Branch office or Indian subsidiary what is best for a foreigner-quick comparison and differences explained
In recent times, the Indian economy is offering a favorable business environment not only to the Indian companies but also to the foreign companies that are willing to expand their business in India. India provides a market wherein companies can make the most of their expansion plans by identifying their growth opportunities at the lowest level. Foreigners or foreign companies can enter the Indian market through many ways. Establishing a Branch office in India (BO) or Establishing an Indian Subsidiary or Wholly Owned Subsidiary (WOS) are the Most popular ones. In this article, we will discuss the differences between a Branch office and Indian Subsidiary.
Branch office in India
When a parent company provides its same service in a different location, it is known as a branch. It is an extension of Head-office with a right to accrue income and does not hold a separate legal standing of its own.
Companies incorporated outside India engaged in manufacturing or trading activities can set up a BO in India with specific approvals of the Reserve Bank of India (RBI).
Permitted activities to the Branch Office in India
Following are the activities permitted to the Branch office opened in India:
- Export/import of goods.
- Rendering professional or consultancy services.
- Carrying out research work, in areas in which the parent company is engaged.
- Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
- Representing the parent company in India and acting as buying/ selling agent in India.
- Rendering services in Information Technology and development of software in India.
- Rendering technical support to the products supplied by parent/group companies.
- Foreign airline/shipping company.
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Documents required for Branch office registration in India
Documents required to get RBI’s approval
- Form FNC – 1 – Three copies
- Letter from the principal officer of the Parent company to RBI
- Letter of authority in favor of Local Representative by parent Co.
- Letter of authority/ Resolution for setting up BRANCH office in India
- Comfort letter from the parent company intending to support the operation in India
- Two copies of Certificate of Incorporation, MOA & AOA of the parent company in English duly attested by the Indian embassy or notary public in the country of registration and apostle
- The Latest audited Balance sheet and annual accounts of parent company duly Translated notarized for past Three years & Certified by Indian Consulate & Directors
- Name, Address, email ID etc of the authorized person in Home Country.
- Details of Bankers of the parent company along with the bank account number
- Expected funding level for operations in India
- Address of the proposed local office & details of employees and head of the office if decided
- Details of Activity carried out in Home Country by the parent company in brief
- Report from the banker of the parent company showing the number of years the applicant/parent company has had banking relations with that bank
- The latest Proof of identity & address of all the Directors
- Structure of the parent company
- Resolution for Opening up Bank Account with the Banker
Documents required to Intimate ROC
Intimation to ROC in Form FC-1 along with following docs within 30 days from the date of RBI approval:
- Reserve Bank India (RBI)’s permission to establish the Branch Office in India
- Notarized or consularized copy of the certificate of incorporation and Memorandum Of Association and Articles Of Association of the Foreign Company. (The English translation of these documents is required if they are in any other language.)
- Notarized copy of the Power of Attorney in favor of a person resident in India, authorizing him to accept on behalf of a company service of process and any notices or other documents required to be served on the company.
- A list of directors of the Company notarized containing particulars regarding name & surname in full, his residential address, nationality, business occupation and if he has no business occupation but holds any other directorships, particulars of that directorship or of some one of those directorships.
- Complete KYC of Shareholders holding more than 10% Equity in the Applicant Company
- Notarized copy of the extracts of Board Resolutions of the Foreign Company
- Documentary Proof of Establishment of office (E.g. Rent agreement, lease deed etc.)
- Certified True Copy of Certificate of change in object/name etc. of the Foreign Company.
Indian subsidiary setup in India
When the purpose of a foreign company is to hold shares in an Indian entity and to engage in all types of commercial activities as well as manufacturing and trading activities in India, it opts for a wholly owned subsidiary company registration in India
It is a corporate entity incorporated under companies Act, 2013 and can do all activities like manufacturing, trading, providing service etc.
Permitted Activities to the Indian Subsidiary
An Indian subsidiary can conduct business activities as per its ’main objects’ stipulated in the Memorandum of Association subject to Indian regulations.
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Documents required for Indian Subsidiary Registration in India
- Photograph of all the Directors and shareholders
- PAN Card of all the Indian Directors and shareholders
- Apostle ID Proof of all the Directors (Driving License/Passport/Voter ID)
- Electricity Bill or any other utility bill for the address proof of the Registered Office
Difference between a Branch Office and Indian Subsidiary Company
Following is the presentation in tabular form for the main points of differences between a Branch office and Indian Subsidiary in India
Title |
Branch Office |
Indian Subsidiary |
Definition |
A branch office in India would be a part of the same business of Home country and will perform the same operations, only with an office that runs in here in India. |
An Indian subsidiary is a type of company, where the control and ownership are handled by foreign companies. This company is called a parent company. |
Constitution |
|
|
Reports to |
Head Office |
Holding company |
Liability |
In case of Branch office, the extent of liability is unlimited. In case where the Branch office incurs any loss, that needs to be paid after liquidation of assets of the foreign/parent company i.e. the head office. Here, to fulfill the liabilities of the Branch office, the assets of the parent company can be utilized. |
In the case of a subsidiary company, the liability of the parent company would be limited to the extent of its shareholding in the subsidiary company as the subsidiary is a distinct legal entity apart from its shareholders. |
Business Activity |
Branch conducts same business as parent organization. |
Subsidiary may or may not conduct the same business as a parent organization. |
Source of Income |
For the Branch office in India, the only source of Income will be the funds received from the Head office through normal banking channels for which, a Branch office has to open an account in any AD Category-I Bank in India or the branch office may generate income through the process of its business operations. |
While in case of an Indian subsidiary, the source of income would be all the income arising out of its business activities. |
Taxation |
The tax slabs in India for the Branch office as it is considered as foreign company, are divided in to 3 slabs
|
In case of Indian Subsidiary the tax slabs will be as follows:
|
Management |
In the case of the Branch office, all the managerial tasks would be handled by the Authorized Representative of the head office, who is resident in India. |
The Indian subsidiary requires the minimum two directors from which at least one director shall be an Indian National. |
Criteria for setup in India |
To open a branch office in India, the Parent Company should have a profit making track record during the immediately preceding five financial years in the home country. Also, the net worth of the branch office must not be less than the US $100,000. |
To open an Indian Subsidiary in India there is no requirement of minimum or basic share capital. Also, no requirement of track record of parent company as shareholder. |
Meeting |
Not Applicable |
|
Accounts maintenance |
Either separately or jointly |
Separately |
Annual Compliance Filing |
|
|
Borrowing |
The Branch Office is not allowed to borrow locally unless the prior approval of RBI is taken |
|
To open a branch company in India can lead to a greater control of the parent company. This means that every activity in the branch company is overseen by the parent company. Also, the parent company has full control over its branch to make decisions.
Whereas the subsidiary Company work separate from the parent companies, and have distinct legal entities. This reflects in their tax, liabilities, and governance.
Hope this article explaining differences between branch office and Indian Subsidiary was helpful.
Suggested read: Why would it be a good move to start business / Indian Subsidiary / Manufacturing base in India?
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