Q.1. How can
foreign companies open Liaison /Branch office in India?
Ans.
A. With effect from February 1,
2010, foreign companies/entities desirous of setting up of Liaison Office /
Branch Office (LO/BO) are required to submit their application in Form
FNC along with the documents mentioned therein to Foreign
Investment Division, Foreign Exchange Department, Reserve Bank of India,
Central Office, Mumbai through an Authorised Dealer bank. This form is
available at www.rbi.org.in
B. The applications from such
entities in Form FNC will be considered by the Reserve Bank under two routes:
• Reserve Bank Route - Where
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
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
are considered by the Reserve Bank in consultation with the Ministry of
Finance, Government of India.
C. The following additional
criteria are also considered by the Reserve Bank while sanctioning
Liaison/Branch Offices of foreign entities:
• Track Record
·
For Branch Office — a
profit making track record during the immediately preceding five financial
years in the home country.
·
For Liaison Office — a
profit making track record during the immediately preceding three financial
years in the home country.
• Net Worth [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].
·
For Branch Office —
not less than USD 100,000 or its equivalent.
·
For Liaison Office —
not less than USD 50,000 or its equivalent.
D. Permission to set up Liaison
offices is initially granted for a period of 3 years and this may be extended
from time to time by the Authorised Dealer in whose jurisdiction the office is
set up. The Branch / Liaison offices established with the Reserve Bank's
approval will be allotted a Unique Identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx). The BOs / LOs shall also obtain Permanent Account Number
(PAN) from the Income Tax Authorities on setting up the offices in India.
E. Liaison/Branch offices have to
file an Annual Activity Certificate (AACs) from the Auditors, as at end of
March 31, along with the audited Balance Sheet on or before September 30 of
that year, stating that the Liaison Office has undertaken only those activities
permitted by Reserve Bank of India. In case the annual accounts of the LO/ BO
are finalized with reference to a date other than March 31, the AAC along with
the audited Balance Sheet may be submitted within six months from the due date
of the Balance Sheet.
LOs/BOs are required to furnish
copy of the Annual Activity Certificate (AAC) to Director General of Income Tax
(International Taxation), Drum Shaped Building, I.P. Estate, New Delhi
110002.Copies of the AACs submitted to the DGIT (International Taxation) should
be accompanied by audited financial statements including receipt and payment
account.
Further, at the time of renewal of
permission of LOs by AD banks, they may note to endorse a copy of each such
renewal to the office of the DGIT (international Taxation).
Q.2. What are
the permitted activities of Liaison Office/ Representative Office?
Ans. A Liaison Office (also known as 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 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 outside India. The role of
such offices is, therefore, limited to collecting information about possible
market opportunities and providing information about the company and its
products to the prospective Indian customers. A Liaison Office can undertake
the following activities in India:
i.
Representing in India
the parent company / group companies.
ii.
Promoting export /
import from / to India.
iii.
Promoting
technical/financial collaborations between parent/group companies and
companies in India.
iv.
Acting as a
communication channel between the parent company and Indian companies.
Q.3. Can Foreign
Insurance Companies / Banks set up Liaison Office in India?
Ans. Foreign Insurance companies can establish Liaison Offices
in India only 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), Reserve Bank of India.
Q. 4. What is
the procedure for setting up Branch office?
Ans. Permission for setting up branch offices is granted by the
Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.
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 the financial position of the company while
scrutinising the application. The application in Form FNC should be submitted
to the Reserve Bank through the Authorised Dealer bank.
Q.5. What are
the permitted activities of Branch Office?
Ans. Companies incorporated outside India and engaged in
manufacturing or trading activities are allowed to set up Branch Offices in
India with specific approval of the Reserve Bank. Such Branch Offices are
permitted to represent the parent / group companies and undertake the following
activities in India:
i.
Export / Import of
goods.1
ii.
Rendering professional
or consultancy services.
iii.
Carrying out research
work, in areas in which the parent company is engaged.
iv.
Promoting technical or
financial collaborations between Indian companies and parent or overseas group
company.
v.
Representing the
parent company in India and acting as buying / selling agent in India.
vi.
Rendering services in
information technology and development of software in India.
vii.
Rendering technical
support to the products supplied by parent/group companies.
viii.
Foreign airline /
shipping company.
Normally, the Branch Office should
be engaged in the activity in which the parent company is engaged.
Note:
a.
Retail trading
activities of any nature is not allowed for a Branch Office in India.
b.
A Branch Office is not
allowed to carry out manufacturing or processing activities in India, directly
or indirectly.
c.
Profits earned by the
Branch Offices are freely remittable from India, subject to payment of
applicable taxes.
Q.6. Whether
Branch Offices are permitted to remit profit outside India?
Ans. Branch Offices are permitted to remit outside India profit
of the branch net of applicable Indian taxes, on production of the following
documents to the satisfaction of the Authorised Dealer through whom the
remittance is effected :
a. A Certified copy of the audited
Balance Sheet and Profit and Loss account for the relevant year;
b. A Chartered Accountant’s
certificate certifying -
i. the manner of arriving at the
remittable profit
ii. that the entire remittable
profit has been earned by undertaking the permitted activities
iii. that the profit does not
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?
Ans. At the time of winding up of Branch/Liaison offices, the
company has to approach the designated AD Category - I bank with the following
documents:
a) Copy of the Reserve Bank's
permission/ approval from the sectoral regulator(s) for establishing the BO /
LO.
b) Auditor’s certificate - i)
indicating the manner in which the remittable amount has been arrived at and
supported by a statement of assets and liabilities of the applicant, and indicating
the manner of disposal of assets;
ii) confirming that all liabilities
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
iii) confirming that no income
accruing from sources outside India (including proceeds of exports) has
remained un-repatriated to India.
c) No-objection / Tax Clearance
Certificate from Income-Tax authority for the remittance/s.
d) Confirmation from the
applicant/parent company that no legal proceedings in any Court in India are
pending and there is no legal impediment to the remittance.
e) A report from the Registrar of
Companies regarding compliance with the provisions of the Companies Act, 1956,
in case of winding up of the Office in India.
f) Any other document/s, specified
by the Reserve Bank while granting approval.
Q.8. What is
the procedure for setting up Project Office?
Ans. The Reserve Bank has granted general permission to foreign
companies to establish Project Offices in India, provided they have secured a
contract from an Indian company to execute a project in India, and
i.
the project is funded
directly by inward remittance from abroad; or
ii.
the project is funded
by a bilateral or multilateral International Financing Agency; or
iii.
the project has been
cleared by an appropriate authority; or
iv.
a company or entity in
India awarding the contract has been granted Term Loan by a Public Financial
Institution or a 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, Iran , China, Hong Kong or Macau, such applications have to
be forwarded to the Foreign Exchange Department, Reserve Bank of India, Central
Office, Mumbai for approval.
Q.9. What are
the bank accounts permitted to a Project Office?
Ans. AD Category – I banks can open non-interest bearing Foreign
Currency Account for Project Offices in India subject to the following:
i.
The Project Office has
been established in India, with the general / specific permission of Reserve
Bank, having the requisite approval from the concerned Project Sanctioning
Authority concerned.
ii.
The contract, under
which the project has been sanctioned, specifically provides for payment in
foreign currency.
iii.
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 same AD
category–I bank.
iv.
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.
v.
The responsibility of
ensuring that only the approved debits and credits are allowed in 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.
vi.
The Foreign Currency
accounts have to be closed at the completion of the Project.
Q.10. What are
the general conditions applicable to Liaison / Branch / Project Office of
foreign entities in India?
Ans. The general conditions applicable to Liaison/Branch/Project
Office of foreign entities in India are as under;
(i) Without prior permission of the
Reserve Bank, no person being a citizen of/ registered in Pakistan, Bangladesh,
Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish in India,
a Branch or a Liaison Office or a Project Office or any other place of
business.
(ii) Proprietary concerns set up
abroad are not allowed to establish Branch /Liaison/Project Offices in India.
(iii) Entities from Nepal are
allowed to establish only Liaison Offices in India.
(iv) Branch/Project Offices of a
foreign entity, excluding a Liaison Office are permitted to acquire property
for their own 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, Bhutan or China are not allowed to
acquire immovable property in India even for a Branch Office. These entities
are allowed to lease such property for a period not exceeding five years.
(v) Branch / Liaison / Project
Offices are allowed to open non-interest bearing INR current accounts in India.
(vi) Powers relating to transfer of
assets of Liaison / Branch Office/Project Office have been delegated to AD
Category-1 Banks subject to compliance with certain stipulations as mentioned
in A.P.DIR (Series Circular) No. 142 dated June 12, 2014.
(vii) Authorised Dealers can allow
term deposit account for a period not exceeding 6 months in favor of a
branch/office of a person resident outside India provided the bank is satisfied
that the term deposit is out of temporary surplus funds and the branch / office
furnishes an undertaking that the maturity proceeds of the term deposit will be
utilised for their business in India within 3 months of maturity. However, such
facility may not be extended to shipping/airline companies.
(viii) Permission to establish
offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign
Government Bodies/Departments, by whatever name called, are under the
Government Route as specified in A.
P. (DIR Series) Circular No. 23 dated December 30, 2009. Such entities are required to apply to the Reserve Bank
for prior permission to establish an office in India, whether Project Office or
otherwise.
F. All the new entities setting up
LO/BO/PO shall also:
i.
submit a report
containing information as per Annex (given in AP DIR.Cir.35 dated September 25, 2012) within five working days of the LO/BO/PO becoming
functional to the DGP of the state concerned in which LO/BO/PO has established
its office; if there are more than one office of such a foreign entity, in such
cases to each of the DGP concerned of the state where it has established office
in India;
ii.
a copy of the report
as per above mentioned Annex shall also be filed with the DGP concerned on
annual basis along with a copy of the Annual Activity Certificate/Annual report
required to be submitted by LO/BO/PO concerned, as the case may be.
iii.
A copy of report thus
filed as above shall also be filed with AD by LO/BO/PO concerned.
G. The existing LO/BO/PO shall
henceforth report the information as per above mentioned Annex along with the
copy of Annual Activity Certificate/Annual report to DGP of state concerned and
also file a copy of the same with AD bank
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