By Manu Rao | Updated March 2026
What Is a Branch Office?
A Branch Office (BO) is not a separate legal entity. It functions as an extension of the foreign parent company in India. The parent company bears full liability for the branch's operations. Branch offices are regulated by the Reserve Bank of India under FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations 2016.
Foreign companies that want to test the Indian market without creating a separate Indian entity often start with a branch office. It allows them to carry out commercial activities but with restrictions on what those activities can be.
Legal Framework
Two regulatory frameworks govern branch offices:
- FEMA Regulations 2016 — Regulation 4 governs establishment and permitted activities
- Companies Act 2013, Section 380 — Foreign companies must register with the Registrar of Companies within 30 days of establishing a place of business in India
The RBI grants approval for branch offices through its regional offices. Since 2016, the process moved to the Indian Banks' Association (IBA) for initial review, with final approval from RBI.
Permitted Activities
A branch office in India can only carry out these activities (Regulation 4(b)):
- Export/import of goods
- Rendering professional or consultancy services
- Research work in the area the parent company is engaged in
- Promoting technical or financial collaboration between Indian and foreign companies
- Representing the parent company in India and acting as buying/selling agent
- Rendering IT and software development services
- Technical support for products supplied by the parent company
A branch office cannot carry out manufacturing or processing activities on its own. It cannot engage in any activity outside the approved scope without fresh RBI permission.
How to Set Up a Branch Office in India
The approval process involves multiple regulators:
- Apply to AD Bank — Submit application Form FNC to the Authorized Dealer Category-I bank along with required documents
- IBA review — The AD bank forwards the application to IBA for processing
- RBI approval — RBI grants or rejects the application. Timeline: 4-8 weeks for straightforward cases
- Register with ROC — File Form FC-1 with the Registrar of Companies within 30 days (Section 380)
- Obtain PAN and TAN — Apply for Permanent Account Number and Tax Deduction Account Number
- Open bank account — The branch can maintain a bank account in India for its permitted activities
Eligibility Criteria
The foreign parent company must meet these conditions:
| Criterion | Requirement |
|---|---|
| Track record | Profitable in 5 out of the last 7 years in its home country |
| Net worth | Not less than USD 100,000 (or equivalent) |
| Sector | Must not be engaged in activities prohibited under FDI policy |
Companies from Pakistan and Bangladesh face additional restrictions. They must obtain prior approval from RBI regardless of the sector.
Documents Required
- Certificate of incorporation (or equivalent) of the parent company — apostilled
- Latest audited balance sheet and profit & loss account of the parent company
- Board resolution authorizing the opening of a branch office in India
- Power of attorney in favor of the authorized representative in India
- Details of activities to be carried out
- Banker's report from the parent company's bank
Tax and Repatriation
Branch offices are taxed at 40% on income earned in India (plus surcharge and cess — effective rate approximately 43.68% for income exceeding Rs. 10 crore). This is higher than the 22-25% rate available to Indian incorporated companies.
Profits can be repatriated to the parent company. The branch must submit an Auditor's Certificate to the AD bank certifying that the remittance represents net profit after Indian taxes. RBI permits profit repatriation without further approval as long as the branch files its returns and pays taxes.
GST Registration
Branch offices providing services must register under GST. Since the branch and parent company are distinct persons under GST law, services imported from the parent company to the branch attract GST under the reverse charge mechanism (Section 5(3) of IGST Act 2017).
Annual Compliance
- Annual Activity Certificate (AAC) — Submit to the AD bank by September 30, certified by a Chartered Accountant
- Form FC-3 — Annual return with ROC (financial statements of foreign company), within 60 days of the AGM of the parent company
- Form FC-4 — Annual return of the foreign company, within 60 days of the end of the financial year
- Income Tax Return — File ITR-6 by October 31
- Transfer Pricing Report — If transactions with the parent company exceed Rs. 1 crore, transfer pricing documentation under Section 92E is required
Common Mistakes
- Carrying out manufacturing — Branch offices cannot manufacture. A foreign company that wants to manufacture must set up a Wholly Owned Subsidiary or a Joint Venture.
- Missing ROC registration — Many foreign companies get RBI approval but forget to register with the ROC within 30 days. Section 392 imposes penalties for non-compliance.
- Not filing the AAC — The Annual Activity Certificate is mandatory. Failure to file it for 2 consecutive years gives RBI the power to close the branch office.
- Mixing up branch and liaison office — A liaison office cannot earn income in India. A branch office can. Choosing the wrong type creates compliance problems.
- Ignoring transfer pricing — Transactions between the branch and parent company are international transactions under Section 92B. Not maintaining transfer pricing documentation invites penalties under Section 271G.
Practical Example
A German engineering firm with annual revenue of EUR 50 million wants to provide technical support for its industrial equipment sold to Indian factories. Manufacturing happens in Germany; only after-sales service is needed in India.
The firm applies for a branch office through its AD bank (a State Bank of India branch authorized to deal in foreign exchange). It meets the profitability criterion (profitable in all 7 of the last 7 years) and the net worth threshold. RBI grants approval in 6 weeks.
The firm registers with the ROC in Delhi (where the branch is located), obtains PAN and GST registration, hires 5 Indian engineers, and begins providing technical support. Profits are taxed at the higher 40% rate but can be repatriated to Germany after tax. The India-Germany DTAA (Article 7) provides relief from double taxation on business profits attributed to the branch.
Branch Office vs. Subsidiary vs. Liaison Office
A branch office sits between a Liaison Office (no commercial activity allowed) and a Wholly Owned Subsidiary (full commercial freedom, separate legal entity). See our Subsidiary vs Branch Office comparison for help deciding. If you need to earn revenue in India but do not want to incorporate a separate company, a branch office works. If you need full operational freedom, go with a subsidiary.
Need help picking the right structure? Visit our company registration services.