Foreign citizens can open an entity in India via either by opening a Liaison Office or Branch Office or Subsidiary Company.
A company that is incorporated outside India has the option to have offices in India that are not primarily subsidiary companies. Subject to the Reserve Bank of India (“RBI”) guidelines, a foreign company can have a branch office, liaison office, or project office. The functions of these offices are limited as these are not full-fledged offices like a subsidiary office.
Liaison Office
Liaison offices as the word suggest it is an office that facilitates close working relationships between the parent company situated abroad and the business parties in India. The other term for Liaison offices is Representative Office. Liaison offices have restrictions and cannot undertake any business activities in India and also cannot earn any income in India.
The liaison office can undertake only the following activities in India:
- Represent the foreign company in India.
- Promote export from or import to India.
- Encourage technical/financial collaboration between parent or group companies and Indian companies.
- Act as a communication channel between the parent company and the Indian company.
Branch Office
A branch office mirrors the function of a parent company. The offices are established to perform similar business operations as the foreign parent company at different locations in India. Branch offices can carry on substantially the same business as the parent company. They can carry out all the trading activities that a parent company does. The major restriction being carrying out manufacturing activities although the same can be subcontracted to Indian Manufacturers.
The branch office can undertake only the following activities in India:
- Providing professional or consultancy services
- Promote export from or import to India
- Performing research work in which the parent company is engaged
- Encourage technical/financial collaboration between parent or group companies and Indian companies
- Representing the company in India and acting as an agent for trading
- Providing services in information technology and software development in India
- Rendering support (technical) for the products supplied by the parent company
- Operate as a foreign airline or shipping company
Regarding Inward Remittances:
Liaison Office: Only receive inward remittances from the parent company through normal banking channels and spend here
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.
Prerequisites for LO/BO
|
Nature of Office |
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. |
Q.1. How can foreign companies open Liaison /Branch office in India?
- With effect from February 1, 2010, foreign companies/entities desirous of putting in of Liaison Office / Branch Office (LO/BO) are required to submit their application in Form FNC together with the documents mentioned therein to Foreign Investment Division, exchange Department, bank of India, main office, Mumbai through an Authorized Dealer bank. this manner is accessible at www.rbi.org.in
- The applications from such entities in Form FNC are considered by the banking company under two routes:
- depository financial institution Route – Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automated route.
- Government Route – Where principal business of the foreign entity falls under the sectors where 100 per cent FDI isn't permissible under the automated route. Applications from entities falling under this category and people from Non – Government Organizations / Non – Profit Organizations / Government Bodies / Departments are considered by the banking concern in consultation with the Ministry of Finance, Government of India.
- The subsequent additional criteria are considered by the banking concern while sanctioning Liaison/Branch Offices of foreign entities:
- Past Performance
- For Branch Office — a profit making log during the immediately preceding five financial years within the home country.
- For Liaison Office — a profit-making memoir during the immediately preceding three financial years within the home country.
- Net Worth i.e. [total of paid-up capital and free reserves, less intangible assets as per the most recent Audited record or statement certified by a licensed Public Accountant or any Registered Accounts Practitioner by whatever name].
- For Branch Office — not but USD 100,000 or its equivalent.
- For Liaison Office — not but USD 50,000 or its equivalent.
- Permission to line up such offices is initially granted for a period of three years and this could be extended from time to time by the Authorized Dealer in whose jurisdiction the office is about up. The Branch / Liaison offices established with the Reserve Bank’s approval are allotted a novel positive identification (UIN) (www.rbi.org.in/scripts/Fema.aspx).
The BOs / LOs is required to obtain Permanent Account Number from the Income Tax Authorities, before starting their offices in India.
- Liaison/Branch offices should file an Annual Activity Certificate (AACs) from the Auditors, as at end of March 31, together with the audited record on or before September 30 of that year, stating that the Liaison Office has undertaken only those activities permitted by banking company of India. just in case the annual accounts of the LO/ BO are finalized with regard to date aside from March 31, the AAC together with the audited record could also be submitted within six months from the maturity date of the record.
Q.2.What are the permitted activities of the Liaison Office/ Representative Office?
A Liaison Office (also called 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's not allowed to undertake any commercial activity in India and can't earn any income in India. Expenses of such offices are to be met entirely through inward remittances of exchange from the pinnacle Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the corporate and its products to the possible Indian customers. A Liaison Office can undertake the subsequent activities in India:
- Representation of the parent company/group companies, in India.
- Promotion of export or import, from/to India.
- Promoting technical/financial collaborations between parent/group companies and firms in India.
- Acting as a communicating between the parent company and Indian companies.
Q.3. Can Foreign Insurance Companies / Banks find Liaison Office in India?
Foreign Insurance companies are eligible to establish their Liaison Offices in India, after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), depository financial institution of India.
Q. 4. what's the procedure for putting in the Branch office?
Permission for putting in place branch offices is granted by the exchange Department, Federal Reserve Bank of India, office, Mumbai. banking concern of India considers the chronicle of the applicant company, existing trade relations with India, the activity of the corporate proposing to line up an office in India moreover because the financial position of the corporate while scrutinizing the appliance. the appliance in Form FNC should be submitted to the depository financial institution through the Authorized Dealer bank.
Q.5. what all activities are permitted in respect of the Branch Office?
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to line up Branch Offices in India with specific approval of the bank. Such Branch Offices are permitted to represent the parent/group companies and undertake the subsequent activities in India:
- Export / Import of products.
- Rendering professional or consultancy services.
- Carrying out research work, in areas during which the parent company is engaged.
- Promotion of technical or financial collaborations in respect of Indian companies and the parent or overseas group companies.
- Representing the parent company in India and acting as buying/vendor in India.
- Providing services in respect of information technology and development of software in India.
- Providing technical support in respect of the products supplied by parent/group companies.
- Foreign airline/company.
Normally, the Branch Office should be engaged within the activity during which the parent company is engaged.
- Retail trading activities of any nature isn't allowed for a Branch Office in India.
- A Branch Office isn't allowed to hold out manufacturing or processing activities in India, directly or indirectly.
- Profits, as earned by the Branch Offices, shall be freely remitted from India, subject to payment of requisite taxes.
Q.6. Whether Branch Offices are permitted to remit profit outside India?
Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the subsequent documents to the satisfaction of the Authorized Dealer through whom the remittance is affected:
- a licensed copy of the audited record and Profit and Loss account for the relevant year;
- A Chartered Accountant’s certificate certifying –
- the style of arriving at the remittable profit
- that the whole remittable profit has been earned by undertaking the permitted activities
- that the profit doesn't include any profit on revaluation of the assets of the branch
Q.7 what are the documents to be submitted to the AD bank at the time of closure of the Liaison/ Branch Office?
At the time of closing of Branch/Liaison offices, the corporate must approach the designated AD Category – I bank with the subsequent documents:
- Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the BO / LO.
- Auditor’s certificate –
- indicating the style during which the remittable amount has been came across and supported by a press release of assets and liabilities of the applicant, and indicating the way of disposal of assets;
- Providing the details that all the liability in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and
- Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
- Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there's no legal impediment to the remittance.
- A report from the Registrar of Companies regarding compliance with the provisions of the businesses Act, 1956, just in case of ending of the Office in India.
- the other document/s, specified by the banking concern while granting approval.
Q.8. what's the procedure for fitting Project Office?
The bank has granted general permission to foreign companies to ascertain Project Offices in India, provided they need to be secured a contract from an Indian company to execute a project in India, and
- the project shall be funded directly using the inward remittance from abroad; or
- the project shall be funded using a bilateral or multilateral International Financing Agency, or
- the project has been cleared by an appropriate authority; or
- Any company or entity in India getting funds in respect of a Term loan granted by a public institution or a bank in India for the project.
However, if the above criteria aren't met or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications need to be forwarded to the interchange Department, banking company of India, business office, Mumbai for approval.
Q.9. What are the bank accounts permitted to a Project Office?
AD Category – I banks can open non-interest bearing Foreign Currency Accounts for Project Offices in India subject to the following:
- The Project Office has been established in India, with the final/specific permission of depository financial institution, 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 identical 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 within 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 should be closed at the completion of the Project.
Q.10. What are the overall conditions applicable to the Liaison / Branch / Project Office of foreign entities in India?
The overall conditions applicable to Liaison/Branch/Project Office of foreign entities in India are as under;
- Without prior permission of the bank, no one is 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 the other place of business.
- Partnership / Proprietary concerns founded abroad aren't allowed to ascertain Branch /Liaison/Project Offices in India.
- Entities from Nepal are allowed to ascertain only Liaison Offices in India.
- Branch/Project Offices of an overseas entity, excluding a Liaison Office are permitted to amass property for his or her own use and to hold out permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China don't seem to be allowed to accumulate immovable property in India even for a Branch Office. The following entities shall be allowed to lease such property for a period up to a maximum of five years.
- Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current accounts in India.
- Transfer of assets of Liaison / Branch Office to subsidiaries or other LO / BO or the other entity is permitted only with the precise approval of the office of the interchange Department, banking concern of India.
- Authorized Dealers can allow term time deposit account for a period not exceeding 6 months in favour of a branch/office of an individual resident outside India, provided the bank has been satisfied that the sanctioned term deposit has been out of temporary surplus funds and the branch/office shall also furnish an undertaking that the maturity proceeds of the term deposit are going to be utilized for his or her business in India within 3 months of maturity. However, such a facility might not be extended to shipping/airline companies.
- Permission to ascertain offices, in India by foreign Non-Government Organizations/Non-Profit Organizations/Foreign Government Bodies/Departments, by whatever name called, are under the govt. Route as per A. P. (DIR Series) Circular No. 23 dated December 30, 2009. Such entities are required to use the depository financial institution for prior permission to ascertain an office in India, whether Project Office or otherwise.
