Branch Office vs Project Office Setup in India

India’s booming economy and strategic position in the global market make it an attractive destination for foreign businesses. However, setting up a business in India requires a thorough understanding of the available entity structures. Two common options for foreign companies are Branch Offices and Project Offices.

Here we explain the distinctions between these setups, the processes involved, and how to choose the right option for your business.

Branch Office Setup in India

A Branch Office is an extension of the foreign parent company, established to conduct specific activities in India. It represents the parent company and is not a separate legal entity.

Key Features

• Purpose: Long-term market presence for specified activities such as export/import, consultancy, and technical support.
• Legal Structure: Operates as a foreign branch, tied to the parent company’s identity.
• Scope of Activities: Cannot engage in retail trading or manufacturing but can subcontract such activities.
• Regulation: Requires approval from the Reserve Bank of India (RBI).

Steps for Branch Office Setup

1. Approval from RBI: Submit an application through an Authorized Dealer Bank in India.
2. Registration with MCA: Obtain a Corporate Identification Number (CIN) after RBI approval.
3. PAN and Tax Registration: Secure a Permanent Account Number (PAN) and comply with tax regulations.
4. Bank Account Setup: Open a bank account for operations in India.

Advantages

• Enables direct interaction with Indian customers.
• Establishes a strong market presence.
• Allows a broader scope of business activities.

Challenges

• Subject to stringent compliance requirements.
• Taxed at a flat rate of 35% plus applicable surcharges on net basis.
• Prohibited from manufacturing or retail trading directly.

Project Office Setup in India

A Project Office is a temporary entity established to execute a specific contract or project in India. It is ideal for time-bound activities and is automatically dissolved after the project concludes.

Key Features

• Purpose: Execution of a specific project or contract.
• Legal Structure: Operates as a temporary office tied to the project.
• Scope of Activities: Limited to the project scope defined in the contract.
• Regulation: Requires RBI approval, but this is often waived for government-funded or Indian-financed projects.

Steps for Project Office Setup

1. Approval from RBI: Apply for approval through an Authorized Dealer Bank unless exempted.
2. Documentation: Provide details of the project contract, funding sources, and parent company information.
3. Compliance: Adhere to taxation and reporting requirements during the project period.

Advantages

• Simplified and cost-effective setup for short-term projects.
• Focused operations limited to the project scope.
• Automatically closes post-project, reducing administrative burdens.

Challenges

• No long-term market presence.
• Restricted to project-related activities.
• Taxed based on project earnings.

Branch Office vs Project Office: A Comparison

Expanding into India presents immense opportunities for foreign businesses, thanks to its robust economy, growing middle class, and strategic location. And choosing the right entity structure is critical.

Aspect	Branch Office	Project Office
Purpose	Long-term market presence.	Temporary setup for specific projects.
Legal Entity	Part of the parent company.	Temporary entity tied to a project.
Activities Allowed	Broader activities, excluding manufacturing/retail.	Restricted to project execution.
Approval Required	RBI and MCA approvals.	RBI approval.
Duration	Permanent until closed.	Limited to project duration.
Taxation	35% flat corporate tax on net basis.	Taxed based on project income @ 35%.
Ideal For	Businesses exploring long-term growth.	Contract-specific operations.

With Stratrich Consulting by your side, your business can confidently navigate India’s regulatory landscape and unlock its immense growth potential. From approvals to operations, we are committed to making your India expansion seamless and successful.

How to Choose Between a Branch Office and a Project Office

Consider a Branch Office If:

• You aim for a sustained presence in India.
• Your business involves consultancy, technical support, or market exploration.
• You need a broader scope of operations beyond a single project.

Consider a Project Office If:

• You have a one-time contract or project to execute in India.
• The project is funded by an Indian company or government agency.
• You require a cost-effective, temporary solution.

Regulatory and Compliance Considerations

Both Branch Offices and Project Offices must adhere to Indian regulations, including:

• Taxation: Both are subject to income tax on net basis..
• Reporting: Regular reporting to the RBI and MCA is mandatory including tax authorities such as Income tax & GST.
• Closure: While Project Offices close automatically post-project, Branch Offices require a formal deregistration process. RBI reporting would be required for closure including closure of Bank Account.

Conclusion

Choosing between a Branch Office and a Project Office in India depends on your business goals, duration of operations, and the scope of activities. For long-term market penetration and diverse activities, a Branch Office is the better choice. However, if your objective is executing a specific project, a Project Office offers a simpler and more focused solution.

To ensure a seamless setup, it is advisable to seek professional assistance to navigate India’s regulatory framework. Whether you are a entrepreneur aiming to explore India’s dynamic market or a large or medium sized business owner executing a major project, selecting the right structure is key to success.