the minimum net worth needed to open a branch office in India?
The minimum net worth required is USD 100,000 or its equivalent, based on paid-up capital plus free reserves minus intangible assets from the latest audited balance sheet. This is double the threshold applicable to a liaison office.
Can a branch office manufacture goods in India?
No, a branch office cannot directly carry out manufacturing or processing activities in India. It can commission an Indian third-party manufacturer to produce goods on its behalf under a subcontracting arrangement.
How is a branch office taxed differently from an Indian subsidiary?
A branch office is taxed as a foreign company, attracting a higher corporate tax rate than an Indian-incorporated subsidiary, which is taxed as a domestic company. This rate differential is a key factor in choosing between the two structures.
Can a branch office sell products directly to Indian consumers online?
No, retail trading, including online sales to end consumers, is not a permitted activity for a branch office under any circumstance. Companies wanting to sell directly to consumers typically need an Indian subsidiary structure instead.
How long does branch office approval take in India?
Approval typically takes six to fourteen weeks under the Reserve Bank route, depending on documentation and the AD Bank’s processing time. Government route cases, involving additional security clearance, generally take longer.
Can profits earned by a branch office be freely repatriated?
Yes, profits can be repatriated to the head office after payment of applicable Indian taxes, supported by a chartered accountant’s certificate confirming tax compliance, submitted through the AD Bank for the outward remittance.
Does a branch office need to register for GST in India?
Yes, once the branch office commences billing for goods or services within India, it must register for Goods and Services Tax like any other person carrying on business, subject to the applicable turnover and activity thresholds.
What happens if a branch office operates beyond its approved activities?
Operating outside the approved scope of activities is a contravention of the FEMA regulations governing branch offices, exposing the parent company to monetary penalties and possible restrictions on further remittances until the position is regularised.
Is a Letter of Comfort acceptable if the branch office applicant is loss-making?
Yes, if the applicant does not independently meet the profitability or net worth test, a Letter of Comfort from a parent or group company that does meet these criteria can support the application, subject to RBI/AD Bank satisfaction.
Can a US technology company open a branch office in India to provide software services?
Yes, rendering information technology and software development services is an explicitly permitted activity for a branch office, provided the applicant meets the eligibility criteria and is not from a restricted country requiring Government route clearance.
Does a branch office require its own separate PAN card in India?
Yes, a branch office must obtain its own Permanent Account Number for Indian tax filing purposes, distinct from any PAN the parent company may separately hold for other Indian dealings.
What is the difference between a branch office and a project office in India?
A branch office supports ongoing commercial activity across a range of permitted functions, while a project office is set up strictly to execute a specific contract awarded to the foreign company in India and typically winds up once that project concludes.
Sources
- Foreign Exchange Management Act, 1999 — Reserve Bank of India
- FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations, 2016 — Reserve Bank of India
- Master Direction on Establishment of Branch Office/Liaison Office/Project Office in India by Foreign Entities — Reserve Bank of India
- Income-tax Act, 1961 — Central Board of Direct Taxes
- Companies Act, 2013 — Ministry of Corporate Affairs
If your company has a confirmed Indian contract or trading relationship, CompanyIN can assess whether a branch office fits your activity profile and manage the Form FNC filing end to end with your AD Category-I Bank.
Disclaimer: This article is prepared for general informational purposes only and does not constitute legal, tax or investment advice. Regulatory positions summarised here are based on publicly available instruments as at the date stated and may change through subsequent notifications, circulars or amendments. You should consult a qualified professional before acting on any information contained in this article.
