Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices (BO) in India with specific approval of the RBI. Such BOs are permitted to represent the parent/group companies and undertake the following activities in India:
- Export/import of goods
- Render professional or consultancy services
- Carry out research work in areas in which the parent company is engaged
- Promote technical or financial collaborations between Indian companies and the parent or overseas group companies
- Represent the parent company and act as a buying/selling agent in India
- Render services in information technology and development of software in India
- Render technical support to the products supplied by the parent/group companies
- Represent a foreign airline/shipping company
A BO is not allowed to carry out manufacturing or processing activities in India, directly or indirectly, or any retail trading activities. Profits earned by BOs can be freely remitted from India, subject to the payment of applicable taxes.
Foreign entities that want to set up a LO/BO in India are required to submit their application (Form FNC) to the Foreign Investment Division of the RBI through an Authorized Dealer bank. The applications will be considered by the RBI under two routes:
- Reserve Bank route: Where the principal business of the foreign entity falls under sectors where 100% FDI is permissible under the automatic route
- Government route: Where the principal business of the foreign entity falls under sectors where 100% FDI is not permissible under the automatic route. Applications from entities in this category and those from non-government organizations/ non-profit organizations/government bodies/ departments are considered by the RBI in consultation with the Ministry of Finance.
The following additional criteria are also considered by the RBI while sanctioning an LO/BO of foreign entities:
- For LO: A profit-making track record during the immediately preceding three financial years in the home country.
- For BO: A profit-making track record during the immediately preceding five financial years in the home country.
- For LO: Not less than USD 50,000 or its equivalent
- For BO: Not less than USD 100,000 or its equivalent.