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CLOSURE OF BRANCH OFFICE OF FOREIGN COMPANY
13 Nov 2018

CLOSURE OF BRANCH OFFICE OF FOREIGN COMPANY

Whenever a Company desires to expand its business, the search starts with finding a suitable location which is economically beneficial to the company. With a rapid increase in economy and consumption power and with a large work force, India has become one of the suitable/desirous place to do business.

Many companies are reaching to India to avail this opportunity but sometimes setting up a full unit or subsidiary, a Company may choose to set up a Branch Office to see whether it will be economically beneficial to it or to do a specific activity to avail this opportunity.

Sooner or Later a company may realize to step down or to close its business, in that scenario closing to a branch is much easier than a full unit or subsidiary.

Wherever a company desires to close its business operations via its branch due to any reason,it can do so by following few steps.

Whenever a branch has been set up in India there are primarily three authorities i.e.Registrar of Companies and Reserve Bank of India, where the branch has to submit its annual activities and the Income Tax department to whom one has to disclose all the transactions.

ROLE OF REGISTRAR OF COMPANIES (ROC)

·        Whenever the company desirous to close its operations in India, the company has to intimate the same to ROC in FORM FC-2 as per Section 380(3) of Companies Act, 2013 and Rule 3(4) of Companies(Registration of Foreign Companies) Rules, 2014.

POINTS TO BE REMEMBERED

·        Ensure all the compliance related to all past years has been done.

·        Set a Closing date for giving effect to the closure.

·        As the branch is not allowed to sell anything in India and if on closer the asset s of the branch are to be transferred approval of Reserve Bank of India (RBI) is to be obtained.

ROLE OF RESERVE BANK OF INDIA

·        Reserve Bank of India is the primary body which is responsible to allow setting up of Branch office in India as well as closure of the same.

·        From setting up to closure of branch details regarding remittance is to be in accordance with FEMA guidelines.

·        For closure of Branch office in India the company must approach the designated AD Category-1 bank with the following documents:

 

                                 i           Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for establishing the BO / LO.

                               ii           Auditor’s certificate-

a)       indicating the manner in which the remittable amount has been arrived at and supported by a statement of asset sand liabilities of the applicant, and indicating the manner of disposal of assets;

b)      confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and

c)       Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.

                             iii           Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

                              iv           A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.

                                v           Any other document/s specified by the Reserve Bank while granting approval. The designated AD Category - I banks has to ensure that the BO / LO's had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years, in respect of the existing Branch/Liaison Offices. Confirmation about the same can be obtained from the Central Office of the Reserve Bank in the case of BO's and from the Regional Office concerned in the case of LO's.

ROLE OF INCOME TAX DEPARTMENT

·        As we all know income tax department is the backbone of an economy. The Company has to ensure that all the annual income tax returns have been filled with the department and assessment for the year has been done.

·        The Company informs the respective assessing officer about the closure within 15 days from the date of closure application made to RBI as per section 176 of Income Tax Act, 1961.

·        All the GST and TDS returns have been filled with the respective department up to the closure date and in case of export of services or if there is any Input Tax Credit the same has been availed by the company by filling GST RFD 01A Form.

·        Once complied with all the requirements the Company need to surrender of GST / PAN/TAN etc.

 

 

For any query please ask to Mr. Hemant Paliwal at: hemant@hpacs.com 

 

DEEPAK PATHAK

ASSISTANT COMPANY SECRETARY

HPACS TEAM