Branch Office in India: RBI Approval, Setup & Compliance

Introduction: When a Branch Office Makes Strategic Sense

This article is part of our Complete Guide to Company Registration in India for Foreign Companies. Here we dive deep into the branch office route, one of three options a foreign company has to establish a physical presence in India without incorporating a separate legal entity.

A branch office is not a separate legal entity. It is an extension of the parent company, operating in India under the parent's name and legal identity. This means the parent company bears unlimited liability for the branch's operations in India, a fundamental distinction from a wholly owned subsidiary, where the parent's liability is limited to its investment.

Foreign companies typically choose the branch office route when they want to execute project contracts in India, provide professional or consultancy services, conduct research, or represent the parent company as a buying or selling agent. If your objective is to test the Indian market before committing to a full subsidiary, or if your activities are limited to services rather than manufacturing or retail, a branch office may be the right structure. For a detailed side-by-side comparison, see our branch office vs subsidiary comparison and branch office vs liaison office comparison.

Permitted and Prohibited Activities

The RBI's Master Direction on Establishment of Branch Office, Liaison Office, or Project Office in India specifies the activities a branch office is permitted to carry out. Understanding these restrictions is critical because operating outside the approved scope is a FEMA contravention that can lead to closure of the office and penalties.

Permitted Activities

A branch office in India may engage in the following activities:

1. Export and import of goods: The branch can directly engage in cross-border trade, making it suitable for trading companies.
2. Rendering professional or consultancy services: This covers IT services, management consulting, engineering services, and other professional activities that the parent company is engaged in.
3. Carrying out research work: The branch can conduct research in areas where the parent company is actively engaged, provided the results are shared with the parent.
4. Promoting technical or financial collaborations: The branch can facilitate partnerships between Indian companies and the parent or overseas group companies.
5. Representing the parent company in India: This includes acting as a liaison for communications, marketing, and relationship management.
6. Acting as buying or selling agent: The branch can purchase goods in India for export or sell imported goods to Indian buyers.
7. Rendering IT services and software development: A specific carve-out for technology companies providing IT services from India.
8. Rendering technical support: Supporting products supplied by the parent or group companies to Indian customers.

Prohibited Activities

A branch office in India cannot:

• Engage in retail trading of any kind, whether physical stores or e-commerce
• Engage in wholesale trading activities
• Directly undertake manufacturing or processing activities (though subcontracting manufacturing to an Indian manufacturer is permitted)
• Carry out any activity not specified in the RBI approval letter

The prohibition on manufacturing is absolute for direct operations, but the subcontracting exception is significant. A foreign company that wants to manufacture in India through a branch office can subcontract the manufacturing to an Indian company while the branch handles procurement, quality control, and export logistics.

Eligibility Requirements

Before applying for branch office registration, the parent company must meet specific financial and operational criteria:

• Profit track record: The parent company must have been profitable for at least 5 of the immediately preceding financial years in its home country.
• Net worth requirement: The parent company's net worth must be at least USD 100,000 (approximately INR 83 lakhs). Net worth is calculated as paid-up capital plus free reserves minus intangible assets, based on the latest audited balance sheet.
• No adverse regulatory history: The parent company should not have been penalised by any regulatory authority in its home country for financial irregularities.

Note: The RBI's Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025, released in October 2025, proposes removing the minimum net worth and profit track record requirements. If adopted, this would significantly lower the barrier to entry. However, until the final regulations are notified, the current requirements remain in effect.

Step-by-Step Setup Process

The branch office registration process involves three distinct phases: RBI approval, ROC registration, and operational setup.

Phase 1: RBI Approval (4-8 Weeks)

The application for RBI approval is submitted through an Authorised Dealer (AD) Category-I bank in India. You cannot apply directly to the RBI. The steps are:

1. Appoint an AD bank: Choose a scheduled commercial bank authorised by the RBI to deal in foreign exchange. Major international banks (HSBC, Standard Chartered, Citibank) and large Indian banks (SBI, ICICI, HDFC) all serve as AD banks.
2. Submit the application: The AD bank forwards the application to the RBI with supporting documents. The application must detail the proposed activities, the expected volume of operations, the source of funding, and the name of the authorised representative in India.
3. Security clearance (if applicable): If the parent company is incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Mainland China, Hong Kong, or Macau, a security clearance from the Ministry of Home Affairs is required. This can add 4-8 additional weeks to the process.
4. RBI review and approval: The RBI evaluates the application based on the parent company's track record, the nature of proposed activities, and alignment with FDI policy. Approval is typically issued within 4-6 weeks for straightforward applications from non-restricted countries.

Phase 2: ROC Registration (2-4 Weeks)

Once RBI approval is received, the branch office must be registered with the Registrar of Companies (ROC) within 30 days of the approval date.

1. File Form FC-1: This form registers the foreign company's place of business in India. It is filed on the MCA (Ministry of Corporate Affairs) V3 portal.
2. Documents with FC-1: Certified copy of the parent company's charter, statutes, or memorandum and articles of association; the full address of the registered office in India; a list of directors and the secretary of the foreign company; the name and address of at least one person authorised to accept service of legal process on behalf of the company; and the RBI approval letter.
3. Obtain a Corporate Identity Number (CIN): Upon successful filing, the ROC issues a CIN for the branch office, which is required for all subsequent regulatory filings.

Phase 3: Operational Setup (2-4 Weeks)

1. Obtain PAN: Apply for a Permanent Account Number from the Income Tax Department. This is mandatory for all tax filings, bank account operations, and regulatory compliance.
2. Open a bank account: Open a current account with the AD bank in the name of the branch office. The parent company can remit funds to this account for operational expenses.
3. Register for GST: If the branch office provides taxable services or engages in import/export, GST registration is mandatory. The threshold exemption of INR 20 lakhs (INR 10 lakhs for special category states) does not apply to inter-state supplies, and most branch office activities will constitute inter-state supply of services.
4. Register for Professional Tax: This varies by state and is required in most states where the branch has employees.
5. Obtain TAN: A Tax Deduction and Collection Account Number is required if the branch office makes payments subject to TDS (tax deducted at source).

The RBI approval lapses if the branch office does not become operational within 6 months of the approval date. Extensions are possible but require a fresh application to the AD bank.

Required Documents Checklist

The following documents are required for branch office registration. All foreign documents must be notarised, apostilled (or attested by the Indian Embassy if the country is not a party to the Hague Apostille Convention), and translated into English if in another language.

Taxation of a Branch Office

A branch office is treated as a permanent establishment (PE) of the foreign company in India. This has significant tax implications:

Corporate Tax Rate

Branch offices are taxed as foreign companies at a base rate of 35% (reduced from 40% by the Finance Act, 2024, effective from April 1, 2024). With surcharge and cess, the effective rates are:

By contrast, a domestic subsidiary (Pvt Ltd) can opt for the concessional rate of 22% under Section 115BAA, yielding an effective rate of 25.17%. This rate differential of approximately 11 to 13 percentage points is a critical factor in choosing between a branch office and a subsidiary.

DTAA Benefits

If India has a Double Taxation Avoidance Agreement (DTAA) with the parent company's home country, the branch can claim treaty benefits to avoid being taxed twice on the same income. However, the branch must obtain a Tax Residency Certificate (TRC) from the home country and file Form 10F with the Indian tax authorities.

Profit Repatriation

A branch office can remit net profits (after Indian taxes) to the parent company without any additional dividend distribution tax. This is one advantage over a subsidiary, which pays corporate tax and then the parent pays tax on dividends received. However, the branch must have its accounts audited and tax returns filed before repatriating profits.

Ongoing Annual Compliance

Operating a branch office in India requires compliance with multiple regulatory bodies throughout the year. Here is the complete compliance calendar:

Annual Activity Certificate: The Most Critical Filing

The Annual Activity Certificate (AAC) is unique to branch offices, liaison offices, and project offices. It must be obtained from a practising Chartered Accountant who certifies that the branch office operated within the scope of activities approved by the RBI during the financial year. The AAC is submitted to the AD bank along with audited financial statements by September 30.

If the CA finds that the branch has engaged in activities beyond the approved scope, this must be disclosed. The RBI can revoke the approval and order closure of the branch office. This is not a theoretical risk: the RBI has issued closure orders to offices that deviated from their approved activity scope.

Setup Costs

A realistic budget for setting up a branch office in India should account for the following:

Total initial setup cost typically ranges from INR 3,00,000 to INR 9,00,000 (approximately USD 3,600 to USD 10,800), excluding office rent and staffing. Annual ongoing compliance costs run INR 2,00,000 to INR 4,00,000 (approximately USD 2,400 to USD 4,800).

Key Takeaways

• A branch office is an extension of the parent company, not a separate legal entity, meaning the parent bears unlimited liability for its Indian operations.
• Permitted activities are limited to services, trade, and representation. Manufacturing and retail trading are prohibited.
• The parent company must show a 5-year profit track record and a net worth of at least USD 100,000, though proposed 2025 draft regulations may remove these requirements.
• RBI approval takes 4-8 weeks through the AD bank route, with an additional 4-8 weeks for security clearance for entities from restricted countries.
• Branch offices are taxed at an effective rate of 36.40% to 38.22%, approximately 11-13 percentage points higher than the concessional rate available to domestic subsidiaries.
• Annual compliance includes FC-3 and FC-4 with ROC, the Annual Activity Certificate with RBI, plus income tax, GST, and TDS filings.