|Particulars||Liaison Office||Branch Office||Project Office|
|Definition||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||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 is that of carrying out manufacturing activities although the same can be subcontracted to Indian Manufacturers.||The RBI grants the parent company situated abroad to have 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 incidental to the project. The primary condition for opening a project office India is that the parent company must have secured a contract from an Indian company.|
|Inward Remittances||Only receive inward remittances from the parent company through normal banking channels.||All the expenses of the Branch office will be incurred using the funds received from abroad or the income generated by the branch.||Only receive inward remittances from the parent company through normal banking channels.|
|Time Period for Registration||40-45 Days||40-45 Days||10-15 Days|
|Validity of registration||Three Years Exception –Construction Development & NBFC – Two Years||No Specific time frame generally 2-3 years||Depends on Project timeline|
|Validity of Approval for establishment of Office||6 months from date of approval||6 months from date of approval||6 months from date of approval|
|Net Worth required to be eligible||Greater than or equal to USD 50000 or its equivalent||Greater than or equal to USD100000 or its equivalent|
|Track Record required to be eligible||A track record showing profit during the immediately preceding 3 financial years in the home country||A track record showing profit during the immediately preceding 5 financial years in the home country.||6 months from date of approval|
The application for establishing BO / LO/ PO in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category - I bank (i.e. an AD Category – I bank identified by the applicant
The AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing BO/LO/PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms grant approval to the foreign entity for establishing BO/LO/PO in India.
The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.
However, before issuing the approval letter to the applicant, the AD Category-I bank shall forward a copy of the Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each BO/LO.
After receipt of the UIN from the Reserve Bank, the AD Category-I bank shall issue the approval letter to the non-resident entity for establishing BO/LO in India. This is in order to enable the Reserve Bank to keep, maintain and upload up-to-date list of all foreign entities which have been granted permission for establishing BO/LO in India, on its website.
The validity period of an LO is generally for three years, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only. The validity period of the project office is for the tenure of the project.
An applicant that has received permission for setting up of a BO/LO/PO shall inform the designated AD Category I bank as to the date on which the BO/LO/PO has been set up. The AD Category I bank in turn shall inform Reserve Bank accordingly.
In case an approval granted by the AD bank has either been surrendered by the applicant or has expired without any BO/LO/PO being set up, the AD Category I bank shall inform RBI accordingly.
The approval granted by the AD Category I bank should include a proviso to the effect that in case the BO/LO/PO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse.
In cases where the non-resident entity is not able to open the office within the stipulated time frame due to reasons beyond its control, the AD Category-I bank may consider granting extension of time for a further period of six months for setting up the office. Any further extension of time shall require the prior approval of Reserve Bank of India in this regard.
All applications for establishing a BO/LO in India by foreign 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: such BOs are functioning in those sectors where 100% FDI is permitted; such BOs comply with Chapter XXII of the Companies Act, 2013; and such BOs function on a stand-alone basis.banks and insurance companies will be directly received and examined by the Department of Banking Regulation (DBR), Reserve Bank of India, Central Office and the Insurance Regulatory and Development Authority (IRDA), respectively. No UIN for such representative offices is required from the Foreign Exchange Department, Reserve Bank of India.
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 documents as mentioned in para 10 under "Closure of Liaison / Branch Office".
An LO may approach the designated 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:(a). Credits
Permission is granted only for meeting the local expenses of the office.
If the number of offices exceeds 4 (i.e. one Liaison Office in each zone viz; East, West, North and South), the applicant has to justify the need for additional office/s and it shall require prior approval of RBI.The applicant may identify one of its offices in India as the Nodal Office, which will coordinate the activities of all of its offices in India.
Whenever the existing Liaison Office is shifting to another city in India, prior approval from the AD Category-I bank is required. However, no permission is required if the LO/BO is shifted to another place in the same city subject to the condition that the new address is intimated to the designated AD Category-I bank. Changes in the postal address may be intimated to the CO Cell, New Delhi by the AD Category-I bank at the earliest.
Proposals for transfer of assets may be considered by the AD Category-I bank only from Liaison Office who are adhering to the operational guidelines such as submission of AACs (up to the current financial year) at regular annual intervals with copies endorsed to DGIT (International Taxation); have obtained PAN from IT Authorities and have got registered with ROC under the Companies Act 2013, if necessary. Also
Before setting up the Liaison Office, Foreign Entities have to check which route suitable for them.There are two routes available under the FEMA 1999 for setting up the Liaison Office in India:
The applications have to be submitted in the prescribed Form FNC(As per Annexure A) to the Reserve Bank of India through a designated (Authorized Dealer Bank ) AD Category –I.
After getting approval by RBI, a Unique Identification Number (UIN) has been allotted to the Liaison Office.The Liaison Office has to also obtain Permanent Account Number (PAN) for setting up the offices in India.Apart from that, if the Foreign Entity is unable to fulfill the Eligible Criteria and subsidiaries of other companies, then it can submit a Letter of Comfort (As per Annexure-B) from their parent company.Cases in which prior approval of RBI required:-
There are many cases in which Foreign Entities have to get prior approval before setting up Liaison Office:-
A foreign company before entering the Indian market may intend to conduct some preliminary research or representation before the potential customers or partners, for that limited purpose a foreign company normally establishes a representative office also known as a Liaison Office in India. Any person resident outside including a foreign company, group company, association of person can establish a liaison office in India.
A liaison office of a foreign company is allowed to do only limit activity in India provided none of the activities is profit-making activity. In other words, a liaison office can do market research and representation activity only.
The Reserve Bank of India approves the setting up of a liaison office in India. A particular agenda or policy is followed in the approval process of the liaison office in India by the AD Banker. Priority is afforded to the applicants where an automatic route is not available.
On collecting the complete set of required documents the next step is to draft the documents mentioned below for the signature purpose by the company and from the authorized officer.
The application for Digital Signature Certificate (DSC) for such companies is filed through the online portal, and the shareholders and directors of the company should sign it. The issuing of DSC needs some mandatory documents like address proof, identity proof associated with some photographs.
A request concerning the scrutiny of documents is submitted to the foreign company’s banker. This process is also called swift based verification (sending requests for the purpose of verification)
The RBI is empowered to approve the establishment of a liaison office in India, under master direction dated January 01, 2016 for the establishment of a place of a foreign corporation the powers have been delegated to any AD Category 1 Banker.
The liaison or representative office of a foreign company can be opened if the applicant foreign corporation has a track record of profit generation for the past 3 years and it is financially sound. When we say financially sound in the context of a representative or liaison office establishment in India of a foreign company, we mean net-worth of USD 50,000 or its equivalent. The financial statement duly attested by the statutory auditor of the parent company is required.
A Liaison office of a foreign mother company is not treated as a separate and distinct entity in India and for all tax purposes, the Indian government taxes the profits of such entities at higher rates. As of now the Income Tax on the profit of a foreign company is 40% in contrast to the tax rate of 30% on an Indian company.
Following documents are required for registration of a liaison office of the foreign company
After approval of the RBI for establishing a Liaison office in India by a foreign company is obtained the same need to be registered with the ROC within 30 days by filing form FC-1 with the digital signature of the authorized person and following documents as annexure
Any individual resident of a foreign country, including a remote organization, group organization, association, or individual, can set up a liaison office in India.
Every year, the branch office must document an Annual Activity Certificate (AAC), arranged by a chartered accountant, to the RBI confirming the workplace's exercises are within its sanction. LIKEWISE, an AAC ought to be recorded with the Directorate General of Income Tax within 60 days of the end of the fiscal year.-