Establishment of New Liaison Office (LO)/Branch Office (BO) Online in India

Narendra Kumar

22 Nov, 2019

Background:

The liberalization Scheme of India, in 1991 has reformed various aspects, operations and so on objectives. Now it’s been a crucial part of the business house to have at least Branch/Liaisoects of the economy and has introduced Multi-National Company (MNC) in large numbers in India with Investment Office in India to operate and capture Asian Market. As the labor cost is low, the tax is moderate and support from Government is well equipped and grievances are duly solved, been increasing a major destination of Investment for the Non-Resident entity as well as Individual. The population and consumption pattern of India habitant has welcomed multifaceted business in one step to lure the investment in terms of return and risk.

Presence of Foreign Entity:

The law prevailing at the time has given various forms for the presence of a business in India Subsidiary of Parent Company, Associates, Business Partner/Joint Venture, Liaison Office, Branch Office or Representative Office and so on. All sorts of arrangements required registration and approval from concern authority to carry or not to carry any sort of financial benefit business in the Indian earth.

Issue:

Being further specific on the issue, it can be dressed up like what is procedure or measure of licensing to have Establishment of New Liaison Office or Branch Office of the foreign entity in India under the approval route.

Criteria:

Establishment of Branch Office (BO)/Liaison Office (LO)/Project office (PO) or any other place of business in India by Foreign Entities is regulated in terms of Section 6(6) of Foreign Exchange Management Act^[1], 1999 [FEMA, 1999] read with Notification No. FEMA 22(R)/2016-RB dated March 31, 2016. Basically, a non-resident entity having a sound financial track record is required. As a result of BO, it is required to have an applicant with a profit-making track record during immediately preceding financial years in the home country and net worth of not less than USD 1, 00,000 or its equivalent. Here Net worth means the sum of total paid-up capital and free reserve 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 called. In the case of the Liaison office, profit-making track record during immediately preceding three financial years in the home country and net worth not less than USD 50,000 or its equivalent is required for the application. If the applicant entity is not financially sound and is a subsidiary of another company, may submit a Letter of Comfort (LOC) from its parent/group company provided condition that the parent/group company satisfies the prescribed criteria for net worth and profit.

Moreover, in addition to the above requirement applicant of following nature require prior approval of Reserve Bank of India^[2] (RBI):-

1. The applicant is a citizen of or is registered/incorporated in Pakistan;
2. The applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau with the location of BO/LO/PO in Jammu and Kashmir, North-East Region and Andaman and the Nicobar Islands;
3. Applicant having a principal business Defense, Telecom, Private Security, and Information & Broadcasting required prior approval of RBI. However, in case of PO relating to Defense for that non-resident who is awarded contract/agreement with the Ministry of Defence or Service Headquarters or Defense Public Sector Undertakings are not required to have any separate approval from any authority in India.
4. The applicant is a Non-Government Organization (NGO), Non-Profit Organization Body/Agency/Department of Foreign Government.

Such an application needs to forward by the AD Category-I bank to General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi-110001.

The Procedure of Application:

The Application for establishing a BO/PO/LO in India by a non-resident is submitted in Form FNC to a designated AD Category-I bank. Then a copy of the application with requisite documents is sent to the RBI office, Delhi to obtain Unique Identification Number (UIN). The validity period of LO is generally 3 years and those entities engaged in the construction and development sector do have 2 years’ validity of approval. However, the PO has the validity of the tenure of the project. Approval is valid for 6 months, therefore in between 6 months concern LO/BO/PO is to be opened.

Documents to be Submitted

The applicant via AD Category-I Bank need to submit a few documents along with application and fees to obtain approval from RBI are:-

1. Duly filled FORM FNC (Part I to Part IV)
2. Declaration
3. Copy of Certificate of Incorporation/ Company Registration, Memorandum of Association and Article of Association attested by the notary public in the country of registration.

(If the original certificate is in a language other than in English, the same may be translated into English and notarized as above and cross-verified/attested by the Indian Embassy/Consulate in the home country)

1. Audited Balance Sheet of the applicant company for the last three/five years in case of BO/LO respectively.

(If the applicants’ home country laws/regulations do not insist on auditing of accounts, an account statement certified by Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted.)

1. Banker’s report showing the number of years the applicant has had banking relations with the bank in the host country/country of registration. It is the report generated from Bank stating good standing on Financial Part of Entity function in the host
2. Power of Attorney (POA) in favor of the signatory of Form FNC in case the head of the overseas entity is not signing the Form FNC, required submitting.
3. Details of activities/services proposed to be undertaken/rendered by the proposed BO/LO/PO.
4. Residence proof and passport copies of the authorized personnel
5. Covering letter to open the Bank Account in India

On details scrutiny of the application subject to laws, Regulation, Rules for Producer Company, FDI scheme, and many more associated approvals, if required the concern officer issue letter of approval for establishing the BO/LO/PO in India by Foreign Entity.