overview on liaison office, project & branch office

LIAISON OFFICE, PROJECT OFFICE & BRANCH OFFICE

A company that’s incorporated outside India has the choice to own offices in India that don’t seem to be primarily subsidiary companies. Subject to the depository financial institution of India (“RBI”) guidelines, a distant company can have a branch office, liaison office, or project office. The functions of those offices are limited as these don’t seem to be full-fledged offices sort of a subsidiary office.

LIAISON OFFICE

Liaison offices because the word suggest it’s an office that facilitates close working relationships between the parent company situated abroad and also the business parties in India. the opposite term for Liaison offices is Representative Office. Liaison offices have restrictions and can’t undertake any business activities in India and also cannot earn any income in India.

The liaison office can undertake only the subsequent activities in India:

• Represent the foreign company in India.
• Promote export from or import to India.
• Encouragement of the technical/financial collaboration between the parent or group companies along with the Indian companies.
• Act as a communicating between the parent company and therefore the Indian company.

BRANCH OFFICE

A branch office mirrors the function of a parent company. The offices are established to perform similar business operations because the foreign parent company at different locations in India. Branch offices can stick with it substantially the identical business because the parent company. they will perform all the trading activities that a parent company does. the most important restriction being affecting manufacturing activities although the identical is subcontracted to Indian Manufacturers.

The branch office can undertake only the subsequent activities in India:

• Providing professional or consultancy services
• Promote export from or import to India
• Performing research add which the parent company is engaged
• Encourage technical/financial collaboration between parent or group companies and Indian companies
• Representing the corporate in India and acting as an agent for trading
• Providing services in information technology and software development in India
• Providing technical support in respect of the products supplied by the parent company
• Operate as an overseas airline or company

PROJECT OFFICE

The RBI grants the parent company situated abroad to own project offices in India for representing the interests of the parent company executing projects in India but excludes Liaison Office.

The project office can only undertake the activity relating and attendant the project. the first condition for opening a project office India is that the parent company must have secured a contract from an Indian company.

The following table illustrates the circumstance during which the above offices can undertake inward remittances:

LIAISON OFFICE	ONLY RECEIVE INWARD REMITTANCES FROM THE PARENT COMPANY THROUGH NORMAL BANKING CHANNELS.
BRANCH OFFICE	ALL THE EXPENSES OF THE BRANCH OFFICE WILL BE INCURRED USING THE FUNDS RECEIVED FROM ABROAD OR THE INCOME GENERATED BY THE BRANCH.
PROJECT OFFICE	ONLY RECEIVE INWARD REMITTANCES FROM THE PARENT COMPANY THROUGH NORMAL BANKING CHANNELS.

PROVISIONS FOR ESTABLISHMENT OF BRANCH/LIAISON/PROJECT OFFICES BY FOREIGN ENTITIES

PREREQUISITES

The parent company must obtain permission from the bank of India (RBI)under provisions of exchange Management Act, 1999 (“FEMA”) when it’s desirous of opening a Liaison or Branch Office. The applications in Form FNC are going to be considered by the RBI under two routes:

1. Reserve Bank Route: If the principal business of the foreign parent company falls under the 100 sectors where one hundred pc Foreign Direct Investment (FDI) is permissible under the automated route, applications are going to be processed by RBI.
2. Government Route: If the principal business of the foreign parent company doesn’t constitute the 100 sectors where 100% FDI is permissible under the automated route or the applying is from companies that are Non- Profit Organizations/ Non – Government Organizations / Government Bodies/ Departments, such applications are considered by the RBI in consultation with the Ministry of Finance, Government of India.

Additionally, the RBI also will consider the subsequent criteria while sanctioning the Liaison office/ Branch office of a parent company.

	NET WORTH	TRACK RECORD
LIAISON OFFICE	GREATER THAN OR EQUAL TO USD 50000 OR ITS EQUIVALENT	A TRACK RECORD SHOWING PROFIT DURING THE IMMEDIATELY PRECEDING 3 FINANCIAL YEARS IN THE HOME COUNTRY.
BRANCH OFFICE	GREATER THAN OR EQUAL TO USD 100000 OR ITS EQUIVALENT	A TRACK RECORD SHOWING PROFIT DURING THE IMMEDIATELY PRECEDING 5 FINANCIAL YEARS IN THE HOME COUNTRY.

 

DOCUMENTS REQUIRED

The documents required in respect of establishment of Branch or Liaison Offices will be as follows –

1. The Certificate of Incorporation Registration, Memorandum of Association and Articles of Association copy attested by the notary within the country of registration. The documents must be in English, if not then the identical must be translated, notarized and cross-verified or attested by the Indian Embassy or Consulate within the home country.
2. The Audited record of the applicant company for the last three years or Account’s statement certified by any Registered Accounts Practitioner or an authorized Public Accountant (CPA) clearly showing the online worth.
3. A report from the applicant’s banker within the host country or country of registration showing the number of years of the applicant’s banking relations therewith bank
4. Power of Attorney in favor of the signatory of Form FNC just in case the top of the overseas entity isn’t signing Form FNC.
5. All details of activities conducted within the project office in India.
6. Proof of Residence of the authorized personnel.
7. Copy of the passport of authorized personnel.
8. A letter stating that the corporate will open a checking account in India.

The documents for opening project office are as follows:

• The Certificate of Incorporation, Memorandum of Association & Article of Association attested by Indian Embassy/Notary Public within the country of Registration.
• Audited record (current) of the applicant company.
• A resolution by the Board of the parent company stating the intention behind establishing the project office in India.
• Documentary proof that shows the Project Office is financially backed by the bilateral or multilateral International Financing Agencies OR the Indian Company has obtained term loan for the Project Office, availed from the Financing Institution or Bank in India.
• A report from the applicant’s banker within the host country or country of registration, which shows the quantity of years the applicant has had banking relations therewith bank.
• A letter of authority issued by the parent company in relevancy the local representative.
• All details of activities conducted within the project office in India.
• Proof of residence of the authorized personnel.
• Copy of passport of the authorized personnel.
• A letter stating that the corporate will open a checking account in India.

SUMMARIZED DETAILS OF VALIDITY AND TIME PERIOD FOR REGISTRATION

PARTICULARS	TIME PERIOD FOR REGISTRATION	VALIDITY OF REGISTRATION	VALIDITY OF APPROVAL FOR ESTABLISHMENT OF OFFICE
LIAISON OFFICE	40-45 DAYS	THREE YEARS EXCEPTION – CONSTRUCTION DEVELOPMENT & NBFC – TWO YEARS	6 MONTHS FROM DATE OF APPROVAL
BRANCH OFFICE	40-45 DAYS	NO SPECIFIC TIME FRAME GENERALLY 2-3 YEARS	6 MONTHS FROM DATE OF APPROVAL
PROJECT OFFICE	10-15 DAYS	DEPENDS ON PROJECT TIMELINE	6 MONTHS FROM DATE OF APPROVAL

PERMISSIBLE SOURCES FOR FUNDING ODI

OVERSEAS INVESTMENT UNDER AUTOMATIC ROUTE

Under the automated Route, an Indian Party doesn’t require any prior approval from the banking concern for creating overseas direct investments in an exceedingly Wholly Owned Subsidiary (WOS) abroad. The Indian Party should approach a certified Dealer Category – I bank for effecting the remittances towards such investments.

“Indian Party” is any or combination of the following:

• A company incorporated in India
• A body corporate incorporated under an Act of Parliament
• A partnership firm registered under the Indian Partnership Act, 1932
• A liability partnership incorporated under the indebtedness Partnership Act, 2008, and includes the other entity in India as is also notified by the banking company.

ACTIVITIES PERMITTED FOR OVERSEAS INVESTMENT

An Indian company can make overseas investment in any activity (except people who are specifically prohibited) during which it’s experience and expertise. However, for undertaking activities within the financial sector, certain additional conditions laid out in Regulation 7 is also adhered to.

It is to be noted that the real estate sector and Banking have been prohibited from overseas investment. However, Indian banks operating in India can founded JV/WOS abroad provided they obtain clearance under the Banking Regulation Act 1949.

Only an Indian Company engaged in financial sector activities can make investment within the financial services sector provided it fulfills the subsequent norms:

• has earned profit during the preceding three financial years from the financial services activities;
• is registered with the acceptable regulatory agency in India for conducting financial services activities;
• has taken approval from the requisite regulatory authorities, incorporated both in India as well as abroad in respect of venturing into such financial sector activity;
• has fulfilled the prudential norms regarding capital adequacy as prescribed by the concerned administrative body in India.

The criteria for overseas direct investment/ financial commitment under the automated Route are as under:

• The Indian Party can invest up to 400% of its net worth (as per the last audited Balance Sheet) in WOS for any bonafide activity permitted as per the law of the host country subject to prior RBI approval for limit exceeding USD 1 Billion per FY;
• The Indian Party isn’t on the Reserve Bank’s exporters’ caution list / list of defaulters to the industry published/ circulated by the Credit Information Bureau of India Ltd. (CIBIL) / RBI or the other credit information company as approved by the Federal Reserve Bank or under investigation by the Directorate of Enforcement or any investigative agency or regulatory authority; and
• The Indian Party routes all the transactions referring to the investment in an exceedingly WOS through only 1 branch of a certified dealer (bank) to be designated by the Indian Party.

“Financial commitment” means the number of direct investments outside India by an Indian Party and includes –

• by way of contribution to equity shares of the WOS abroad;
• as loans to its WOS abroad;
• 100% of the quantity of corporate guarantee issued on behalf of its overseas WOS;
• 100% of the number of bank guarantees; and
• 50% of the quantity of performance guarantee issued on behalf of its overseas WOS.

PROCEDURE TO BE FOLLOWED UNDER THE AUTOMATED ROUTE

The Indian Party meaning to make overseas direct investment under the automated route is required to top off form ODI online through AD bank duly supported by the documents listed therein, i.e., certified copy of the Board Resolution, Statutory Auditors certificate and Valuation report (in case of acquisition of an existing company) as per the valuation norms and approach a licensed Dealer (designated Authorized Dealer) for creating the investment/remittance.

OVERSEAS INVESTMENT UNDER RBI APPROVAL ROUTE

Proposals not covered by the conditions under the automated route require prior approval of the banking concern that a particular application in Form ODI with the documents prescribed therein is required to be made through the Authorized Dealer Category – I banks.

Reserve Bank shall take into consideration the subsequent factors while considering such applications:

• clear viability of the WOS outside India;
• Contribution to external trade and other benefits which is able to accrue to India through such investment;
• Financial position and business data of the Indian Party and also the foreign entity; and
• Expertise and skill of the Indian Party within the same or related line of activity as of the WOS outside India.

With a view to enabling recognized star exporters with a proven journal and a consistently high export performance to reap the advantages of globalization and liberalization, proprietorship concerns and unregistered partnership firms are allowed to line up WOS outside India with the prior approval of the bank subject to satisfying certain eligibility criteria.

An application in form ODI could also be made to the Chief chief, depository financial institution of India, exchange Department, Overseas Investment Division, office, Amar Building, 5th Floor, Fort, Mumbai 400 001, through their bank.

Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are allowed to create investment within the same sector(s) in a very WOS outside India, with the prior approval of the Federal Reserve Bank.

COMPLIANCES BY INDIAN PARTY-ON INVESTMENT/ FINANCIAL COMMITMENT

1. Filing Form ODI along with:

• Certified copy of Board Resolution for investment
• Statutory Auditor’s Certificate
• Valuation report for the worth of shares

2. Obtain UIN through AD bank – required for all investments
3. Post investment, ensure receipt of share certificates or the other document as evidence and submit within six months to AD bank.
4. Report the main points of the selections taken by a WOS regarding diversification of its activities /setting from step down subsidiaries/alteration in its share holding pattern within 30 days of the approval of these decisions by the competent authority concerned of such WOS in terms of the local laws of the host country.

• • During Investment:
  • On changes in investment report back to RBI through AD bank within 30 days of approval by competent authority of WOS
  • Repatriate to India all dues viz. dividends, royalty, technical fees, etc. within 60 days of falling due.
  • Annual Filing:
  • Annual Performance Report (APR) partly II of Form ODI by 31st December per annum
  • Annual Return on Foreign Assets & Liabilities (FLA) by 15th July per annum

Where the law of the host country doesn’t mandatorily require auditing of the books of accounts of WOS, the Annual Performance Report (APR) is also submitted by the Indian Party supported the un-audited annual accounts of the WOS provided:

• Statutory Auditors of the Indian Party certify that law of the host country doesn’t mandatorily require auditing of the books of accounts of WOS and also the figures within the APR are as per the un-audited accounts of the overseas WOS and
• Also, the un-audited annual accounts of the WOS should have been adopted and ratified by the Board of the Indian party.

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