CFO Service

Permission for Establishment of New Liaison Office/Branch Office Online in India

Since liberalization in India, foreign investors have arrived gradually into the Market. Now, to improve the ease of doing business, the government has issued guidelines to approve the establishment of Branch Office (BO)/Liaison Office (LO)/Project Offices (PO) in India by foreign entities.

What is Branch Office?

Branch office means any entity established by a foreign Company in India. Which is described as such by the Company.

What is the Liaison Office?

Liaison Office means a place of business which will act as a channel of communication between the principal place of business or Head Office and entities in India. In liaison office, no permission is granted to undertake any commercial /trading/ industrial activity, directly or indirectly and shall maintain all inward remittances received from abroad through normal banking channel.

What is Project Office and Site Office?

Project Office means a place of business in India to represent the interests of the foreign company executing a project in India but it excludes a Liaison Office.

Site Office means a sub-office of the Project Office established at the site of a project but which also not include a Liaison Office.

Process for Opening a Branch office or a Liaison office or a Project office or any other Place of Business in India

The following points must be noted with respect to opening a Branch office or a Liaison office or a Project office or any other Place of Business in India.

Eligibility Criteria

A person resident outside India shall fulfill the following criteria to establish a branch office or a liaison office in India:

For Branch Office: shall be a profit making track record during the immediately preceding five financial years in the home country and shall have at least minimum net worth of USD 100,000 or its equivalent.

For Liaison Office: shall be a profit making track record during the immediately preceding three financial years in the home country and shall have at least minimum net worth of USD 50,000 or its equivalent.

Application by financially unsound subsidiaries of other companies: In such case, an applicant shall submit a letter of Comfort from their parent company. A parent Company shall satisfy the prescribed criterion as mentioned above for net worth and profit.

Permissible Activity

A person resident outside India who desire to establish branch/liaison offices in India can undertake or carry on any activities permitted by Reserve Bank of India. They cannot undertake any activity not permitted.

Permitted activities for a branch office in India of a person resident outside India:

• Export/import of goods.
• Rendering professional or consultancy services.
• To carry research work in which the parent company is engaged.
• To promote technical or financial collaborations between Indian companies and parent or overseas group company.
• Representing the parent company in India and acting as buying/ selling agent in India.
• Rendering services in Information Technology and development of software in India.
• Rendering technical support to the products supplied by parent/group companies.
• Representing a foreign airline/shipping company.

Permitted activities for a liaison office in India of a person resident outside India:

• Representing the parent company/group companies in India.
• To promote export / import from / to India.
• To promote technical/ financial collaborations between parent/group companies and companies in India.
• Acting as a communication channel between the parent company and Indian companies.

Prior approval of Reserve Bank of India in certain cases

• Any citizen of or is registered/incorporated in Pakistan
• Any citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau
• The applicant is opening a BO/LO/PO in Jammu and Kashmir, North East region and Andaman and the Nicobar Islands.
• The applicant is in principle business of sectors namely Defence, Telecom, Private Security and Information and Broadcasting. In the case of a proposal for opening a PO relating to the defense sector, no separate reference or approval of Government of India shall be required and such applicant has been awarded a contract by Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. No approval from RBI required in such cases only.
• The applicant is a Non-Government Organisation (NGO), a Non-Profit Organisation, or a Body/ Agency/ Department of a foreign government. 

Procedure to File an Application Form

• The applicant shall prepare and submit an application form FNC to an Authorised Dealer Category-I Bank.
• The application shall be accompanied by the prescribed documents mentioned in the Form and the LOC, wherever applicable.
• 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, backgrounds 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 shall issue an appropriate policy for dealing with such applications in conformity with the FEMA Regulations and Directions.
• The office shall be opened by the person resident outside India within six months from the date of the approval letter, in case no office is opened within stipulated time than the approval for establishing the office in India shall be canceled.

Issuance of UIN by Reserve Bank of India

• For the limited purpose of uploading and maintenance of up-to-date list of all foreign entities which have been granted permission for establishing BO/LO in India on Reserve Bank’s website, the AD Category-I bank before granting approval shall forward a copy of the Form FNC along with the details of the approval proposed to be granted by it to the Reserve Bank of India.
• On receipt of the UIN from the Reserve Bank of India, the AD Category-I bank shall issue the approval letter to the non-resident entity for establishing BO/LO in India.

Registration with State Police Authorities

• Any applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan desirous of opening BO/LO/PO in India shall have to register with the State Police authorities.
• Copy of approval letter for ‘persons’ from these countries shall be marked by the AD Category-I bank.

Validity period for the Liaison Office and Project office

• The validity 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 is two years only.
• The applicant can apply for an extension of the validity period to the concerned authorized dealer. Such extension is not available for NBFCs and entities engaged in construction.
• On receiving an application, the Authorised Dealer Category-I bank may extend the validity period of approval for the term of three years from the date of expiry of the original approval, which is subject to directions issued by the Reserve Bank in this regard.
• Liaison office of banks and entities engaged in the insurance business shall directly apply to the DBR, RBI or IRDAI for an extension.
• The validity of the PO is for the tenure of the project.

Other conditions to comply with

• The applicant shall inform to designate AD on the opening of BO/PO/LO. The Ad shall further inform RBI. In case the approval granted has surrounded or no office been set up in stipulated time than the AD shall intimate to RBI about same.
• All applications for establishing BO/LO in India by foreign banks and insurance companies shall be dealt with as per the directions issued by the DBR, RBI, and IRDAI respectively. UIN for such representative offices is not required from the Foreign Exchange Department.
• There is 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.
• The opening of Bank Account by BO/LO/PO:

LO can open a bank account with the designated AD category I Bank in India for receiving remittances from its Head Office outside India.

BO may open a bank account with any AD Category-I Bank in India for its business operations in India.

The entity from Pakistan shall require taking prior approval of Reserve Bank of India to open a bank account for its PO in India.

• Remittance of profit or surplus of offices shall be in accordance with the guidelines issued.
• The branch office (BO) / liaison office (LO) shall submit the Annual Activity Certificate (AAC) for the year ended on March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year.

Additional offices

• A person resident outside India who desires to establish an additional branch office or liaison office shall submit a Form FNC along with the justification for the requirement for additional officers to the Authorised Dealer Category-I bank.
• However, the documents mentioned in form FNC need not to be resubmitted, if there are no changes to the documents already submitted earlier.