The vast natural resources in India provide immense opportunities to the foreign companies for starting and expanding their businesses. Quite naturally, there is a lot of interest among these companies to open branch offices in this country.
However, these companies must follow the steps necessary to complete the formalities for opening a branch office in this country. Although the compliance requirements are minimal for establishing a branch office, a company must obtain permission from the Reserve Bank of India and acquire the guidelines for the setup.
The applications for this are to be made in the FNC form and the RBI considers this under two different routes. When a foreign company opts for the route through the RBI, it must fall under the sector where 100% FDI is possible.
On the other hand, those companies that do not belong to a sector where 100% FDI is possible, the RBI considers these applications after consulting with the finance ministry of this country. The RBI also considers the track record of those foreign firms trying to open a branch office in this country.
Funding of the branch office
When it comes to opening a branch office in India, one of the major sources of funds come through the preferred share capital that can be mandatorily converted into equity shares and considered as FDI or the Foreign Direct Investment.
Apart from this, the debentures and the borrowings can be redeemable, non-convertible, or convertible. The companies can issue debt securities, debentures and bonds. These funds can also be converted to equity shares and considered as FDI.
Activities of the branch office
The branch offices of the foreign firms represent the parent company and carry out similar activities. The profits earned from the business can be remitted from India and the amount is subject to taxes as they apply.
By opening a branch office in India, a foreign firm can export or import goods or undertake consultancy and professional services. Furthermore, the company can also render research work in all those areas in which the parent firm is engaged.
It can also promote technical or financial collaborations between the foreign group companies, Indian companies, and the parent company. Apart from this, the branch office also represents the parent company as the selling or buying agent in this country
The branch office can also engage in the field of IT and the development of software services. It also offers technical support for the products supplied by the parent and group companies.
For setting up
Rights of the branch office
The branch offices of a foreign firm can acquire immovable property in this country. For opening the bank accounts, the branch offices must approach the authorized dealers.
After producing the necessary documents to the authorized dealers, the branch offices can remit the profits overseas but they are subject to taxes.
Establishing liaison office
Companies incorporated overseas can also open liaison office in this country with the approval of RBI. A liaison office in India acts as a channel of communication between the parties in this country and the office abroad.
The functions of the liaison office are similar to the branch office, but the expense of the former is to be met through the inward foreign remittance from the parent company situated overseas. In order to get an approval for setting a liaison office in this country, the parent company must obtain the approval from RBI.
Every company starts its operation in a foreign country with a branch or a liaison office, which can spread further to three more offices in different parts of the country.