×

CONSULT US

Blog

FOREIGN COMPANY Can set up their operations in India through Branch Office / Liaison Office / Project Office

A company incorporated outside India have an option to have an office in India by way of a branch office (BO), a liaison office (LO) and a project office (PO). These offices can be set up in India subject to fulfillment of certain conditions and within the framework of the Reserve Bank of India.

Investment Route –  for BO / LO / PO

Automatic Route

Where the principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.

Government Route

Where the principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organisations / Non-Profit Organisations / Government Bodies / Departments require government approval.

Prior Government Approval –  for BO / LO / PO

  • Citizen of or Registered/ Incorporated in Pakistan

  • Whose principal business falls in Defence, Telecom, Private security and Information and Broad casting **

  • NGO, NPO or a Body/ Agency/ Department of a foreign government, except cases covered under FCRA

  • Citizen of or Entities registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application for opening LO/BO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands (i.e. AD bank can permit to open office without referring matter to RBI if application is in other cities/states excluding Jammu and Kashmir, North East region and Andaman and Nicobar Islands

**  Prior approval not required where Government approval or license/permission by concerned Ministry/Regulator has already been granted.  Further, in the case of proposal for opening a PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings

Branch Office

As a Branch Office (“BO”) in India, foreign companies can conduct full-fledged business in India. BO can carry the same or substantially the same trading activities as carried out by their parent or group companies.

Governing Law 
Establishment of a Branch Office of a foreign entity in India is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 (“FEMA“) read with FEMA 22(R)/ 2016-RB, dated 31.03.2016: Foreign Exchange Management (Establishment in India of Branch Office or Liaison Office or a Project Office or any other Place of Business) Regulations, 2016 and Master Direction No. 10/2015-16 Dated 1-1-2016: Master Direction on Establishment of Branch Office (BO)/ Liaison Office (LO)/Project Office (PO) or any other Place of Business in India by Foreign Entities as amended from time to time.  A branch office of a foreign company in India upon approval from the RBI must be compulsorily registered under the (Indian) Companies Act, 2013. Upon registration under the Companies Act 2013, the branch office can carry on its business activities in the same way as a domestic company.  
Eligibility criteria –

a profit making track record during the immediately preceding five financial years in the home country.

Net Worth of not less than USD 100,000 or its equivalent i.e. total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called.  

Permissible activities –

 

 

 

Export/import of goods

Rendering professional or consultancy services.

Carrying out research work in which the parent company is engaged.

Promoting technical or financial collaborations between Indian companies and parent or overseas group company.

Representing the parent company in India and acting as buying/ selling agent in India.

Rendering services in Information Technology and development of software in India

Rendering technical support to the products supplied by parent/group companies.

Representing a foreign airline/shipping company.

 

Restrictions –

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 or processing activities in India, directly or indirectly.

Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

Bank Account –

A BO may approach any AD Category-I Bank in India to open an account for its operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds.

Branch office in SEZs –

There is a general permission to non-resident companies for establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities subject to the conditions that:

  1. such BOs are functioning in those sectors where 100% FDI is permitted;
  2. such BOs comply with Chapter XXII of the Companies Act, 2013; and
  3. such BOs function on a stand-alone basis.

Taxation –

A BO is considered as an extension of a foreign company in India. Therefore, income earned by the BO is taxed in India in accordance with the taxation provisions applicable to foreign companies under the Act.

In case the provisions of a tax treaty between India and the country of which the foreign company is resident, are more beneficial than the Act, then it is open to the foreign company to elect being taxed under the provisions of the relevant tax treaty.

Closure of Branch office –

In the event of winding-up of business and for remittance of winding-up proceeds, the branch shall approach an AD Category – I bank with the required documents.

Liaison Office

A Liaison office (‘LO’) also known as a representative office can be established in India to promote or facilitate the business of the parent company in India. An LO acts as a communication channel between the foreign headquarters and an Indian company.

Governing Law 
Establishment of a Branch Office of a foreign entity in India is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 (“FEMA“) read with FEMA 22(R)/ 2016-RB, dated 31.03.2016: Foreign Exchange Management (Establishment in India of Branch Office or Liaison Office or a Project Office or any other Place of Business) Regulations, 2016 and Master Direction No. 10/2015-16 Dated 1-1-2016: Master Direction on Establishment of Branch Office (BO)/ Liaison Office (LO)/Project Office (PO) or any other Place of Business in India by Foreign Entities as amended from time to time.

Eligibility criteria –

A profit-making track record during the immediately preceding three financial years in the home country.

Net Worth – of not less than USD 50,000 or its equivalent i. e. total of paid-up capital and free reserves less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called.

 

 

 

Representing the parent company / group companies in India. 

Promoting export / import from / to India

Promoting technical/ financial collaborations between parent / group companies and companies in India.

 

Acting as a communication channel between the parent company and Indian companies.

 

Bank Account –

An LO may approach the designated Authorised Dealer (AD) Category-I Bank in India to open an account to receive remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permitted Credits and Debits to the account shall be:

Credits

Funds received from Head Office through normal banking channels for meeting the expenses of the office.

Refund of security deposits paid from LO’s account or directly by the Head Office through normal banking channels.

Refund of taxes, duties etc., received from tax authorities, paid from LO’s bank account. Sale proceeds of assets of the LO

Debits

Only for meeting the local expenses of the office.

Taxation –

LO is not permitted to carry on any industrial, trading or commercial activities, nor to earn any income in India. However, sec 139(1) requires all companies to furnish a return of income. Hence, LO would also be required to file their return of income in India.

Validity Period –

License is given for three years and the same can be renewed every three years.

But, in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, the validity period is only two years, and no extension for these sectors (excluding infrastructure development companies) will be considered. Once the validity period expires, the liaison office has to either close down or be converted into a joint venture/wholly owned subsidiary in conformity with the FDI policy.

Closure of Liaison office –

For closure of the Liaison office, it shall approach an AD Category – I bank with the required documents

Project Office

A Project Office (‘PO’) can be established when a foreign company has been awarded a contract to execute a project in India from an Indian company. A PO is valid till the conclusion of the project.

Governing Law 

Establishment of a Branch Office of a foreign entity in India is regulated in terms of Section 6(6) of Foreign Exchange Management Act, 1999 (“FEMA“) read with FEMA 22(R)/ 2016-RB, dated 31.03.2016: Foreign Exchange Management (Establishment in India of Branch Office or Liaison Office or a Project Office or any other Place of Business) Regulations, 2016 and Master Direction No. 10/2015-16 Dated 1-1-2016: Master Direction on Establishment of Branch Office (BO)/ Liaison Office (LO)/Project Office (PO) or any other Place of Business in India by Foreign Entities as amended from time to time.   Project office of a foreign company can be set up in India only after obtaining the permission from Reserve Bank of India. Before setting up a project office in India, foreign companies need to secure a contract with an Indian company to start a project. A Foreign company establishing a project office in India is required to be registered with the Registrar of Companies (ROC) and to comply with certain procedural formalities, as prescribed under the Companies Act, 2013 and RBI guidelines.  

Eligibility criteria –

To establish a PO in India, the following additional conditions are required to be met in addition to the contract being awarded to the foreign company:
The project is funded by remittances from the parent company/overseas entity
The project is funded by a multilateral or bilateral international agency
The project has been cleared by the appropriate authority in India
The Indian company awarding the contract has been granted a term loan from a public financial institution for the project.

Permissible activities – 

The activities of the project office would depend upon the nature of the contract awarded by the Indian company to the foreign company.

Bank Account –

Any foreign entity except an entity from Pakistan who has been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank.

An entity from Pakistan shall need prior approval of Reserve Bank of India to open a bank account for its project office in India. 

Project office can have two foreign currency accounts- one denominated in USD and other in the home currency of the awardees of the project- but with the same 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 foreign currency accounts have to be closed at the completion of the project.

Taxation –

A PO is considered as an extension of a foreign company in India. Therefore, income earned by the project office is taxable in India in accordance with the taxation provisions applicable to foreign companies under the Income-tax Act, 1961 (“Act”).

Validity Period –

There is no particular time limit as to the duration of the project office. The same shall be subject to the contract between the foreign company and the Indian company.

Closure of Project office –

Reserve Bank of India has granted general permission for closure of Project office and for remittance of surplus money on completion/winding up of the project subject to fulfillment of certain conditions.

Annual Compliance applicable to BO / LO / PO

Form Name

Description

Due date

Authority 

 

 

 

 

Form 49C *

Annual Statement under section 285 of the IT Act

30th May every year

Income Tax

 

 

 

 

FC-4

Annual return of foreign company

30th May every year

ROC

 

 

 

 

FC-3

Annual accounts with list of principal places in India by foreign companies

30th Sept every year

ROC

 

 

 

 

AAC, Annual Accounts

Annual activity certificate along with annual accounts

30th Sept every year **

AD Bank, DGIT, DGP

 

 

 

 

DGP Annexure (applicable to entities from specified countries)

Various information

Not yet prescribed

DGP, AD Bank

 

 

 

 

ITR-6

Income tax return filing by companies

30th Sept /30th Nov every year ***

Income Tax

 

 

 

*  Applicable to LO Only

** No due date prescribed for PO

*** For BO & PO if Transfer Pricing is applicable

Share

About

Affluence Advisory Pvt. Ltd. is established with the vision to provide one stop solutions to clients needs in ever changing environment. Affluence is managed by specialized team of Chartered Accountants, Company Secretaries, Corporate Lawyers and Other Professionals committed to provide quality experience to our clients in the widest spectrum of business needs.

Recent Posts

April 1st, 2023
SEBI has approved following amendments in its Board Meeting
March 27th, 2023
Common and simplified norms for processing investor’s service requests by RTA’s and norms for furnishing PAN, KYC details and Nomination
March 23rd, 2023
Additional affirmations by Practicing Company Secretaries (PCS) in Annual Secretarial Compliance Report
March 20th, 2023
Peer to Peer (P2P) Lending in India
March 17th, 2023
Regulatory Framework – Liability of Independent Director
March 15th, 2023
Social Stock Exchange (SSE) – Fund Raising Platform for “Not for Profit Organizations” (NPO)
March 13th, 2023
MSME Registration Benefits – Tax and Others
March 10th, 2023
Link PAN with Aadhaar by March 31: SEBI direction to Investors
March 8th, 2023
Importance of Credit Score
March 6th, 2023
Closure Of The Company – Various Exit Modes Of Voluntary Winding Up
March 2nd, 2023
FAQ’s on Social Stock Exchange
March 2nd, 2023
Latest Key Amendments Effective from April 01, 2023
February 25th, 2023
Consultation Paper On Strengthening Corporate Governance At Listed Entities By Empowering Shareholders – Amendments To The SEBI (LODR) Regulations, 2015
February 24th, 2023
National Pension System (NPS) – Additional Tax Saving Option
February 20th, 2023
Tax Deduction and Documentation for Salary – AY 2023-24
February 13th, 2023
SEBI Consultation paper on review of Corporate Governance norms for a High-Value Debt Listed Entity dated February 08, 2023
February 9th, 2023
SEBI revamps buyback methods and provisions relating to buybacks
February 7th, 2023
SEBI circular on achieving min public shareholding
February 3rd, 2023
Off Market transfer of shares without consideration is not allowed – SEBI
February 2nd, 2023
Informal Guidance to proposed to be listed company – Extending share based employee benefits to employees of a subsidiary company
February 1st, 2023
Generating Awareness on the availability of Disputes Resolution Mechanisms at Stock Exchanges against Listed Companies / Registrar to an Issue and Share Transfer Agent
January 30th, 2023
Remuneration paid to Directors of the Listed Entity – Series 3
January 25th, 2023
Upgradation of E- Forms in tune with V3 portal
January 23rd, 2023
SEBI Notification dated 17/01/23 | Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2023
January 19th, 2023
Remuneration paid to Non-Executive Directors of Public Company – Series 2
January 16th, 2023
Remuneration paid to Whole Time Directors of Public unlisted Companies
January 11th, 2023
Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
January 9th, 2023
Online registration of units through MCA portal for ESI registration and inspection of units in this regard
January 6th, 2023
Guidance given by Securities and Exchange Board of India (‘SEBI’) on creation of ‘Suspense Escrow Demat Account’
January 5th, 2023
Change in Single Master Form (SMF) on FIRMS Portal
January 3rd, 2023
Relaxation with respect to conducting of Extra Ordinary General Meetings and Postal Ballots
December 30th, 2022
MCA extension for conducting Annual General Meetings through Video Conferencing or other Audio Visual Means (‘OAVM’)
December 23rd, 2022
Web-based Form DPT-3 as per New Rules
December 13th, 2022
Input Tax Credit (‘ITC’) on Corporate Social Responsibility (‘CSR’) expenses
December 7th, 2022
GSTR 9 and 9C – Optional to Mandatory reporting in FY 2021-22
September 27th, 2022
CSR Compliances as per New Rules 2022
September 20th, 2022
Mandatory appointment of Company Secretary
September 17th, 2022
Amendment To The Definition Of Small Company And Benefits
September 16th, 2022
Obligation to Indicate Director Identification Number (DIN)
September 7th, 2022
RBI issues Digital Lending Guidelines: Banks / NBFC