Open a Branch Office in India from Israel

How to Open a Branch Office in India from Israel

India and Israel share a dynamic economic relationship, with bilateral trade valued at approximately USD 6.53 billion in FY 2023-24 and nearly 300 Israeli companies already invested in the Indian market. For established Israeli companies that want to extend their operations into India without creating a separate legal entity, a Branch Office (BO) provides an effective entry strategy. A Branch Office operates as an extension of the Israeli parent company, carrying out permitted business activities in India while maintaining its identity as part of the foreign parent.

Unlike incorporating a Private Limited Company or an LLP, setting up a Branch Office requires prior approval from the Reserve Bank of India (RBI). The application is submitted through an Authorised Dealer Category-I (AD Cat-I) bank using Form FNC. Since Israel does not share a land border with India, Israeli companies are exempt from Press Note 3 of 2020 restrictions, and applications are processed under the general permission route by the AD bank itself for most standard cases.

A Branch Office is particularly suitable for Israeli technology companies providing IT services, defence firms exploring Indian partnerships, and professional services companies that want to represent their parent company in India. The office can carry out a defined set of activities as specified by the RBI, but it cannot engage in manufacturing, retail trading, or any activity not permitted under the regulations.

FDI Route and Regulatory Requirements

The establishment of a Branch Office in India by an Israeli company is governed by the Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations. The RBI has been progressively simplifying the approval framework, with the draft 2025 regulations proposing to streamline the process further by allowing AD banks to handle routine applications.

Key regulatory requirements for Israeli companies:

• RBI approval: Prior approval from the RBI is mandatory. The application is filed through an AD Category-I bank using Form FNC. For Israeli companies, the application is processed under the general permission route by the AD bank, as Israel is not a country requiring specific RBI Central Office approval.
• Eligibility criteria: The Israeli parent company must have a proven track record of profitability for the preceding five financial years and a net worth of at least USD 100,000 (or equivalent). Note that the 2025 draft regulations propose removing these thresholds, but as of March 2026, the existing criteria still apply.
• Permitted activities: A Branch Office is allowed to carry out export and import of goods, provide professional or consultancy services, conduct research, promote technical or financial collaborations, represent the parent company as a buying or selling agent, provide IT services and software development, and render technical support for parent company products.
• Prohibited activities: A Branch Office cannot engage in manufacturing, processing, retail trading, or any activity not listed in the permitted activities schedule. It cannot carry out activities beyond what was approved in the original RBI permission.
• Press Note 3 exemption: Israeli companies are fully exempt from Press Note 3 restrictions, ensuring a smoother application process without additional scrutiny from a security perspective.

The Branch Office must be established within six months of receiving RBI approval. If not opened within this period, the approval lapses unless the company obtains an extension through the AD bank.

DTAA Benefits for Israeli Investors

The India-Israel Double Taxation Avoidance Agreement (DTAA), in force since 1996, is particularly relevant for Branch Office operations. A Branch Office constitutes a Permanent Establishment (PE) in India, which has specific tax implications under the treaty.

Key DTAA rates and implications:

• Business profits: Under the DTAA, business profits of the Israeli company are taxable in India only if they are attributable to the Permanent Establishment (Branch Office) in India. Profits not attributable to the PE remain taxable only in Israel.
• Interest: 10% withholding tax on interest payments from India to Israel (compared to the domestic rate of 20%).
• Royalties: 10% withholding tax on gross royalty payments.
• Fees for Technical Services (FTS): 10% withholding tax.
• Profit remittance: The Branch Office can remit profits to the Israeli head office after deducting applicable Indian taxes. No additional withholding tax applies on profit remittance by a branch, as the branch profit has already been taxed as business income in India.

The Branch Office is taxed at the rate applicable to foreign companies in India, which is 35% on net income plus applicable surcharge and cess (effective rate approximately 37.13% to 38.22% depending on income level). This is higher than the domestic company tax rate, which is one reason Israeli companies with long-term plans in India often prefer incorporating a Private Limited Company or a Wholly Owned Subsidiary instead.

Israeli companies should obtain a Tax Residency Certificate (TRC) from the Israeli tax authority and provide it to the Indian withholding agent to claim reduced DTAA rates on any payments received from Indian entities.

Document Requirements and Authentication

Israel is a member of the Hague Apostille Convention, which means all documents originating from Israel need only be apostilled rather than undergoing full embassy legalisation. The Israeli Ministry of Foreign Affairs and other designated competent authorities can affix the apostille certificate.

Documents required for establishing a Branch Office in India:

• Certificate of incorporation: Of the Israeli parent company, apostilled
• Memorandum and Articles of Association: Or equivalent constitutional documents of the Israeli company, apostilled
• Board resolution: Authorising the establishment of a Branch Office in India, specifying the activities to be undertaken and the person authorised to represent the branch, apostilled
• Latest audited financial statements: For the preceding five years, demonstrating profitability and net worth compliance, apostilled
• Power of attorney: In favour of the authorised representative in India, apostilled
• Banker's certificate: From the Israeli parent company's principal banker, confirming the company's financial standing
• Passport and address proof: Of the authorised signatory and the person designated to head the Branch Office in India
• Form FNC: Completed application form for submission to the AD bank

For documents in Hebrew, certified English translations must be obtained and notarised in Israel before the apostille is affixed.

Step-by-Step Registration Process

Setting up a Branch Office in India from Israel follows a two-stage process: first obtaining RBI approval, then completing registration with the Registrar of Companies (RoC).

Step 1: Select an Authorised Dealer Bank

Choose an AD Category-I bank in India that will process the Branch Office application. Major banks such as State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank commonly handle these applications. The AD bank acts as an intermediary between the Israeli company and the RBI.

Step 2: Prepare and Submit Form FNC

Complete Form FNC with details of the Israeli parent company, proposed activities of the Branch Office, location in India, and the authorised representative. Submit the form along with all apostilled supporting documents through the AD bank. The AD bank reviews the application and forwards it to the RBI Foreign Exchange Department.

Step 3: Obtain RBI Approval

The RBI examines the application, verifying the Israeli company's financial track record, proposed activities, and compliance with FEMA regulations. For standard Israeli company applications under the general permission route, the AD bank itself can grant approval. Complex cases may be referred to the RBI Central Office. Approval typically takes 4-8 weeks.

Step 4: Register with the Registrar of Companies (RoC)

Within 30 days of establishing the Branch Office, file Form FC-1 with the RoC under Section 380 of the Companies Act, 2013. This form requires details of the parent company, Branch Office address, authorised representative, and a copy of the RBI approval letter.

Step 5: Obtain PAN and TAN

Apply for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) for the Branch Office. PAN is applied through Form 49AA for non-resident entities, and TAN is obtained through Form 49B.

Step 6: Open a Bank Account

Open a current account with the designated AD bank for receiving remittances from the Israeli head office and carrying out day-to-day operations. The Branch Office operates through an Indian Rupee current account and can maintain a foreign currency account with the AD bank for specific transactions.

Step 7: Obtain Unique Identification Number (UIN)

The RBI allots a UIN to the Branch Office, which serves as the reference number for all regulatory filings. Under the current framework, the AD bank reports the establishment details to the RBI, which then issues the UIN.

Timeline and Costs

The typical timeline for setting up a Branch Office in India from Israel is 6-10 weeks end-to-end, longer than a Private Limited Company due to the mandatory RBI approval process.

Professional fees for the entire Branch Office setup typically range from INR 50,000 to INR 1,50,000 depending on the complexity of the application and the service provider. Additional costs include office lease, staffing, and initial operational expenses. The Branch Office must also maintain a minimum operating fund remitted from the Israeli head office to cover setup and initial operational costs.

For companies seeking a faster entry, consider our Branch Office registration service.

Post-Registration Compliance

A Branch Office in India has significant ongoing compliance obligations under both the Companies Act and FEMA regulations:

• Annual Accounts Filing: File financial statements of the Branch Office with the RoC within 60 days of the end of the financial year using Form FC-3 along with a list of places of business in India using Form FC-4. See annual compliance services.
• Income Tax Return: The Branch Office is taxed as a foreign company at 35% on net income plus applicable surcharge and cess. The tax return must be filed by 31 October (or the extended due date) each year.
• Transfer Pricing: If the Branch Office transacts with the Israeli parent company, transfer pricing documentation is mandatory under Section 92 of the Income Tax Act. All transactions must be at arm's length.
• GST Returns: Monthly or quarterly GST filings depending on turnover, if the branch provides taxable services or goods.
• RBI Annual Activity Certificate (AAC): The Branch Office must submit an Annual Activity Certificate from its auditor to the AD bank, confirming that the office is carrying out only permitted activities and complying with RBI conditions.
• RBI Annual Return on Foreign Liabilities and Assets (FLA): Due by 15 July each year.
• Annual Return with RoC: File Form FC-4 annually with the RoC.
• Profit Remittance: Profits can be remitted to the Israeli head office through the AD bank after payment of all Indian taxes, supported by an auditor's certificate.

Common Challenges for Israeli Companies

Israeli companies setting up Branch Offices in India commonly face the following challenges:

• Extended approval timeline: The RBI approval process can take 4-8 weeks, and complex applications may take longer. Israeli companies should factor this into their market entry timeline and begin the process well in advance of planned operations.
• Restricted activity scope: A Branch Office can only perform the specific activities approved by the RBI. Any change in activities requires fresh RBI approval. Israeli companies that need operational flexibility may find a Private Limited Company more suitable.
• Higher tax rate: Branch Offices are taxed at the foreign company rate of 35% (plus surcharge and cess), which is significantly higher than the 22% rate available to domestic companies under Section 115BAA. This makes the Branch Office less tax-efficient for long-term operations.
• No separate legal identity: The Branch Office is not a separate legal entity — the Israeli parent company bears full liability for all obligations of the branch. This exposes the parent to Indian regulatory and contractual risks.
• Profit-making track record: The requirement for five years of profitability can be a barrier for younger Israeli startups and growth-stage companies. Such companies should consider alternative structures like a Private Limited Company which has no profitability prerequisites.
• Document translation: Hebrew documents require certified English translations and notarisation before apostille. This adds approximately 3-5 days to the documentation timeline.
• Annual Activity Certificate: The requirement to submit an AAC annually adds a compliance layer that does not exist for Indian companies. Non-compliance can lead to RBI penalties and potential closure of the Branch Office.
• Closure process: Closing a Branch Office requires RBI permission and can take 6-12 months. Israeli companies should carefully evaluate the commitment before establishing a branch rather than a project office or liaison office for shorter-term engagements.

Frequently Asked Questions

Can an Israeli Branch Office engage in manufacturing in India?

No. A Branch Office in India is explicitly prohibited from engaging in manufacturing or processing activities directly. However, it may subcontract manufacturing to an Indian manufacturer. If manufacturing is the primary objective, Israeli companies should consider registering a Private Limited Company or a Wholly Owned Subsidiary instead.

What is the tax rate applicable to a Branch Office in India?

A Branch Office is taxed as a foreign company at 35% on net income, plus applicable surcharge (2% if income exceeds INR 1 crore, 5% if income exceeds INR 10 crore) and 4% health and education cess. The effective rate ranges from approximately 37.13% to 38.22% depending on income level.

Does an Israeli company need RBI approval to open a Branch Office?

Yes. Prior RBI approval is mandatory for establishing a Branch Office in India. The application is submitted through an Authorised Dealer Category-I bank using Form FNC. For standard Israeli company applications, the AD bank can process the approval under general permission; complex cases are referred to the RBI Central Office.

How long is the RBI approval valid for?

The RBI approval is valid for six months from the date of issue. The Branch Office must be established and become operational within this period. If the company fails to set up within six months, it must apply for an extension through the AD bank before the approval lapses.

Can a Branch Office remit profits to the Israeli parent company?

Yes. A Branch Office can remit net profits to the Israeli head office after payment of all applicable Indian taxes. The remittance is made through the AD bank, supported by an auditor's certificate confirming that all taxes have been paid and compliance requirements have been met. No additional withholding tax is levied on branch profit remittances.

What happens if the Branch Office wants to change its activities?

Any change in the permitted activities of the Branch Office requires fresh RBI approval. The company must apply through the AD bank with a revised proposal. Operating beyond the approved activities without RBI permission is a violation of FEMA regulations and can result in penalties.

Can a Branch Office be converted to a subsidiary company?

There is no direct conversion mechanism from a Branch Office to a subsidiary company under Indian law. The Israeli company would need to separately incorporate a Private Limited Company or Wholly Owned Subsidiary and then transfer the Branch Office's operations and assets to the new entity, followed by closure of the Branch Office with RBI approval.