Set Up a Branch Office in India from Sweden

How to Set Up a Branch Office in India from Sweden

A Branch Office (BO) is an extension of a Swedish parent company that allows it to conduct specific business activities in India without incorporating a separate legal entity. Unlike a Private Limited Company or Wholly Owned Subsidiary, a Branch Office is not a distinct Indian legal entity — it operates under the identity and liability of the Swedish parent company. This structure is particularly suitable for Swedish companies that want to test the Indian market, provide after-sales support, execute specific contracts, or engage in import-export activities.

With bilateral trade between India and Sweden reaching nearly USD 7 billion in 2024 and over 280 Swedish companies operating in India, the Branch Office structure serves as an effective entry point for Swedish firms exploring the Indian market. Swedish exports to India grew approximately 17% in 2024, driven by demand in industrial machinery, automotive components, clean technology, and IT services — sectors where Branch Offices can provide critical support functions.

A Branch Office requires prior approval from the Reserve Bank of India (RBI) through an Authorised Dealer (AD) Category-I bank, and its activities are restricted to specific permitted categories. This guide covers the complete process from RBI application to post-establishment compliance.

FDI Route and Regulatory Requirements

Unlike company incorporation, establishing a Branch Office in India requires prior approval from the Reserve Bank of India. The application is routed through an Authorised Dealer Category-I bank using Form FNC.

RBI Approval Process

The Swedish parent company must submit an application in Form FNC to its designated AD Category-I bank in India. The AD bank examines the application, verifies the eligibility criteria, and forwards it to the RBI for approval. Upon approval, the RBI issues a Unique Identification Number (UIN) to the Branch Office.

Eligibility Criteria

Under the RBI's 2025 draft regulations, the earlier minimum net worth thresholds (USD 100,000) and profit track record requirements have been simplified. However, the Swedish parent company should demonstrate:

• A track record of profitable operations
• Sufficient financial strength to support the Indian Branch Office
• A clear business case for establishing presence in India
• That the proposed activities fall within permitted categories

Permitted Activities

A Branch Office in India is permitted to undertake the following activities:

• Export and import of goods
• Rendering professional or consultancy services
• Carrying out research work in which the parent company is engaged
• Promoting technical or financial collaborations between Indian companies and the parent company
• Representing the parent company in India and acting as buying or selling agent
• Rendering services in information technology and development of software
• Providing technical support to the products supplied by the parent company
• Operating as a foreign airline or shipping company

Prohibited Activities

A Branch Office cannot:

• Undertake manufacturing or processing activities in India (unless located in a Special Economic Zone)
• Engage in retail trading activities
• Conduct any activity not listed in the approved categories without prior RBI permission

Press Note 3 — Not Applicable to Sweden

Press Note 3 (2020), which imposes additional security screening on investments from countries sharing a land border with India (such as China, Pakistan, and Bangladesh), does not apply to Sweden. Swedish companies can proceed through the standard RBI approval process without additional security clearance.

DTAA Benefits for Swedish Investors

The India-Sweden Double Taxation Avoidance Agreement, effective since January 1, 1998, and amended by a 2013 Protocol, has significant implications for Branch Office taxation because a Branch Office constitutes a Permanent Establishment (PE) of the Swedish parent in India.

Permanent Establishment and Tax Implications

A Branch Office is automatically treated as a Permanent Establishment under both Indian domestic law and the India-Sweden DTAA. This means India has the right to tax the business profits attributable to the Branch Office. The Swedish parent company must compute the profits of the Indian Branch Office separately, and these profits are subject to Indian corporate tax.

Tax Rates for Branch Office

• Corporate Tax: A Branch Office (as a foreign company) is taxed at 35% plus applicable surcharge and cess on income attributable to the PE in India.
• Branch Profit Remittance Tax: An additional tax on profits remitted by the Branch Office to the Swedish head office — currently not levied under Indian law, but the Swedish parent should monitor any policy changes.
• Interest received by the BO: Withholding capped at 10% under the DTAA.
• Royalties: Capped at 10% under the DTAA.
• Fees for Technical Services: Capped at 10% under the DTAA.

Double Tax Relief

The Swedish parent company can claim credit in Sweden for taxes paid by the Branch Office in India, preventing double taxation. The credit is determined under Article 24 of the India-Sweden DTAA. Sweden generally follows the credit method for eliminating double taxation — the Swedish parent includes the Branch Office income in its global income and receives a credit for Indian taxes paid.

Transfer Pricing Implications

Transactions between the Swedish head office and its Indian Branch Office must be conducted at arm's length prices, even though they are technically the same legal entity. India's transfer pricing regulations require separate documentation for the attribution of profits to the Branch Office and any charges for head office services, shared costs, or intellectual property usage.

Document Requirements and Authentication

Both Sweden and India are members of the Hague Apostille Convention. Swedish documents must be apostilled for use in India, which is faster and simpler than embassy attestation.

Documents from the Swedish Parent Company

• Certificate of Registration (Registreringsbevis) from Bolagsverket (Swedish Companies Registration Office) — apostilled
• Board resolution of the Swedish parent authorising the establishment of a Branch Office in India — apostilled
• Memorandum of Association (Bolagsordning) and Articles of Association — apostilled
• Latest audited financial statements of the Swedish parent (for the preceding 5 years, if available)
• Copy of the Annual Report
• Power of Attorney in favour of the authorised person to represent the Branch Office in India — apostilled
• Details of the parent company's existing branches or subsidiaries in India (if any)
• Activity plan for the proposed Branch Office in India

Documents for RBI Application (Form FNC)

• Completed Form FNC
• Certificate from the Bankers of the applicant company in Sweden, confirming the company's financial standing
• Proposed organisational structure of the Branch Office in India
• List of directors and key management personnel of the Swedish parent
• No Objection Certificate from the concerned regulatory authority in Sweden (if applicable)

Apostille Process in Sweden

Apostilles in Sweden are issued by authorised Notaries Public under the County Administrative Board (Lansstyrelsen). Documents must first be notarised and then presented for apostille certification. Processing typically takes 3-5 business days. The apostille stamp is issued in a standardised format per the Hague Convention.

Step-by-Step Registration Process

The Branch Office setup process involves both RBI approval and Registrar of Companies (ROC) registration.

Step 1: Swedish Parent Board Resolution

The board of directors of the Swedish parent must pass a formal resolution approving the establishment of a Branch Office in India, specifying the proposed activities, the authorised representative, and the initial funding arrangement. This resolution must be apostilled.

Step 2: Submit Form FNC to AD Bank

File the application in Form FNC with an Authorised Dealer Category-I bank in India. The AD bank reviews the application for completeness and forwards it to the RBI. The application must include all parent company documents, activity plan, and banker's certificate.

Step 3: Obtain RBI Approval

The RBI reviews the application and, upon satisfaction, issues an approval letter along with a Unique Identification Number (UIN). The approval letter specifies the permitted activities, any conditions attached, and the validity period. Timeline: 4-8 weeks from submission.

Step 4: Register with Registrar of Companies

Within 30 days of establishing the Branch Office, file Form FC-1 with the Registrar of Companies (ROC) under Section 380 of the Companies Act, 2013. This registration makes the Branch Office's existence a matter of public record. Required documents include the RBI approval letter, charter documents of the Swedish parent, and address proof of the Indian office.

Step 5: Obtain PAN, TAN, and GST Registration

Apply for a Permanent Account Number (PAN) in the name of the Swedish parent company (Indian Branch). Simultaneously apply for TAN (Tax Deduction Account Number) and GST registration if the Branch Office's activities are subject to GST.

Step 6: Open Bank Account

Open a current account with the AD Category-I bank in India. The Swedish parent will fund the Branch Office operations through inward remittances. The bank account will be in the name of the Swedish parent company with a Branch Office suffix.

Step 7: Commence Operations

Once the bank account is operational and all registrations are complete, the Branch Office can commence the approved activities. The office must be established within 6 months from the date of the RBI approval letter.

Timeline and Costs

The Branch Office setup takes longer than company incorporation due to the RBI approval requirement.

Total estimated timeline: 6-10 weeks from document preparation to operational Branch Office.

Total estimated cost: INR 1,50,000-3,50,000 (approximately SEK 16,500-38,500) including government fees, professional fees, AD bank charges, and legal costs. The ongoing operational funding from the Swedish parent is separate.

Post-Registration Compliance

A Branch Office in India has specific ongoing compliance requirements with the RBI, ROC, and Income Tax Department.

Annual RBI Compliance

• Annual Activity Certificate (AAC): Must be submitted along with audited financial statements within 6 months of the end of the financial year. The AAC certifies that the Branch Office has undertaken only permitted activities during the year.
• FLA Return: Annual Return on Foreign Liabilities and Assets, due by July 15.
• Profit remittance: Profits can be remitted to the Swedish parent through the AD bank, subject to tax compliance certificates.

ROC Filings

• Annual return of foreign company: Filed with the ROC annually.
• Financial statements: The Indian Branch Office's accounts, along with copies of the Swedish parent's global financial statements, must be filed with the ROC.
• Any changes: Changes in the parent company's charter, directors, or registered office must be intimated to the ROC within 30 days.

Tax Compliance

• Corporate Tax Return: Filed as a foreign company. The Branch Office income is taxed at 35% plus surcharge and cess.
• GST Returns: Monthly or quarterly depending on turnover.
• TDS Returns: Quarterly filing for all tax deducted at source on payments to employees, contractors, and service providers.
• Transfer Pricing Documentation: Required for transactions between the Branch Office and the Swedish head office, including cost allocations and management charges.
• Advance Tax: Quarterly instalments on June 15, September 15, December 15, and March 15.

Common Challenges for Swedish Companies

Swedish companies setting up a Branch Office in India encounter several country-specific challenges.

Restricted Activity Scope

The most significant limitation of a Branch Office is the restriction on activities. Manufacturing and retail trading are not permitted (unless in an SEZ). Swedish manufacturing companies like Volvo, IKEA, or Atlas Copco that need manufacturing capability must establish a separate Indian subsidiary. The Branch Office is best suited for sales, service, consulting, and technical support functions.

Higher Tax Rate

A Branch Office, treated as a foreign company, is taxed at 35% plus surcharge and cess — significantly higher than the 22-25% corporate tax rate available to domestic Indian companies. For Swedish companies planning long-term, revenue-generating operations in India, a Private Limited Company or LLP may be more tax-efficient.

Unlimited Liability of the Parent

Since a Branch Office is not a separate legal entity, the Swedish parent company bears unlimited liability for the Branch Office's obligations in India. All contracts, debts, and legal claims against the Branch Office are ultimately the responsibility of the Swedish parent. This contrasts with a subsidiary, which provides limited liability protection.

Profit Remittance Documentation

Remitting profits from the Indian Branch Office to Sweden requires a certificate from a Chartered Accountant confirming that all tax obligations have been met, the AAC has been filed, and the remittance is from genuine business profits. The AD bank will verify these documents before allowing the remittance. Delays in obtaining these certificates can slow down profit repatriation.

RBI Renewal and Closure Complexities

Unlike a company which operates indefinitely, the RBI approval for a Branch Office may specify a validity period. The Swedish company must apply for renewal before expiry. Additionally, closing a Branch Office requires formal RBI permission, settlement of all liabilities, and final AAC — a process that can take 6-12 months.

Frequently Asked Questions

Can a Swedish Branch Office in India engage in manufacturing?

No. A Branch Office cannot undertake manufacturing or processing activities in India, unless it is located in a Special Economic Zone (SEZ). Swedish companies requiring manufacturing operations should establish a Private Limited Company or a Wholly Owned Subsidiary.

How is a Branch Office taxed compared to a subsidiary?

A Branch Office is taxed at 35% plus surcharge and cess as a foreign company, while an Indian subsidiary (Private Limited Company) is taxed at 22-25% plus surcharge and cess under the new domestic tax regime. The higher tax rate is a key consideration when choosing between structures.

Can the Branch Office generate revenue in India?

Yes, a Branch Office can generate revenue through its permitted activities — including export/import, consultancy services, IT services, and acting as a buying/selling agent. However, the revenue-generating activities must fall strictly within the approved categories specified in the RBI approval letter.

What is the Annual Activity Certificate (AAC)?

The AAC is a certificate issued by a Chartered Accountant confirming that the Branch Office has conducted only the activities permitted by the RBI during the financial year. It must be submitted to the AD bank along with audited financial statements within 6 months of the financial year end. Non-submission can trigger account freezing and closure proceedings.

Can a Branch Office hire employees in India?

Yes. A Branch Office can hire Indian employees directly. All Indian employment laws apply, including provident fund contributions, gratuity, professional tax, and the four new Labour Codes being implemented. Employment contracts must comply with state-specific shop and establishment regulations.

How long does RBI approval take?

RBI approval typically takes 4-8 weeks from the date the AD bank forwards the complete application. Delays can occur if additional information is requested or if the proposed activities require clarification. Having a well-documented activity plan and complete parent company financials speeds up the process.