Branch office setup in India by foreign company — RBI approval roadmap

A foreign company looking to establish a business presence in India has several structural options, including a branch office, liaison office, project office or an Indian subsidiary. The appropriate structure depends on the nature of the proposed activities, commercial objectives, tax considerations and the level of operational presence required.

A Branch Office (BO) can be particularly useful where a foreign company wants to conduct permitted commercial activities in India without incorporating a separate Indian subsidiary. However, establishing a branch office is regulated under India’s foreign-exchange framework and requires compliance with the Foreign Exchange Management Act, 1999 (FEMA) and the applicable RBI regulations.

Key takeaway: A foreign company does not automatically need direct RBI approval for every branch-office application. Under the current framework, an application is generally processed through an Authorised Dealer Category-I (AD Category-I) bank, while specified cases require prior RBI approval.

The RBI’s Master Direction on establishment of Branch Office, Liaison Office and Project Office continues to provide the principal regulatory framework. The current RBI Master Direction available on its website was updated on 18 May 2021 and incorporates subsequent amendments to the underlying FEMA framework.

🏢 What Is a Branch Office in India?

A branch office is an extension of a foreign company established in India to undertake activities permitted under the FEMA framework.

Unlike an Indian subsidiary, the branch office does not create a separate incorporated Indian company. It remains part of the foreign entity.

The branch can therefore undertake certain commercial activities in India, but its activities are restricted to those permitted by RBI.

The RBI framework states that a branch office should normally engage in activities in which the parent company is engaged. Permitted activities include export/import of goods, professional or consultancy services, specified research, promotion of technical or financial collaborations, representing the parent company, IT and software-development services, technical support and representing foreign airlines or shipping companies.

⚖️ Which Law Governs a Foreign Branch Office?

The establishment of a branch office is primarily regulated under Section 6(6) of FEMA, 1999, read with the Foreign Exchange Management (Establishment in India of a Branch Office or Liaison Office or Project Office or Any Other Place of Business) Regulations, 2016, as amended from time to time.

The RBI Master Direction consolidates the applicable instructions for foreign entities establishing BOs, LOs and POs in India.

Once the branch is established, the foreign company also comes within the relevant provisions of Chapter XXII of the Companies Act, 2013, which deals with companies incorporated outside India. Section 380 requires a foreign company to deliver prescribed documents to the Registrar after establishing a place of business in India.

💼 Who Is Eligible to Establish a Branch Office?

The RBI framework prescribes financial and track-record criteria for a foreign company seeking to establish a branch office.

A foreign applicant should generally have a profit-making track record in the immediately preceding five financial years in its home country and a minimum net worth of USD 100,000 or its equivalent. The RBI defines net worth for this purpose by reference to paid-up capital and free reserves, after specified adjustment for intangible assets.

This means a newly incorporated foreign company without the required historical profitability may not satisfy the standard eligibility criteria for a branch office.

In such circumstances, the group may need to consider whether another Indian structure, such as an Indian subsidiary, is more appropriate.

🏦 Step 1 — Choose an AD Category-I Bank

The first practical step is to identify an Authorised Dealer Category-I bank that will handle the foreign company’s application and subsequent FEMA-related banking requirements.

The RBI framework provides that applications from foreign companies for establishing BOs, LOs and POs are considered by the AD Category-I bank in accordance with RBI’s guidelines.

This makes the AD bank an important part of the setup process rather than merely the bank used for routine transactions.

The foreign company should therefore select a bank experienced in handling foreign-company establishment and FEMA compliance.

📄 Step 2 — Prepare Form FNC

The foreign company must prepare the prescribed Form FNC application.

The form captures information including the applicant’s incorporation details, capital, reserves, business activities, financial information, proposed Indian activities, proposed location, expected employee strength and banking details.

The application is submitted through the designated AD Category-I bank along with the prescribed supporting documentation.

📑 Step 3 — Prepare Supporting Documents

The RBI framework requires supporting documents to accompany Form FNC.

These generally include the foreign company’s constitutional documents, such as its certificate of incorporation and memorandum/articles or equivalent constitutional documents, appropriately attested or notarised as required.

The foreign company must also provide its audited financial statements for the prescribed period. Where the home jurisdiction does not require statutory audit, the RBI framework allows an account statement certified by an appropriate professional showing the applicant’s financial position and net worth.

A banker’s report and, where applicable, a power of attorney for the authorised signatory may also be required.

🔍 Step 4 — Determine Whether RBI Prior Approval Is Required

This is one of the biggest misconceptions surrounding branch-office setup.

It is incorrect to say that every foreign company must obtain direct RBI approval.

The standard route involves examination by the AD Category-I bank under the RBI framework.

However, specified applicants require prior approval from the RBI and the application is forwarded by the AD Category-I bank to the RBI for processing in consultation with the Government of India, where applicable. The RBI Master Direction identifies categories including applicants from specified jurisdictions and certain regulated or sensitive sectors, as well as specified foreign government or non-profit entities.

The precise approval route should therefore be determined before filing Form FNC.

🛡️ Step 5 — Check Sector-Specific Restrictions

The fact that a foreign company is eligible to establish a branch does not mean that every business activity can automatically be carried out through that branch.

The proposed Indian activity must fall within the activities permitted for a BO.

For example, the RBI framework permits IT and software-development services, professional or consultancy services, specified research activities and technical support, among other activities.

Certain sectors may additionally require approval from the relevant sector regulator.

The RBI approval itself is also expressly from the FEMA perspective. The applicant remains responsible for obtaining other statutory or regulatory approvals required for carrying on its specific business in India.

🏦 Step 6 — RBI/AD Bank Approval and UIN

Once the application has been processed, the branch-office establishment is authorised under the applicable FEMA framework.

The RBI Master Direction provides for the RBI’s unique identification framework and the role of the AD Category-I bank in issuing the approval after the relevant RBI process is completed.

The foreign company should retain the approval documentation carefully because it will be relevant for subsequent banking, regulatory and corporate filings.

🏢 Step 7 — Establish the Indian Office

After obtaining the applicable approval, the foreign company can establish the branch office at the approved location.

The RBI framework provides that if the BO is not opened within six months from the date of the approval letter, the approval may lapse. The AD Category-I bank may consider an extension of another six months where the delay is due to reasons beyond the applicant’s control; any further extension requires prior RBI approval.

This timeline should therefore be built into the implementation plan.

🏛️ Step 8 — Register the Foreign Company with MCA

Obtaining FEMA approval is not the end of the process.

Once a foreign company establishes a place of business in India, the Companies Act requirements also become relevant.

Section 380 requires the foreign company to submit specified documents to the Registrar within 30 days of establishment of its place of business in India.

The MCA’s current FC-1 instruction kit states that Form FC-1 is used for this purpose and that the filing is made with the Registrar, Central Registration Centre, with the system routing access to the corresponding State ROC. The filing must be supported by the RBI approval and other regulatory approvals where applicable, or an authorised-representative declaration where such approval is not required.

📚 Ongoing Companies Act Compliance

After registration, the branch office becomes subject to continuing compliance requirements applicable to foreign companies.

Section 381 requires a foreign company to prepare and deliver prescribed financial statements to the Registrar, while Section 384 applies specified Companies Act provisions to foreign companies, including provisions relating to annual returns, books of account, charges and inspection.

Accordingly, the branch should maintain a proper annual compliance calendar rather than treating the RBI approval as a one-time registration.

💰 Tax and GST Considerations

A branch office carrying on business in India can have Indian tax implications because the activities conducted through the branch may create taxable income in India.

The tax position should be evaluated based on:

Indian domestic tax law, the applicable tax treaty, the nature of the branch’s activities and whether the foreign company has an Indian permanent establishment.

GST registration should also be examined based on the nature of the supplies and applicable GST provisions.

Importantly, RBI/FEMA approval does not itself determine the branch’s income-tax or GST liability. These are separate regulatory questions.

🌐 Repatriation of Branch Profits

One advantage of a branch office compared with a separately incorporated subsidiary is that the branch can, subject to the applicable FEMA and tax conditions, remit eligible profits/surplus to its foreign head office.

The RBI framework separately provides for remittance of profits by branch offices and requires the relevant documentation and banking process to be followed through the AD Category-I bank.

The tax consequences of such remittances should be reviewed before funds are transferred.

⚠️ Important Cautions for Foreign Companies

A branch office should not be used as a substitute for an Indian subsidiary when the proposed business model falls outside the permitted BO activities.

It is also important not to assume that RBI approval replaces sector-specific licences, tax registrations, employment registrations or other Indian regulatory approvals.

Foreign companies should also avoid beginning commercial operations merely because the application has been submitted. The relevant FEMA approval and other applicable registrations should be completed before commencing activities that require them.

Most importantly, distinguish between “RBI approval” and “AD Category-I bank approval.” For many standard applications, the AD bank is the primary approval channel; direct RBI prior approval is required only in specified cases.

🧭 Branch Office vs Indian Subsidiary

A branch office may be appropriate where the foreign company wants to undertake permitted activities directly in India and retain the operation as an extension of the overseas entity.

An Indian subsidiary may be more suitable where the business requires a separate Indian legal entity, broader operational flexibility, Indian fundraising, multiple shareholders or a business model that does not fit comfortably within the permitted branch-office activities.

The decision should therefore be made before the FEMA application is prepared.

🏁 Conclusion

Setting up a branch office in India is a structured process involving FEMA, RBI/AD Category-I bank procedures, MCA registration and ongoing tax and corporate compliance.

The first stage is to confirm that the foreign company satisfies the RBI’s eligibility requirements, including the prescribed profitability track record and net-worth criteria. The company then needs to identify an appropriate AD Category-I bank, prepare Form FNC and supporting documents, determine whether the application falls under the normal AD-bank route or requires prior RBI approval, and obtain the applicable authorisation.

After establishment, the foreign company must complete its MCA registration through Form FC-1 within 30 days, together with the prescribed documents and evidence of RBI or other regulatory approval where applicable.

The branch must then maintain ongoing compliance covering accounts, annual filings, taxation, GST where applicable, FEMA reporting and permitted remittance of profits.

For a foreign company entering India in 2026, the most important planning step is to determine whether a branch office is actually the right structure before beginning the RBI process. A properly designed roadmap can prevent delays, incorrect filings and regulatory issues while ensuring that the Indian operation starts on a compliant foundation.

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