Foreign Investment

Foreign Offices setup in India- Branch Office, Liaison Office and Project Office

Foreign Offices setup in India

Foreign Businesses have setup offices ever since the 1900. During liberalization, India opened doors to foreign companies to establish businesses in India. Foreign offices setup in India was subjected to lesser restrictions related to trade. The monopolistic, restrictive, and trade practices act (MRTP Act) 1969 was abolished, which promoted healthy competition. Apart from this, various laws were passed in the 1990s to ensure that foreign businesses could smoothly run their operations in the country. Foreign offices setup in India was subjected to scrutiny by the government. One such law that governs foreign offices setup in India is the Foreign Exchange Management Act 1999 (FEMA). Before this, setting up of foreign businesses was regulated by the Foreign Exchange Regulation Act, 1973 (FERA). This act had various drawbacks to foreign businesses set up in India. Therefore the government brought the effect of the change in foreign exchange regulation by enacting the law related to FEMA.

Foreign offices setup in India is subject to various regulations. Depending on the type of business activity that is carried by a foreign office, different authorities require permission to be taken for setting up a foreign office.

Law Related to Foreign Offices Setup in India

The foreign exchange management act regulates the dealing with foreign exchange in India. Apart from this, the setting up of foreign businesses in India is governed by the Foreign Exchange Management (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000. These regulations would apply to setting up of foreign office branches in India. This regulation would apply to all countries that want to establish their presence in India. However, there are stringent norms when it comes to setting up of foreign businesses for particular countries. The regulation provides scope for understanding the different types of offices in India.

To understand foreign offices setup in India, it is crucial to analyze the following terms:

  1. Holding Company/ Foreign Company/ Parent Company- This is considered as a company which is formed in abroad. Under the Companies Act, 2013, and previous companies act of 1956 has defined a foreign company. It is considered as a corporate body which is incorporated outside India, but has its business operations in India through an establishment of a physical office or conducts dealings in electronic mode.
  2. Liaison Office- The term liaison office is different from the term project office or branch office of a foreign business. Liaison office is a subsidiary that is set up by a foreign company or holding company. However, the liaison office does not conduct any commercial dealings or business oriented activities in the company. A foreign parent company will send outward remittances to the liaison office to set up its business in India. The liaison office will not conduct any form of commercial dealings. It would just be engaged in marketing activities related to the firm and find out potential project opportunities in the country.
  3. Project Office- Project office is set up for a specific purpose. For example- if a foreign company wants to get into a particular project in India regarding any particular activity, then this office would be established. This office executes the interest of the foreign company. It can also be called as the ‘on Project’ site office, which does not include the liaison office of the company.
  4. Branch Office- Branch office or Subsidiary office has common names, but all forms of commercial activities can be carried out through the branch office. The branch office can also accept any form of remittance from the foreign company.
  5. Stand-Alone Basis- Offices, which include foreign offices that are set up to operate in Special Economic Zones (SEZ), would come under the purview of foreign companies that are established as a Stand-Alone Basis.

Therefore the following offices can be established as Foreign Offices set up in India.

Regulation- Foreign Offices Setup in India

According to this regulation, no individual outside India can set up a branch office or a liaison office in India without prior permission of the authorities. However, when it comes to banking companies, no form of prior permission is required for setting up a banking business. The business of the bank is regulated according to the provisions of the Banking Regulation Act 1949.

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Prior approval from the Reserve Bank of India (RBI) is not required when setting up a branch office in a SEZ.

However, for the branch office/ liaison office, the following rules and conditions have to be complied with:

  • Manufacturing and Service companies can operate in SEZ.
  • The route for foreign investment for manufacturing and service companies should be under the Automatic Route. Under the Automatic Route, 100% of the Foreign Investment is allowed for activities. No prior approval or permission is required for foreign investment under the automatic route.
  • The company which is set up in a special economic zone is compliant with the provisions of the companies’ act 2013 and previous company law.
  • Foreign Offices Setup in India in SEZ are allowed to operate on a stand-alone basis.
  • When the company wants to wind up its business activities, it has to go through an Authorised Dealer/ Bank, which deals with foreign exchange. Certain documents have to be submitted to the Authorised Dealer.

Setting Up a Foreign Insurance Branch/Liaison Office- Foreign Offices Setup in India

If a foreign insurer wants to set up a branch office or liaison office in India, then no approval is required from the RBI. However, such approval has to be obtained from the Insurance Regulatory and Development Authority of India (IRDAI)[1]. This would be under the Insurance Regulatory and Development Authority Act 1999.

Countries which require permission to setup Businesses- Foreign Offices Setup in India

The following countries require prior permission from the government through the government route or the approval route for setting up a branch office or a liaison office in India.

  • Bangladesh
  • Pakistan
  • Sri Lanka
  • Afghanistan
  • Iran
  • China

These countries require prior approval from the government to set up liaison office/ branch offices in India. The government has amended the law related to foreign direct investment for countries that share borders with India. Any neighbouring countries that share borders with India have to secure prior approval from the Government of India to invest in India. Foreign offices setup in India by any of the above countries is subjected to scrutiny.

Procedure for Setting up a Branch office/ Liaison Office/ Project Office– Foreign Offices Setup in India

For setting up a branch office/ liaison office in India, the applicant has to make an application to the RBI. The application to the RBI can be made through the authorized dealer. The application has to be made through FORM- FNC. With the application for setting up a Branch Office/ Liaison Office in India, the following documents have to be submitted by the company:

  • Certificate of Incorporation of the Company. The documents provided must be in English.
  • Memorandum of Association.
  • Articles of Association.
  • Balance Sheet of the company which has been audited.

Applicants who want to establish a branch office or liaison office in India have to satisfy the eligibility criteria. If a foreign company wants to set up an office in India but does not fall under the eligible applicants, then the applicant must submit a ‘Comfort Letter’ from their parent/ foreign company. This must be according to the standard format that is considered. However, for securing a letter of comfort from the parent company, the foreign/ parent company must also satisfy the eligibility criteria.

Apart from the above procedure for application, an individual who is a resident outside India can also make an application for the extension of period for liaison office/branch office to operate.

Project Office

A project office can be setup by a foreign company in India. However, certain conditions have to be met before setting up a project office in India:

  • The project office must receive remittance from the foreign office/ foreign company;
  • There must be a contract between the foreign company and the Indian Company to execute the project in India;
  • A multilateral or bilateral agency can make funding. This can either be an international institution such as the World Bank or the International Monetary Fund;
  • The foreign company has obtained clearances from the relevant authorities; and
  • A term loan has been granted by a Public Financial Institution to the company, which is offering a contract.
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Apart from the above, a report has to be published by the foreign company to the RBI regional office where the project office has been set up. The following details have to be submitted for a project office under Foreign Offices Setup in India:

  • Information related to the name and address of the foreign company;
  • The contract between the companies and any other forms of representation;
  • Cost of the contract/ project;
  • Tenure of the project; and
  • Activities that would be engaged in the development of the project.

Commercial Activities allowed by a Branch Office/Liaison Office – Foreign Offices Setup in India

Foreign Offices Setup in India can conduct business in the following activities

  • Branch Office- Permitted Activities
    • Importing and Exporting of Goods and Services;
    • Consultancy and Professional Business;
    • Research and Development Work which is allowed by the Parent Company;
    • Acting as an agent for the Parent company;
    • Development of Software for the Parent Company;
    • Technology Support for the Foreign Parent Company; and
    • Transportation Company.
  • Liaison Office- Permitted Activities
    • Representing the group of companies in India;
    • Promotion and Marketing Activities for the Foreign Company in India;
    • Collaboration Activities- Such as Financial and Technical Collaboration; and
    • Mode of Communication between the Foreign Parent Company and the Indian Authorities.

Therefore, the Foreign Offices Setup in India is allowed to carry out the following activities. When a foreign company starts a project office, then the activities that are carried out by the project office cannot be incidental to the project.

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Transfer of Excess Profits- Foreign Offices Setup in India

After the branch office/ project office is established in India, excess profits are allowed to be transferred to the foreign parent company. However, some profits have to be retained for the development of the Gross Domestic Product (GDP) of the Indian Economy. Apart from this, when a project office completes a particular project, the project office is allowed to transfer the surplus of profits back to the foreign office. However, the following compliances have to be followed before the transfer is made:

Branch Profits- Excess remittance

  • Audited Balance Sheets and the Profit and Loss Statements which have to be submitted by the company.
  • Certificate of a Chartered Accountant stating the profits that are transferred to the parent/ foreign company are the profits earned from the activities that are permitted by the branch office. Apart from this, the chartered accountant has to also certify that no profit is because of any form of asset revaluation.

Project Completion- Excess Remittance

  • Balance Sheets which are audited periodically.
  • Certificate of a Chartered Accountant Stating that the profit transferred to the parent company is due to the completion of the project. Apart from this, the company has to also show that Income tax has been paid according to the requirement of Indian Taxation Authorities. A statement is also required from the auditor stating that there are no statutory liabilities pending after the completion of the project.

Therefore, the Foreign Offices Setup in India has to follow the above process. However, there are various rules to follow for setting up a Foreign Office in India.

Master Direction- Setting up of Branch /Liaison/ Project Offices- Foreign Offices Setup in India

The Government of India has brought out specific criteria for setting up Foreign Offices in India. Because of the number of companies that are set up in India, the government has explained the process in the master direction.

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Foreign offices can be set up in India as Branch offices/ Liaison Offices/ Project Offices. The type of office which is established in India would depend on the activities that are carried out by the foreign company in India. For example- If a Foreign Company is set up to carry out the business of promotion of Non-Governmental Activities (NGO), then the branch office or liaison office will carry out the business of an NGO accordingly in India. However, for setting up a Foreign NGO in India, prior permission is required by the government. This is known as the Government Route or Approval Route for Foreign Investment in India.

Depending on the form of investment which is provided to a foreign company in India, the following routes would be applicable:

  • Automatic Route- Certain activities are allowed under the Automatic Route where 100% foreign investment is permitted. No permission is required from the government to carry out the above activities. Foreign companies that set up in specific sectors would be allowed to invest through the automatic route. If the activities are not permitted under the Automatic Route, then the Government Route/ Approval Route would be followed.
  • Approval Route/ Government Route- under the Approval Route/ Government Route, prior permission is required from the RBI.

Track Record- Foreign Offices Setup in India

Further, in the master direction, before providing permission to start a branch office /liaison office in India, the record of the company would be analyzed. These records vary and are different for a branch office and a liaison office. For a branch office, records have to be provided for five years preceding the set up of the branch office in India. However, when it comes to analyzing the track record for a liaison office, it is only three years preceding the set up of a liaison office in India.

Apart from the track record for Foreign Offices Setup in India, the net worth of the branch office and liaison office is valued. The net worth of a branch office should not be less than USD 1, 00,000, and for a liaison office, the net worth should not be less than USD 50,000.

Compliances are required for Foreign Offices Setup in India. Apart from this, the RBI would conduct background checks on the following:

  • Shareholders and promoters of the company;
  • Directors of the company;
  • Financial Figures Related to the company; and
  • Activities that are carried out by the company.

Therefore foreign offices setup in India, such as Branch office, liaison office, and project offices, are subjected to compliances which have to be followed by a foreign parent company.


Foreign companies have established their footprint in India ever since 1990. The modes of establishing their business in India is through setting up a Branch office, liaison office, and project office in India. Branch offices are allowed to conduct commercial activities on behalf of the foreign parent company. Liaison Offices are not allowed to do commercial activities but can represent the foreign parent company when it comes to promoting marketing activities in India.  Project Offices are set up by a foreign company to complete a specific activity within a specific period. However, project offices are only allowed to operate if there is a contract that is awarded by the Indian company to the foreign company to carry out services or activities related to a project. The activities have to be funded by the foreign parent company. Funding can also be established through an international financial agency such as the International Monetary Fund or the World Bank.  Foreign Offices Setup in India must comply with the rules related to FEMA. Apart from this, Foreign offices setup in India requires to be in compliant with regulations provided by authorities.

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