Setting Up of Business, Industrial and Labour Laws · Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Branch Office of a Foreign Company in India: Permitted Activities and Conditions

Updated 11 October 2026 · Fact-checked

A branch office (BO) is an extension of a foreign company in India, set up with RBI approval through an Authorised Dealer bank. It may carry out only activities permitted for such offices, such as export and import of goods, professional or consultancy services, and representing the parent. It cannot do manufacturing or retail trading. Its profits are remitted abroad.

Understand Branch Office: Permitted Activities and Conditions

A foreign company that wants to do business in India has several entry routes. One of them is a branch office. A branch office is not a separate legal entity. It is the foreign company itself, working from a place in India. So the parent is fully liable for what the branch does.

Because the branch is part of the foreign company, it can earn income in India. This is the main difference from a liaison office, which only gathers information and promotes the parent's name, and earns no income in India. A branch office is meant for real commercial activity, but only in the fields the rules allow.

Under the Companies Act, 2013, a foreign company in the general sense (section 2(42)) is a company incorporated outside India that has a place of business in India, by itself or through an agent, or that conducts business activity in India in any other manner. A branch office is a place of business of such a company. Do not confuse this with the Explanation to section 234. That Explanation defines foreign company as any company or body corporate incorporated outside India, whether or not it has a place of business in India, but only for the purposes of section 234(2), which deals with mergers between a foreign company and an Indian company.

A foreign company with a place of business in India is dealt with under Chapter XXII of the Act. Among other things, it must file its financial statements with the Registrar (section 381).

Section 128 is a different rule. It applies to a company registered under the Act. It requires such a company to keep books of account at its registered office, on accrual basis and double entry system. Section 128(2) then covers a registered company that has a branch office in India or outside India. That company is deemed to comply with section 128(1) if proper books of the branch's transactions are kept at the branch and proper summarised returns are sent periodically to the company's registered office, or to the other place referred to in section 128(1). Do not present section 128(2) as the rule for the Indian branch of a foreign company.

The foreign exchange rules (FEMA) control who may open a branch and what it may do. In practice the foreign company applies through an Authorised Dealer (AD) bank. Some applicants, such as those from certain sensitive countries or in sensitive sectors, need prior approval from the Reserve Bank of India or the Government. The branch must not step outside the permitted activities, and it must not carry out activities reserved for Indian entities.

The figures and lists below follow the FEMA framework as commonly taught at this level. Check the latest ICSI study material for any recent changes before the exam.

Key rules to remember

Legal status of a branch office: Branch office = part of the foreign company (not a separate legal entity); Parent is liable for the branch's acts. A wholly owned subsidiary, by contrast, is a separate Indian company.
Eligibility: profit track record: Parent: profit-making track record during the immediately preceding five financial years in its home country; Remember this as the first eligibility condition for a branch office.
Eligibility: net worth: Parent: net worth of not less than US$ 100,000 (or equivalent); Net worth is taken from the latest audited balance sheet or account statement certified by a Certified Public Accountant or its equivalent.
Permitted activities of a branch office: Export/import of goods; professional or consultancy services; research work in which the parent is engaged; promoting technical or financial collaborations between Indian and foreign companies; representing the parent in India and acting as buying or selling agent; rendering services in IT and software development; technical support for products supplied by the parent; foreign airline or shipping company operations; Use this list as your checklist. Activities outside it are not allowed.
Prohibited activities: No manufacturing or processing activity on its own; no retail trading; Manufacturing is allowed only through a separate entity, for example a subsidiary, or through a special permission such as in a SEZ.
Approval route: Application in Form FNC to an Authorised Dealer bank; RBI approval for cases outside the AD route; After approval, the branch must register with the Registrar of Companies under the Companies Act, as a foreign company, and obtain a PAN.
Financial statements of a foreign company (Chapter XXII, s. 381): Foreign company with a place of business in India files its financial statements with the Registrar; This is the Companies Act rule for the Indian branch of a foreign company. It is not section 128(2).
Branches of a company registered under the Act (s. 128(2)): Branch keeps proper books of its transactions + sends proper summarised returns periodically to the company's registered office (or the other place under s. 128(1)); Applies to a company registered under the Act that has a branch in India or outside India. This is deemed compliance with s. 128(1).

How to solve Branch Office: Permitted Activities and Conditions questions

Use the same method for any question on a branch office. It keeps your answer in the ICSI style: provision, facts, conclusion.

1Read the facts and note who is acting: a foreign company, its country, and what business it wants to do in India.
2Identify the form: is the activity earning income (branch) or only liaison or project work? State this in one line.
3Test eligibility: profit track record in the preceding five financial years and net worth of at least US$ 100,000. Check any country or sector restriction that needs RBI or Government approval.
4Check the activity against the permitted list. If it is manufacturing or retail trading, mark it as not permitted.
5State the route: application in Form FNC to an Authorised Dealer bank, then registration as a foreign company with the Registrar and a PAN.
6Add the compliance point if asked: filing of financial statements with the Registrar under Chapter XXII (section 381) and remittance of profit after taxes. Use section 128(2) only for branches of a company registered under the Act.
7Write a clear conclusion: allowed or not allowed, and what the company should do instead (for example set up a subsidiary).

Quickest way: Four-check method for branch office questions

When to use it: Use it for short-note questions and for case-based questions where you have under ten minutes.

Check 1, Status: the branch is the foreign company itself, not a separate entity.
Check 2, Eligibility: five years of profit and net worth of at least US$ 100,000.
Check 3, Activity: matches the permitted list? If it is manufacturing or retail trading, it fails.
Check 4, Route: Form FNC to an AD bank, then Registrar registration. Write the conclusion in one sentence.

Common mistakes in Branch Office: Permitted Activities and Conditions

Saying a branch office is a separate legal entity from the foreign company.
Students confuse it with a wholly owned subsidiary, which is an Indian company.
Fix: Write that a branch is an extension of the parent. Only a subsidiary has a separate legal identity.
Allowing a branch office to do manufacturing or retail trading.
Students think that because a branch can earn income, it can do any business.
Fix: Learn the permitted list and remember the two key bars: no manufacturing and no retail trading.
Mixing up liaison office and branch office activities.
Both are offices of the foreign company and both need approval.
Fix: Ask: does it earn income in India? Branch yes, liaison no. Liaison only does representation and information work.
Quoting the wrong eligibility figures, such as net worth of US$ 50,000 or three years of profit.
Figures for different offices are learnt together and get swapped.
Fix: For a branch office, write five years of profit and net worth of at least US$ 100,000. Revise these figures against the latest study material.
Forgetting the Companies Act side, or applying section 128(2) to the Indian branch of a foreign company.
Students treat the topic as FEMA-only, or they link any mention of a branch to section 128(2).
Fix: Add one line: the branch is a place of business of a foreign company, which registers with the Registrar and files its financial statements under Chapter XXII (section 381). Section 128(2) covers branches of a company registered under the Act, not this case.
Writing the answer without a conclusion.
Students list the rules but do not apply them to the facts.
Fix: End every case answer with a clear statement: the proposal is or is not permitted, and why.

Worked examples

Example 1

Alpine GmbH, a German company, has made profits in each of the last five financial years and has a net worth of US$ 4,00,000. It wants to open an office in Pune to export Indian textiles and to offer consultancy services. Can it do so through a branch office? State the route.

Show the solution

Provision: a foreign company may set up a branch office in India for permitted activities, if it meets the eligibility norms.
Eligibility: the profit track record is needed for the preceding five financial years. Alpine has it. Net worth must be at least US$ 100,000. Alpine has US$ 4,00,000, so this is met.
Activity: export and import of goods and professional or consultancy services are in the permitted list. Exporting textiles is therefore allowed.
Route: Alpine applies in Form FNC to an Authorised Dealer bank. Then it registers with the Registrar as a foreign company and obtains a PAN. As a foreign company with a place of business in India, it must also file its financial statements with the Registrar under Chapter XXII (section 381).
Conclusion: Alpine is eligible and the activities are permitted.

Answer: Yes. Alpine GmbH meets both eligibility conditions and the proposed activities are permitted. It should apply in Form FNC through an Authorised Dealer bank, then register with the Registrar and obtain a PAN. It must also file its financial statements with the Registrar as a foreign company.

Example 2

Nova Inc., a US company with net worth of US$ 2,00,000 and five years of profits, wants to set up a branch office in Gujarat to manufacture electronic goods and sell them through its own retail shops. Advise Nova.

Show the solution

Provision: a branch office may carry out only the activities permitted for it. Manufacturing and retail trading are not among them.
Eligibility: Nova has five years of profits and net worth above US$ 100,000, so it meets the eligibility norms.
Activity: manufacturing is barred for a branch office on its own. Retail trading is also barred. The proposal therefore fails on activity, even though Nova is eligible.
Alternative: Nova can set up a wholly owned subsidiary in India, which is a separate Indian company. It can do manufacturing within the FDI policy, subject to sector conditions.
Conclusion: a branch office is not the right form for this plan.

Answer: Nova is eligible, but a branch office cannot manufacture or do retail trading. Nova should incorporate a wholly owned subsidiary in India to carry out its plan, subject to FDI policy and sector conditions.

Exam tips

Write the permitted activities as a short bullet list. Examiners look for the list and for the two prohibitions.
Always give both eligibility figures: five years of profit and net worth of at least US$ 100,000.
In comparison questions, use the income test: branch earns income, liaison office does not.
In case-based answers, apply the facts to each condition, then give a one-line conclusion.
Link the branch to the Companies Act: foreign company definition, registration with the Registrar and filing of financial statements under Chapter XXII (section 381). Use section 128(2) only for branches of a company registered under the Act.

Practice questions from Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Branch Office: Permitted Activities and Conditions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateIndependent Branch and Reconciliation of Head Office Branch Accounts

Branch Office: Permitted Activities and Conditions: frequently asked questions

Is a branch office a separate legal entity?

No. A branch office is part of the foreign company. The parent is liable for the branch's acts. A wholly owned subsidiary is the route if you need a separate Indian company.

What are the eligibility norms for a branch office in India?

The foreign parent should have a profit-making track record in the preceding five financial years and a net worth of at least US$ 100,000. Check the latest ICSI material for any change.

Can a branch office do manufacturing in India?

Not on its own. Manufacturing and retail trading are not permitted for a branch office. A foreign company that wants to manufacture usually sets up a subsidiary.

How does a foreign company open a branch office?

It applies in Form FNC to an Authorised Dealer bank, and in certain cases to the RBI. After approval it registers with the Registrar as a foreign company and obtains a PAN.

Which accounts rules apply to a branch office?

A foreign company with a place of business in India must file its financial statements with the Registrar under Chapter XXII of the Companies Act, 2013 (section 381). Section 128(2) is different. It applies to a company registered under the Act that has branches in India or outside India. Such a company is deemed to comply with section 128(1) if proper books of the branch are kept at the branch and proper summarised returns are sent periodically to its registered office or the other place under section 128(1).