Breif note on branch office outside india

1. 1. Establishment of Branch office outside India Contributed by CA. Sudha G. Bhushan 2011 Taxpert Professionals Private Limited Adding
value with quality and commitment
2. 2. Brief Note on Branch office outside India 1Preface:If a person resident in India desires to enter into overseas market, he can enter either
by establishing the branch orliaison office outside India or he can form an independent company outside India. The company formed
outsideIndia can be either wholly owned subsidiary (WOS) or a joint venture (JV) with a person resident outside India.The investment in
wholly owned subsidiary (WOS) or a joint venture (JV) with a person resident outside India isgoverned in terms of clause (a) of sub-section
(3) of section 6 of the Foreign Exchange Management Act 1999, (42of 1999) read with FEMA Notification 120/RB-2004 dated July 7, 2004,
(GSR 757 (E) dated November 19, 2004),viz. Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations,
2004, as amended fromtime to time.There is no specific regulations governing the opening of branch office/representative office by Indian
residentsoutside India as such however Regulation 7(4A) of the Notification No. FEMA 47/2001-RB dated 5th Dec. FEMA47/2001-RB
dated 5th Dec,2001 gives the general permissions discussed later in the noteResidential Status of Branch office of an Indian Company
established outside India:Section 2(v) of the Foreign Exchange management Act,1999 defines the person resident in India and as per
clause(iv) an office, branch or agency outside India owned or controlled by a person resident in India is said to be residentin India therefore
for the purpose of FEMA a branch office outside India of a company established in India is said tobe person resident in India.General
Permission: -A person resident in India being a firm or a company or a body corporate registered or incorporated in India(‘the Indian entity’)
are eligible to establish a branch outside India.Conditions to be fulfilled: - The general permission is available to open an overseas branch
and a bank accountoutside India only if the following conditions are fulfilled. BY CA. Sudha G. Bhushan
3. 3. the overseas branch/office is set up or representative posted by a 100% EOU or a unit in EPZ or in a Hardware Technology Park or in a
Software Technology Park, within two years of establishment of the Unit(iii) Prohibitions on the activities of the overseas branchThe
Overseas Branch/Officer/representative shall not— 1. Enter into any contract or agreement in contravention of the Act, Rules or
Regulations made thereunder; 2. Create any financial or contingent liabilities for Head Office in India. BY CA. Sudha G. Bhushanÿ the
remittances to the account maintained under this sub-Regulation are made out of funds held in EEFC account of the Indian entity, or ÿBrief
Note on Branch office outside India 2(i) Conducting normal business activitiesThe overseas branch or office has been set up or
representative is posted overseas for conducting normalBusiness activities of the Indian entity.(ii) Permissible amount of remittanceThe
total remittances by the Indian entity shall not exceedRemittance for Initial expenses: - 15 per cent of the average annual sales/ income or
turnover of the Indian entityduring the last two financial years or up to 25 per cent of the net worth whichever is higher, where the
remittancesare made to meet initial expenses of the branch or office or representative.Recurring expenses: - 10 per cent of such average
annual sales/ income or turnover during the last financial yearswhere the remittances are done to meet recurring expenses of the branch or
office or representative.However, above restrictions on remittance shall not apply in the following cases where
4. 4. Brief Note on Branch office outside India 3 3. Invest surplus fund abroad without prior approval of Reserve Bank of India but such surplus
fund should be repatriated to Head Office in India. Important clarifications Purchase of Office equipments and other assets for the normal
business operations of the overseas branch office shall not be treated capital account transactions and hence No RBI permission.
Acquisition of immovable property outside India by way of lease, not exceeding a period of five years by the overseas branch or office is
permitted without obtaining the RBI’s permission.Procedures and Compliances:-At the time of remittance for opening an overseas branch, a
duly filled up Form OBR is to be submitted to theconcerned Authorized Dealer with the full details and the requisite supporting documents.
Please follow the link forFORM OBR : -
xFXFg/edit?hl=en_US BY CA. Sudha G. Bhushan
5. 5. Brief Note on Branch office outside India 4The document purports to provide only the general information. For further information you
may get in touch withusinfo@taxpertpro.comVisit us atwww.taxpertpro.comcall us at :- 09769134554 BY CA. Sudha G. Bhushan