Establishment of Foreign Office in India

Establishment of Foreign Office in India

A foreign company can set up either a branch office, liaison office or a project office in India. There are different compliances related to setting up of different foreign offices in India.

Package inclusions for Establishment of Foreign Office in India:
 
  • Advice on the Establishment of foreign Office in India.
  • Consultation on the procedure for establishment of foreign office in India.
  • Advice on the different types of foreign offices.
  • Advice on procedure to form a branch office in India.
  • Advice on forming a project office in India.
  • Advice on forming a liaison office in India.
  • Compliance with relevant authorities in forming a foreign office in India.
  • Post compliance services for establishing an office in India.

Establishment of Foreign Office in India- Branch, Liaison and Project office

Foreign companies have established their footprint in India ever since the liberalization of markets. The establishment of a foreign office in India can be for many reasons. Some reasons may be to increase the business presence. Apart from this, the main reason for the establishment of the foreign office such as Branch, Liaison and Project Office in India is to maximize profits. The Government of India has brought out specific regulations related to establishment of offices in India. Under the Foreign Exchange Management Act 1999 (FEMA), foreign companies can establish either a branch office, liaison office or a project office in India. However, setting up an office in India depends on the requirements of the foreign company. 

Purpose of Establishment of Foreign office in India

A resident outside India or a foreign company can establish the following types of offices in India:

  • Branch Office
  • Liaison Office
  • Project Office

Branch office (BO)-

Depending on the requirements of the foreign company, the type of office will be established. If the foreign company wants to expand its business operations in India, then it would be preferable to start a branch office in India. The activities of a branch office are not restricted. Branch offices can engage in all forms of activities, which also include receiving remittances from the foreign company. Therefore if the foreign office ants to expand its geographical presence, it can start this form of office in India.

Liaison Office(LO)-

Liaison means coordinating and improving the relationships between the entities or organizations. Therefore the liaison office acts as a point of contact for the foreign company. When the foreign company wants to establish its presence in India, a liaison office can be set up in India. The foreign office can send inward remittances to the liaison office to conduct operations. The only type of operations which are allowed for a liaison office is marketing, promotional activities and representing the foreign office in India. The liaison office is the point of contact for the foreign office in India.

Project Office (PO)-

Project office can also be set up by a foreign company in India. However, certain conditions have to be satisfied with setting up a project office for a foreign company in India.

  • There has to be a contract granted by an Indian company to a foreign company.
  • The contract has to be in the list of permitted activities.
  • The remittance of foreign funds has to be to fund the project in India.
  • The project can also be funded by an international monetary or financial authority such as the International Monetary Fund (IMF) or the World Bank (WB).
  • A term loan has to be granted by a Public Financial Institution to the company that is granting the contract.

List of Permitted Activities for Establishment of Foreign Office in India

Branch Office- Permitted Activities- Establishment of Foreign Office in India

  • Importing and Exporting of Goods and Services;
  • Consultancy and Professional Business;
  • Research and Development Work which is allowed by the Parent Company;
  • Acting as an agent for the Parent company;
  • Development of Software for the Parent Company;
  • Technology Support for the Foreign Parent Company; and
  • Transportation Company.

Liaison Office- Permitted Activities- Establishment of Foreign Office in India

  • Representing the group of companies in India;
  • Promotion and Marketing Activities for the Foreign Company in India;
  • Collaboration Activities- Such as Financial and Technical Collaboration; and
  • Mode of Communication between the Foreign Parent Company and the Indian Authorities.

Who Regulates the Establishment of Foreign Office in India

The primary regulatory authority behind the Establishment of Foreign office in India is the Reserve Bank of India (RBI). Authorized Dealer (AD) / Banks (Category-I)  would deal on behalf of the applicant for setting up a Foreign office in India. The law which regulates foreign offices in India is the Foreign Exchange Management Act 1999. The Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000, (the ‘Regulations’) also deal with the Establishment of Foreign Office in India.
The Regulations are amended from time to time by the RBI.

Apart from this, there are various reporting requirements which require are required to be followed. When the foreign office is set up, reporting is required to the following authorities:

  • MCA- Ministry of Corporate Affairs;
  • Income Tax authorities;
  • Insurance Regulatory and Development Authority of India;
  • Registrar of Companies;
  • Ministry of Finance; and
  • Revenue Department.

Eligibility criteria for Establishment of Foreign Office in India

For the establishment of Foreign office in India, the criterion varies.

For a Branch Office- Establishment of Foreign Office

  • A company has to be present abroad to set up a branch office in India;
  • Track Record of the Company- Preceding five years profit and track record is considered;
  • Net worth of the company has to be more than USD 100000 or equivalent;
  • Branch Office Activities is not restricted; and
  • Any form of activity can be carried out by the branch office.

For a Liaison Office- Establishment of Foreign Office

  • Liaison Office must not carry out any commercial activity;
  • Liaison Office must be set up by a foreign company in India;
  • Track Record of the Company- Preceding three years profit and track record is considered; and
  • Net worth of the company has to be more than USD 50000 or equivalent.

For a Project Office- Establishment of Foreign Office

  • Project Office can only be established if the foreign company has been awarded a contract;
  • Project Office must be set up by a foreign company in India;
  • The Foreign parent company must provide funding; and
  • International Financial and Monetary Agencies can also provide funding.

The Regulation equires individual applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau, or Pakistan have to register with the police to start either a branch office, liaison office, or project office.

Approval from RBI- Establishment of Foreign Office

Specific applications require prior approval from the RBI before setting up a Branch office/ liaison office/ project office.

  • If the application is made from Pakistan, Bangladesh, China, Iran, Nepal, and Afghanistan, then prior approval is required from the RBI.
  • If the sectors which the applicant want to start being involved in Defence, Atomic Energy, Private Security, and Broadcasting.
  • Applicant is an NGO (Non-Governmental Organization) or company engaged in non Governmental Activities.
  • The applicant wants to start the office in Andaman and Nicobar, North-East Region and Jammu and Kashmir.

Process / Procedure for Establishment of Foreign Office in India

Establishing a Branch office /Liaison Office

  • The applicant has to make sure that he/she suffices the eligibility criteria to start a Branch Office or Liaison Office.
  • Once this has been fulfilled, the applicant has to make an application.
  • The application has to be made to the RBI.
  • The application to the RBI can be made through the authorized dealer.
  • The application has to be made through FORM- FNC. (Annex B of the Regulations)
  • With the application for setting up a Branch Office/ Liaison Office in India, the following documents have to be submitted by the company:

1. Certificate of Incorporation of the Company. The documents provided must be in English;

2. Memorandum of Association;

3. Articles of Association;

4. Balance Sheet of the company which has been audited; and

5. Power of Attorney in favor of the Signatory of Form FNC in case the head of the overseas entity is not going to sign the form FNC.

  • After the authorized bank receives the documents, they will scrutinize the application whether the applicant satisfies the eligibility criteria and also do background checks on the profile of the promoters.
  • The source of funds will also be considered if it is coming through proper banking channels for the company.
  • Based on this report, the authorized bank will approve the branch office /liaison office.
  • A copy of the Form- FNC will be given to the Reserve Bank of India to the following address:

General Manager,
Reserve Bank of India,
CO Cell,
New Delhi

  • Upon checking the form, the reserve bank will allot a Unique Identification Number (UIN).
  • A separate UIN is required for each branch office or liaison office.
  • The RBI will forward the UIN along with the copy to the authorized dealer. The authorized dealer will provide the UIN to the applicant to start the Branch Office /Liaison office.
  • RBI will maintain a report of all the Branch Offices/ liaison offices set up in India.
  • Setting up a branch office/ liaison office would take 45 days.
  • When approval is provided to the Branch Office/ Liaison Office, the office must be started within six months.

Setting up of a project office- Establishment of Foreign office in India

  • Similar to the Branch office and Liaison Office, the project office can also be established in India.
  • The procedure for starting a project office under the establishment of a foreign office in India is the same as setting up a branch office or a liaison office in India.
  • The applicant who receives permission to start a project office must start the project office within six months.

Documents required for Establishment of Foreign Office in India

The documents for establishing a foreign office in India are similar for branch office, liaison office, and project office. The following Documents are required for the establishment of a Foreign office in India.

  • Certificate of Incorporation of the Company. The documents provided must be in English.
  • Memorandum of Association.
  • Articles of Association.
  • Balance Sheet of the company which has been audited.
  • Power of Attorney in favor of the Signatory of Form FNC in case the head of the overseas entity is not going to sign the form FNC.
  • Annual Activity Certificate (AAC), which is present in Annexure D of Form FNC, requires to be submitted on 31 March. This must be submitted to the Director-General of Income Tax and Designated Authorized Bank Category –I.
  • Apart from this, the AAC must be submitted to the RBI.
  • eform FC-1 has to be submitted to the Ministry of Corporate Affairs (MCA). This document must be submitted within 30 days of starting the office.
  • eForm- EC-2 which contains information related to any form of alteration must be submitted to the Registrar of Companies within 30 days of such alteration.

Validity Period- Establishment of Foreign Office in India

  • Project Office- The project office would be opened until the project comes to an end. This means if the project is completed, then the office would be wound up.
  • Liaison Office- Validity and Renewal of registration is after three years.
  • Branch Office- Validity and Renewal of registration is after 2-3 years.

How can Enterslice help in Establishment of Foreign Office in India

  • We can help you with the formalities of starting your branch office, liaison office, and foreign office in India.
  • We monitor compliance and coordinate with RBI / relevant authorities for establishing your branch office/ liaison office/ foreign office.
  • We will help you with the procedure for starting the office in India.
  • We value your time and money.
  • We also offer compliance services for RBI and FEMA.

Frequently Asked Questions

What action is the AD required to take in case of any adverse reporting in the Annual Activity Certificate (AAC) of LO/BO (Liaison Office / Branch Office) or non-submission of AACs?

In case there is any form of adverse reporting problem in the AAC of the Liaison Office or Branch Office, then the same will be reported to the Reserve Bank of India.

Is it possible for the liaison office/ branch office to maintain more than one account in India?

No. The liaison office/ branch office cannot maintain more than one account in India. Prior permission is required from the RBI to start another bank account. However, the company has to justify by giving reasons as to why another account is required.

Are LO/BO/PO required to register/report with Police authorities?

Only applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong, Kong, Macau, and Pakistan shall have to register with the State Police authorities. The AD Category shall mark a copy of approval letter for persons from these countries I bank to the Ministry of Home Affairs, Internal Security Division – I, Government of India, New Delhi for necessary action and record. All other countries are exempted from registering with the State Police authorities.

Can an LO/BO/PO (Liaison Office/ Branch Office/ acquire property for its operation?

Yes, The BO /PO of a foreign entity, excluding an LO, is permitted to acquire property for their use and to carry out permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal, Bhutan, China, Hong Kong, and Macau require prior approval of the Reserve Bank to acquire immovable property in India for a BO/PO. Bos/Los/POs have general permission to carry out permitted/ incidental activities from leased property subject to the lease period, not exceeding five years.

Can an LO upgraded into BO continue to have the same PAN and bank account?

Yes, provided the bank account is re-designated as a BO account.

Can a subsidiary of Indian company abroad open a BO in India and whether this will come under automatic route?

No. Only a foreign company is considered as an office which can open a branch office under this route.

Can a Branch Office be upgraded to a Liaison Office?

Yes, a branch office can be upgraded to a liaison office. However, prior approval from the Reserve Bank of India is required for this.

Whether the foreign office can provide a credit facility to the project office?

the foreign office can provide a Credit Facility to the project office. However, the Authorised Dealer must ensure that before the provision of a credit facility, there is compliance with the regulations.

Do authorized Dealers need to obtain Unique Identification Number (UIN)?

No Authorised Dealers do not need to obtain a Unique Identification Number.

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