Q1.How can foreign companies open liaison/Project/Branch office in India?
A.1 Foreign companies can set up Liaison/ Branch Office in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offices in India subject to certain conditions.
Q2.What is the Procedure to be followed for obtaining Reserve Bank’s approval for opening Liaison Officer/ Representative Office ?
A.2 A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such office is therefor, limited to collecting information about possible market opportunities and providing information about the company and its product to the prospective Indian customers.
The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentions therein to foreign exchange department, Reserve Bank Of India, Central office Mumbai. This form is available at www.rbi.org.in
permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional office in whose jurisdiction the office is set up. Liaison /Representative offices have to flee an Activity certification on an annual basis from Chartered Accountant to the concerned Regional office of the Reserve Bank of India, starting that the Liaison office has undertaken only those activities permitted by Reserve Bank of India.
Q3. What is the procedure for setting up Project Office?
A.3 Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve Bank of India Vide Notification no. FEMA 95/2003-RB dated July 2, 2003 to foreign companies to open Project Office/s in India provided they have secured from an Indian Company, a contract to execute a project in India and
The project is funded directly by inward remittance from abroad;
The project is funded by a bilateral or multilateral International financing Agency; or
The project has been cleared by an appropriate authority; or
A company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or bank in India for the project.
However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such application have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for approval.
Q4. What is the procedure for setting up Branch office?
A.4 Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch office in India for the following purposes:
To represent the parent company/ other foreign companies in various matters in India E.g. acting as buying/ selling agents in India.
- To conduct research work in the area in which the parent company is engaged.
- To undertake export and import activities and trading on wholesale basis.
- To promote possible technical and financial collaborations between the Indian companies and overseas companies
- Rendering professional or consultancy services
- Rendering services in Information technology and development of software in India
- Rendering technical support to the products supplied by the parent/ Group companies.
- A branch office is not allowed to carry out manufacturing, processing activities directly/ indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch office may submit required documents to an authorized dealer. Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve Bank of India considers the track record of the Applicant Company, existing trade relations with India, the activity of the company proposing to set up office in India as well as financial position of the company while scrutinizingthe application.
Opening of Foreign Currency Account
AD Category – I banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:
- The Project Office has been established in India, with the general / specific permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.
- The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
- Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I bank.
- The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority, and remittances from parent/group company abroad or bilateral / multilateral international financing agency.
- The responsibility of ensuring that only the approved debits and credits are allowed in the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.
- The Foreign Currency accounts have to be closed at the completion of the Project.
Other General Conditions Applicable to Branch / Liaison / Project Offices of Foreign Entities in India
Authorised Dealers can allow term deposit account for a period not exceeding 6 months in favor of a branch/office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.
Regularisation of LO / BO established during pre-FEMA period
- Without prior permission of the Reserve Bank, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish in India, a Branch or a Liaison Office or a Project Office or any other place of business.
- Entities from Nepal are allowed to establish only Liaison Offices in India.
- Branch/Project Offices of a foreign entity are permitted to acquire immovable property by way of purchase for their own use and to carry out permitted/incidental activities. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India for a Branch / Project Office without prior RBI approval.
All Branch / Project Offices including Liaison Offices, have general permission to carry out permitted / incidental activities from lease property subject to lease period not exceeding five years.
- Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers for opening the accounts.
- Transfer of assets of Liaison / Branch Office to subsidiaries or other Liaison/Branch Offices or any other entity is allowed with specific approval of the Central Office of the Reserve Bank.
- Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorised Dealer through whom the remittance is effected
- A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year
- A Chartered Accountant’s certificate certifying
- the manner of arriving at the remittable profit
- that the entire remittable profit has been earned by undertaking the permitted activities
- that the profit does not include any profit on revaluation of the assets of the branch.
Under the provisions of FEMA 1999 foreign entities are permitted to establish a branch or liaison office in India with permission of the Reserve Bank of India. Liaison / Branch Offices established in pre FEMA period without approval of Reserve Bank of India and those that have not been allotted a Unique Identification Number by the Reserve Bank of India may approach the Reserve Bank Of India