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Foreign companies have started their business in India since 1990. Before this year, there were stringent laws and restrictive practices which did not allow regulation of foreign businesses in the country. Now businesses can set up branch offices, liaison offices, and project offices in India. Depending on the requirement of the business, a foreign-owned entity can establish a liaison office and project office in India. This article is going to speak about the differences between a liaison office and project office in India.
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The primary regulatory authority for opening a liaison office and project office in India is the Reserve Bank of India (RBI). The RBI, along with the government of India, brought out the Foreign Exchange Management Act, 1999 (FEMA) to regulate foreign exchange dealings as well as foreign exchange transactions within the country. Foreign businesses that want to establish a liaison office or a project office in India have to comply with the FEMA regulations.
Along with the Foreign Exchange Management Act, 1999 companies have to comply with the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations, 2016. Foreign businesses that want to set up a (LO) and (PO) in India have to comply with the relevant rules of FEMA and the regulations.
The Reserve Bank of India[1] authorises specific banks to handle foreign exchange transactions on behalf of companies. These banks are known as authorised dealers or authorised agencies. All foreign exchange transactions occur through authorised banks under FEMA.
To understand the benefits of choosing and establishing the above offices in India, it is crucial to understand their differences.
The following are the differences between the liaison office and project office:
When choosing the office, it is the ultimate decision of the foreign parent entity. Depending on the prospective activities carried out in India, the foreign company should make a decision.
If the foreign company wants to appoint a representative for the business of the foreign company, then establishing a liaison office would be suitable. Even if the foreign company wants to carry out marketing based activities, then this office would be suitable when compared to a project office.
However, if the foreign company wants to carry out a particular project for a specific period, then establishing a project office would be suitable.
Read our article:Branch Office and Liaison Office under FEMA
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