Setting Up a Branch Office in India: Eligibility, Permitted Activities, and the New Regulatory Outlook

India continues to attract multinational businesses seeking access to one of the world’s fastest-growing major economies. According to the Ministry of Corporate Affairs, as of December 31, 2025, approximately 5,302 foreign companies were registered in India, of which 3,285 remained active.

Find Business Support

Our advisors assist with entity structuring, FDI compliance, incorporation, and end-to-end regulatory setup.

This growth has been supported by India’s broader economic liberalization measures. This includes sector-specific production-linked incentive (PLI) schemes, expansion of infrastructure and manufacturing ecosystems, and progressive easing of foreign direct investment (FDI) norms across several sectors.

For foreign companies evaluating an India entry strategy, establishing a branch office (BO) remains one of the available structures for creating a commercial presence without incorporating a separate Indian subsidiary.

ALSO READ: How to Start a Company in India: A Practical, Compliance-First Guide

Understanding the Branch Office structure in India

A branch office, or BO, is an extension of a foreign company operating in India. Unlike a wholly owned subsidiary (WOS) incorporated under Indian company law, a branch office is not treated as a separate legal entity. The foreign parent company remains directly liable for the branch office’s obligations and liabilities in India.

Find Business Support

Our experts advise companies on the optimal way to structure their business entities to maximize operational efficiency

Subject to regulatory approval, a branch office may undertake permitted commercial activities in India, including service delivery, consultancy, technical support, and export-import-related operations. Unlike a liaison office, which is restricted to non-commercial and representative activities, a BO can generate revenue, issue invoices, and enter into business contracts in India.

Many foreign companies use the BO model when:

1. Testing the Indian market before larger investments;
2. Servicing Indian clients directly;
3. Supporting cross-border operations;
4. Executing specific contracts or technical support functions; or
5. Maintaining operational continuity with the foreign parent.

However, branch offices also create direct tax exposure in India and are generally treated as a permanent establishment (PE) of the foreign entity.

Current regulatory framework governing BO

Branch offices in India are presently governed under:

1. Reserve Bank of India’s existing FEMA regulations issued in 2016;
2. Foreign Exchange Management Act (FEMA);
3. applicable provisions of the Companies Act, 2013; and
4. sector-specific licensing and regulatory requirements.

At present, foreign entities establishing a branch office in India must obtain approval through an Authorized Dealer (AD) Category-I bank under the RBI framework.

Eligibility conditions under the existing 2016 FEMA framework

Under the current regulations, a foreign company seeking to establish a branch office in India is generally required to satisfy the following conditions:

Profit-making track record

The applicant should have a demonstrable profit-making track record during the immediately preceding five financial years in its home jurisdiction.

Minimum net worth

The foreign parent entity should possess a minimum net worth of US$100,000. This is calculated based on paid-up capital and free reserves, less intangible assets.

Alignment of business activities

The proposed Indian branch office activities are ordinarily expected to align with the core business activities undertaken by the foreign parent company overseas.

Where the applicant itself does not independently satisfy the financial eligibility thresholds, the RBI framework permits a financially sound parent or group company to issue a letter of comfort supporting the Indian BO operations and liabilities.

Permitted activities of BO in India

Under the current FEMA framework, branch offices may undertake only those activities specifically permitted by the RBI. Commonly permitted activities include the following:

Related Reading

New FEMA Guarantees Framework: From Approval-Centric Controls to a Principle-Led Regime

1. Export and import of goods;
2. Professional or consultancy services;
3. Research and development activities aligned with the parent company’s business;
4. Promotion of technical or financial collaborations between Indian companies and the foreign parent/group;
5. Acting as a buying or selling agent for the foreign parent;
6. IT-enabled services and software development;
7. Technical support services for products supplied by the parent company; and
8. Representation of foreign airlines and shipping companies.

Restricted activities

BOs are generally prohibited from engaging in specific activities. This includes the following:

1. Retail trading activities
2. Manufacturing activities directly in India,
3. Real estate development,
4. Agricultural or plantation activities
5. Practice of Indian law, subject to limited regulatory exceptions.

Certain regulated sectors, including financial services, defense, telecom, media, and insurance, may require additional governmental or sectoral approvals.

RBI’s 2025 draft regulation on BO establishment in India

A key regulatory development emerged in October 2025 when the RBI released the Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025, for public consultation.

Although the draft regulations have not yet been formally notified and the 2016 framework continues to remain in force as of May 2026, the proposed reforms indicate a substantial shift toward a more liberalized and principle-based regime for foreign business establishments in India.

The draft framework proposes to simplify entry conditions, expand delegated powers of AD Category-I banks, reduce procedural approvals, and move from a prescriptive “permitted activity” approach toward a broader negative-list model.

Shift toward a negative-list approach

One of the most important conceptual changes in the draft regulations is the proposed move away from an exhaustive list of permitted activities.

Under the draft framework, BO may potentially undertake any activity that is not specifically prohibited, subject to applicable sectoral regulations, licensing requirements, FDI policy restrictions, and other applicable laws.

The draft also proposes removal of the requirement that the Indian branch office must operate strictly within the same line of business as the foreign parent company.

If implemented, these reforms could materially widen the range of foreign businesses eligible to establish BO in India.

8-step approach to establishing a BO in India

• Step 1: Appoint an AD category I bank

The foreign company must designate an AD Category-I bank in India to process the branch office application and manage FEMA compliance.

• Step 2: File form FNC

The applicant submits Form FNC along with supporting documentation, including:

1. Audited financial statements
2. Constitutional documents of the foreign company
3. Board resolutions
4. Business activity details
5. KYC documentation
6. Funding information.

• Step 3: Due diligence by AD bank

The AD bank conducts KYC, AML, and regulatory due diligence. Depending on the applicant’s jurisdiction, ownership structure, or sector, additional regulatory scrutiny or government security clearance may be required.

• Step 4: RBI approval and UIN allocation

Where RBI approval is required, the application is processed and, upon approval, a Unique Identification Number (UIN) is allotted for the branch office.

Processing timelines vary depending on the applicant profile, sector, and regulatory review requirements.

• Step 5: Registration under the Companies Act

Following approval, the foreign company must register the branch office with the Registrar of Companies by filing Form FC-1 within the prescribed timeline.

• Step 6: Tax and operational registrations

The BO must obtain PAN and TAN registrations, GST registration where applicable, and other state or sector-specific registrations.

• Step 7: Open Indian bank account

A BO may open an Indian rupee-denominated current account with its designated AD bank for operational purposes.

• Step 8: Employment and local compliance registrations

Depending on the scale of operations and employee count, the branch office may need to comply with the following:

• Shops and Establishments laws
• Provident fund regulations
• Employee insurance obligations
• Labor law registration requirements.

ALSO READ: Labor Compliance Calendar for Liaison Offices in India (FY 2026–27)

Taxation and compliance implications

Find Business Support

Our experienced team of tax accountants, lawyers, and ex-tax officials can help on a wide spectrum of tax service

A BO is generally treated as a permanent establishment (PE) of the foreign parent company in India. Consequently, profits attributable to Indian operations become taxable in India.

Foreign companies operating through BO are generally subject to Indian corporate tax at 35 percent plus applicable surcharge and cess.

Key compliance requirements for BO

Annual Activity Certificate (AAC)

BO are required to submit an AAC to the AD bank and relevant tax authorities based on audited financial statements.

Income Tax Return filing

The branch office must file annual income tax returns (ITR) in India within prescribed timelines.

Transfer pricing compliance

Transfer pricing provisions apply to international transactions between the branch office and associated enterprises of the foreign parent company. Appropriate documentation and arm’s length pricing analysis may be required.

Audit and FEMA compliance

Depending on turnover thresholds and transaction structures, tax audit and FEMA reporting obligations may also apply.

Strategic considerations for foreign businesses

The BO structure offers several commercial advantages:

• Ability to conduct revenue-generating operations without incorporating a separate Indian company;
• Direct operational linkage with the foreign parent;
• Repatriation of post-tax profits to the overseas head office; and
• Comparatively lower corporate governance formalities than maintaining a subsidiary structure.

However, businesses should also evaluate potential limitations, including:

• Permanent establishment tax exposure;
• Restrictions on manufacturing and retail activities;
• Regulatory scrutiny in sensitive sectors; and
• Unlimited liability exposure for the foreign parent company.

Outlook

Find Business Support

Our advisors help founders and investors choose the most suitable structure based on funding, tax, and operational needs.

While India’s existing FEMA framework for BO remains relatively structured and approval-driven, the RBI’s Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025, indicate a clear policy intent toward liberalization and procedural simplification.

If finalized in their current form, the proposed regulations could significantly reduce entry barriers for foreign companies by removing financial eligibility thresholds, simplifying expansion approvals, and broadening the permissible operational scope of BO in India.

Until the draft regulations are formally notified, however, foreign companies must continue to comply with the existing 2016 FEMA framework and evaluate branch office structures alongside other India entry models based on their commercial, tax, and regulatory objectives.

A well-executed audit in India is crucial to ensure compliance with local regulations, verify financial accuracy, and identify risks, while a clean, structured audit process helps businesses stay ahead and gain clear visibility into operations.

Lalitha Rao

Manager

Talk to an expert at India@dezshira.com

Or request a consultation at +91 0124 4001785 ext. 202

• Previous Article Nuove norme DGFT: obbligatorio il Certificato di Origine Digitale per gli esportatori
• Next Article