ESTABLISHMENT OF BRANCH/LIAISON/PROJECT OFFICES IN INDIA

Q.1. How can foreign companies open Liaison/Project/Branch office in India?

A.1. Foreign company can set up Liaison/ Branch Offces in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offces in India subject to certain conditions.

Q.2. What is the procedure to be followed for obtaining Reserve Bank’s approval for opening Liaison Office / Representative Office ?

A.2 A Liaison office can carry on 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 abroad. The role of such office is therefore, limited to collecting information about possible market opportunities and providing information about the Company and its products to the prospective Indian customers.

The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central office Mumbai. This form is available at www.rbi.org.in

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 in whose jurisdiction the office is set up. Liaison/Representative offices have to file an Activity Certifcate on an annual basis from a Chartered Accountant to the concerned Regional Office of the Reserve Bank of India, stating that the Liaison office has undertaken only those activities permitted by Reserve Bank of India.

Q.3. What is the procedure for setting up Project Office ?

A.3 • Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve Bank of India Vide Notification No. FEMA 95/ 2003- RB dated July 2, 2003 to foreign companies to open Project Office /s in India provided they have secured from an Indian company, a contract to execute a project in India, and

• the project is funded directly by inward remittance from abroad; or

• the project is funded by a bilateral or multilateral International Financing Agency; or

• the project has been cleared by an appropriate authority; or

• a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution
or bank in India for the project.

• However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, lran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for approval.

Q.4. What is the procedure for setting up Branch office ?

A.4 Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Office in India for the following purposes:

• To represent the parent company/ other foreign companies in various matters in India e.g. acting as buying/ selling agents in India.

• To conduct research work in the area in which the parent company is engaged.

• To undertake export and import activities and trading on wholesale basis

• To promote possible technical and financial collaborations between the Indian companies and overseas companies

• Rendering professional or consultancy services

• Rendering services in Information technology and development of software in India

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

• A branch office is not allowed to carry out manufacturing, processing activities directly/ indirectly. A Branch office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offces have to submit Activity Certifcate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch office may submit required documents to an authorised dealer.

• Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve Bank of India considers the track record of the Applicant Company, existing trade relations with India, the activity of the company proposing to set up office in India as well as financial position of the company while scrutinising the application.