What is a Branch Office?
A Branch Office (BO) is a business presence established by a foreign company in India to conduct specified commercial activities. Unlike a Liaison Office, a Branch Office can engage in actual business operations and earn income in India, though with certain restrictions.
Key Characteristics of Branch Office
- Extension of Parent: Not a separate legal entity; operations are part of the foreign company
- Permitted Activities: Can conduct specific B2B business activities (no retail trading)
- Income Generation: Can earn income from permitted activities in India
- Taxation: Taxed at 40% plus applicable surcharge and cess on Indian income
- Repatriation: After-tax profits can be remitted to the parent company
- Validity: Initial approval for 3 years, renewable for further periods
When to Choose a Branch Office
Direct Business Operations
When you need to execute contracts, invoice customers, and receive payments directly in India.
Temporary Presence
When you want to test the market before committing to a full subsidiary company structure.
Specific Projects
For companies that want to execute multiple projects without incorporating a separate entity for each.
Simpler Structure
When you prefer to avoid the complexity of incorporating and maintaining a separate Indian subsidiary.
Permitted Activities for Branch Office
RBI permits Branch Offices to engage in specific activities. These are primarily B2B activities; retail trading is not permitted.
✓ Permitted Activities
- Export/import of goods
- Professional or consultancy services
- Research work in areas parent is engaged
- Promoting technical/financial collaborations
- Representing parent company in India
- Acting as buying/selling agent (B2B only)
- Providing IT and software development services
- Supporting technical support for products
✗ Prohibited Activities
- Retail trading activities of any kind
- Manufacturing or processing activities (outside SEZ)
- Sector-specific activities requiring government approval
- Core banking or financial services without RBI license
Branch Office vs Subsidiary Company
Choosing between a Branch Office and a subsidiary company is a critical decision that impacts taxation, liability, and operational flexibility.
| Aspect | Branch Office | Subsidiary Company |
|---|---|---|
| Legal Status | Extension of parent, no separate legal entity | Separate legal entity (Private Limited) |
| Liability | Parent company fully liable | Limited to share capital |
| Tax Rate | 40% + surcharge + cess | 22-25% + surcharge + cess |
| Activities | Limited to permitted B2B activities | Can conduct any legal business |
| Funding | Through inward remittance only | FDI, loans, internal accruals |
| Compliance | Moderate (FEMA, Income Tax, GST) | Higher (Companies Act, FEMA, multiple taxes) |
| Repayment | Surplus after tax freely repatriable | Dividend, buyback, capital reduction |
| Duration | Renewable blocks of 3 years | Perpetual existence |
Eligibility and Requirements
Branch Office establishment has stricter eligibility criteria compared to Liaison Office due to its ability to conduct business.
| Criteria | Requirement | Documentation |
|---|---|---|
| Profitability | Profitable track record for 5 preceding years | Audited financial statements (5 years) |
| Net Worth | Minimum USD 100,000 or equivalent | Auditor/CPA certificate |
| Capital Remittance | Must remit USD 100,000 for Indian operations | FIRC from Indian bank |
| Business Plan | Detailed activity plan for Indian operations | Projected revenue, expenses, staffing |
RBI Approval Process
The Branch Office approval process is similar to Liaison Office but involves more scrutiny due to the business nature of activities.
Application Preparation
Prepare Form FNC with 5-year financials, business plan, and proposed activities in India.
AD Bank Submission
Submit through AD Category-I bank with their recommendation letter.
RBI Processing
RBI reviews application, financials, and business plan (6-8 weeks).
Approval & Capital
Upon approval, remit USD 100,000 for Indian operations within specified time.
MCA Registration
File e-Form FC-1 with MCA within 30 days of RBI approval.
Taxation and GST
Branch Offices are subject to comprehensive taxation in India. Understanding tax obligations is crucial for compliance and planning.
Income Tax
- Tax Rate: 40% on Indian income
- Surcharge: 2% (income > ₹1Cr), 5% (> ₹10Cr)
- Health & Education Cess: 4%
- Effective Rate: ~41.6% to 42.4%
- MAT: 15% applies if book profit > taxable profit
GST Requirements
- Registration: Mandatory if turnover > ₹20 lakhs
- Monthly Returns: GSTR-1 and GSTR-3B
- Input Credit: Available on business purchases
- Export Benefits: Zero-rated supplies with LUT
- RCM: May apply on certain services
Transfer Pricing
Transactions between Branch Office and parent company must be at arm's length price. Maintain documentation to justify pricing methodology.
Annual Compliance
Branch Offices have extensive annual compliance requirements spanning multiple regulatory frameworks.
| Compliance | Due Date | Authority |
|---|---|---|
| Income Tax Return | October 31 | Income Tax Department |
| Annual Activity Certificate | Within 6 months of year-end | RBI through AD Bank |
| MCA Annual Return (FC-3) | Within 60 days of year-end | Ministry of Corporate Affairs |
| FLA Return | By July 15 | Reserve Bank of India |
| GST Returns | Monthly/Quarterly | GST Department |
| Transfer Pricing Documentation | By tax return due date | Income Tax Department |
Frequently Asked Questions
Can a Branch Office acquire property in India?
Yes, a BO can acquire immovable property for its own use with RBI permission. Cannot acquire property for letting out or investment purposes.
Can BO repatriate losses to parent company?
No, losses cannot be remitted. However, losses can be carried forward for 8 years to set off against future profits.
Is audit mandatory for Branch Office?
Yes, statutory audit by Indian Chartered Accountant is mandatory for filing income tax return and annual activity certificate.