ESTABLISHMENT OF BRANCH/LIAISON/PROJECT
OFFICES IN INDIA
Application to RBI
Companies incorporated outside
India, desirous of opening a Liaison/Branch office in India have to make an
application in form FNC-1 to the Reserve Bank of India, along with the
following documents:
• English version of the
certificate of incorporation / Registration or Memorandum & Articles of
Association attested by Indian Embassy/ Notary Public in the
country of Registration.
• Latest Audited Balance Sheet of
the applicant entity.
Liaison Offices
Companies which are incorporated
outside India can establish liaison office in India with the specific approval
of the Reserve Bank. A Liaison Office (also known as Representative office) can
undertake 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 outside India. The role of
such offices is, therefore, limited to collecting information about possible
market opportunities and providing information about the company and its
products to the prospective Indian customers. 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 of RBI under whose jurisdiction the office is
set up. A Liaison Office can undertake the following activities in India:
1) Representing in India the
parent company/group companies.
2) Promoting export import from/to
India.
3) Promoting technical/financial
collaborations between parent/group companies and companies in India.
4) Acting as a communication
channel between the parent company and Indian companies.
Liaison/representative offices
have to file an Annual Activity Certificate from a Chartered Accountant to the
Regional Office of RBI. The Certificate is obtained to ensure that the Liaison
Office has undertaken only those activities that have been approved by RBI.
Liaison Office of
Foreign Insurance Companies
Foreign
Insurance companies can establish Liaison Offices in India after obtaining
approval from the Insurance Regulatory and Development Authority. Such
Insurance companies have been given general permission under FEMA for
establishing Liaison Offices in India.
Branch Offices
Companies
incorporated outside India and engaged in manufacturing or trading activities
are allowed to set up Branch Offices in India with specific approval of the
Reserve Bank. Such Branch Offices are permitted to represent the parent/group
companies and undertaking the following activities in India:
(1)
Export/import of goods
(2) Rendering
professional or consultancy Services.
(3) Carrying
out research work, in which the Parent company is engaged.
(4) Promoting
technical or financial collaborations between Indian companies and parent or
overseas group company.
(5)
Representing the parent company in India and acting as buying/selling agent in
India.
(6) Rendering
services in Information Technology and development of software in India.
(7) Rendering
technical support to the products Supplied by parent/group companies.
Retail trading
activities of any nature is not allowed for a Branch Office in India.
A branch office
is not allowed to carry out manufacturing, processing activities in India,
directly or indirectly. Branch offices are permitted to acquire property for
their own use and to carry out the permitted/ incidental activities but not for
leasing or renting out the property. However, entities from Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China are not allowed acquire
immovable property in India even for a Branch Office. These entities are
allowed to take such property on lease basis only for a period not exceeding
five years. Entities from Nepal are allowed to establish only Liaison Offices
in India.
Profits earned
by the Branch Offices are freely remittable from India, subject to payment of
applicable taxes.
Branch office
has to submit annual activity certificates from chartered accountants to RBI.
Branch Office In
Special Economic Zones (SEZs)
RBI has given general permission
to foreign companies for establishing branch/unit in Special Economic Zones
(SEZs) to undertake manufacturing and service activities. The general
permission is subject to the following conditions:
1) Such units
are functioning in those sectors where 100 Per cent FDI is permitted,
2) Such units
comply with part XI of the companies Act (Section 592 to 602),
3) such units
function on a stand-alone basis,
In the event of
winding-up of business and for remittance of winding-up proceeds, the branch
shall approach an Authorized Dealer Category-I Bank with the documents as
mentioned in “Closure of Office” except the copy of RBI approval.
Branches of Banks
Foreign Banks
do not require approval form RBI under FEMA, if such Bank has obtained
necessary approval under the provisions of the Banking Regulation Act,1949 from
the Reserve Bank.
Project Offices
Reserve Bank has granted general
permission to foreign companies to establish Project Offices in India, provided
they have secured a contract form an Indian company to execute a project in
India, and
(a) The project
is funded directly by inward remittance from abroad; or
(b) The project
is funded by bilateral or multilateral International Financing Agency; or
(c) The project
has been cleared by an appropriate authority; or
(d) a company
or entity in India awarding the contract has been granted Term Loan by a Public
Financial Institution or a bank in India for the project.
However, if the
above criteria are not met, the foreign entity has to approach RBI to obtain
approval.
Opening of Foreign
Currency Account
AD Category-I Banks can open
non-interest bearing Foreign Currency Account for Project Office in India
subject to the following:
a) 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,
b) The contract under which the
project has been sanctioned, specifically provides for payment in foreign
currency,
c) Each Project has only one
Foreign Currency Account,
d) 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.
e) The responsibility of ensuring
that only the approved debits and credits are allowed in the Foreign Currency
Account shall rest solely with the concerned branch of the AD. Further, the account shall be subject to 100 per
cent scrutiny by the Concurrent Auditor of the respective AD banks.
Account shall rest solely with the concerned branch of the AD. Further, the account shall be subject to 100 per
cent scrutiny by the Concurrent Auditor of the respective AD banks.
f) The Foreign
Currency Account has to be closed at the completion of the Project.
Intermittent Remittances by
Project Offices in India
AD Category-I branch can permit
intermittent remittances by Project Offices pending winding up/completion of
the project provided they are satisfied with the bonafides of the transaction,
subject to the following:
- The Project Office submits an
Auditors/ Chartered Accountants Certificate to the effect that sufficient
provisions have been made to meet the liabilities in India including
Income Tax etc.
- An undertaking from the
Project Offices that the remittance will not, in any way, affect the
completion of the project in India and that any shortfall of funds for
meeting any liability in India will be met by inward remittance from
abroad.
Inter Project
transfer of funds requires prior permission of the concerned Regional Office of
the Reserve Bank under whose jurisdiction the Project Office is situated.
General Conditions
Partnership/Proprietary concerns
set up abroad are not allowed to establish Branch/ Liaison Office in RBI.
Branch/Liaison/Project
Offices are allowed to open non-interest bearing 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 Offces
is allowed with specific approval of the Central Office of RBI.
Closure of Offices
At the time of winding up of the
Liaison Offices, the company has to approach the respective Regional Office of
the Reserve Bank with the documents
• Copy of the Reserve Bank’s
permission for establishing the Office in India
• Auditor’s certificate
Indicating the manner in which
remittable amount has been arrived and supported by a statement of assets and
liabilities of the applicant, and indicating the manner of disposal of assets.
Confirming that all liabilities in
India including arrears of gratuity and other benefits to employees etc. of the
branch/office have either fully met or adequately provided for;
Confirming that no income accruing
from sources outside India (including proceeds of exports) has remained
unrepatriated to India;
• No-objection or Tax clearance
certificate from Income tax authority for the remittance; and
• Confirmation from the applicant
that no legal proceedings in any Court in India are pending and there is no legal
impediment to the remittance.
Once RBI’s Regional Office grants
approval AD Category-I Banks can allow remittance of surplus.
At the time of closure of Branch Offices,
the entities have to approach the Central Office of the Reserve Bank for
approval, with the same set of documents as mentioned above.
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