Setting up of Branch Office in India

This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting up a Branch Office - Permanent Establishment (PE) in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting up a Branch Office - Permanent Establishment (PE) in India and brief introduction of its regulatory and tax aspects. It contains relevant rules prevailing in India in March, 2009. and brief introduction of its regulatory and tax aspects. It contains relevant rules prevailing in India in March, 2009.

The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of circumstances. We strongly recommend readers to seek professional advice before taking any decision.circumstances. We strongly recommend readers to seek professional advice before taking any decision.

For any further information, please visit PGA at www.pgaindia.in or E-mail: pargambhir@hotmail.com or info@pgaindia.in

Regulatory Aspects

© P. GAMBHIR & ASSOCIATES 2009

•Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank of India.

•Branch is treated as an extension/permanent establishment of the parent company in India.

•Required to be registered with the Registrar of Companies (ROC).

•Foreign companies have general permission to establish branch/unit in SEZ (Special Economic Zones) to undertake manufacturing or service activities, subject to certain rules.

•Foreign Banks do not require FEMA approval, if the Bank has obtained necessary RBI approval under the Banking Regulation Act, 1949.

•Profits earned by branches can be freely remitted from India, subject to payment of applicable taxes.

•Funding is possible from the receipts from the parent company and from Indian business operations.

•Branches are required to submit annual activity report to the Reserve Bank of India.

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Activities Permitted

© P. GAMBHIR & ASSOCIATES 2009

Branches are permitted to represent parent/group companies and undertake the following activities: Export/Import of goods. Procurement of goods for export and sale of goods after import are

allowed only on wholesale basis. Rendering of professional or consultancy services. Carrying out of research work in the areas in which parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent/group

companies. To act as buying/selling agent in India. Rendering IT & Software Development services in India. Rendering technical support to the products supplied by the parent/group companies in India.

Activities not permitted

Branches are not allowed to undertake any retail or trading activities in India.

A branch cannot carry manufacturing or processing activities in India, directly or indirectly.

Branch cannot undertake any activity in India which is not specifically permitted to it by the Reserve Bank of India.

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Tax Implications & Transfer Pricing Rules

© P. GAMBHIR & ASSOCIATES 2009

Tax Implications•Branch is liable to pay income tax in India on the profits attributable to it at the rates applicable to foreign companies.

•Liable to pay Fringe Benefit Tax on the value of fringe benefits provided and deemed to be provided to its employees.  

Transfer Pricing RulesThe transactions between Branch and parent/associated entities are subject to Transfer Pricing (TP) Regulations.

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Advantages & Formation Time

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Advantages Easy operations; Less formalities; and Simple exit route.

Formation time 4-6 weeks after receipt of the relevant information.

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When To Open Branch

In all such cases, where the foreign entity has understood the Indian market and wishes to provide services from India on regular basis.

It can do most of the activities, as mentioned above and enjoys greater operational freedom in comparison to Liaison and Project offices.

© P. GAMBHIR & ASSOCIATES 2009

Thanks

For further information, please visit PGA at www.pgaindia.in or E-mail: pargambhir@hotmail.com or info@pgaindia.in or contact us at:

87-B, Masjid Moth – II, DDA Flats, Greater Kailash - III New Delhi - 110 048 (INDIA)Tel/Fax: +91 11 2922 3838, +91 98112 52946

CA. Parveen Gambhir

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