Establish a Branch Office (BO) / Liaison Office (LO) / Project Office (PO) by the foreign entity in India

Due to globalization, multination companies have become a preferable choice to set up their business in India, as India is a very faster-growing economy and have labor and various other resources at very reasonable rates in such scenario various foreign entity Selecting various methods to set up their entity in India by way of Branch office (BO) Liaison office (LO) and Project office (OP).

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In this article, we will discuss in detail the procedural aspect to set up Branch Office (BO), Liaison Office (LO), and Project Office (OP)

First of all, let’s talk about the terminology of Branch Office (BO), Liaison Office (LO), and Project Office (OP)

Branch Office (BO):

The branch office can be carrying out the same activities as are carried out by its parent company but the branch office is not allowed to carry out the manufacturing activities.

Liaison Office (LO):

Liaison Office means a place of business to act as a channel of communication between the principal place of business in India although which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.

Project office (PO):

A Project Office means a place of business in India to represent the interests of the foreign company executing a project in India.

HOW TO MAKE AN APPLICATION FOR BO/LO/PO IN INDIA

Applications from foreign companies, bodies incorporate outside India, including a firm or other association of persons for setting up BO/LO/PO in India will be forwarded to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi – 110 001 through AD Category –I Bank

FINANCIALLY SOUND TRACK RECORD

PROCESS FOR REGISTRATION

Application for establishment of BO/LO/PO in India may be submitted by the non-resident entity in Form-FNC to the designated AD Category-I bank and the AD Category-I bank after due diligence shall forward a copy of the Form-FNC along With details to the General Manager, Reserve Bank of India, New Delhi for allotment of Unique Identification Number.

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/PO in India.

The applicant shall inform the designated AD Category-I bank of the date on which the BO/LO/PO is set up and the AD Category-I bank shall inform the Reserve Bank accordingly.

If the BO/LO/PO for which approval has been granted is not opened within 6 months from the date of the approval letter, the approval will lapse although a further extension of time would require prior approval of RBI.

VALIDITY PERIOD

For Liaison office: Generally, the permission is given for three years, however, in the case of Non-Banking Finance Companies (NBFCs) and entities engaged in construction and development sectors, the validity period will be two years.

For Project office: The validity period of the project office will be the tenure of the project

GENERAL PERMISSION FOR ESTABLISHMENT OF BRANCH OFFICE IN SPECIAL ECONOMIC ZONES (SEZS)

Non-resident companies are generally permitted to set up BOs in Special Economic Zones (SEZs) for carrying out manufacturing and service activities, subject to the following conditions:

1. Such branch offices are functioning in areas where 100% FDI is allowed
2. Such branch offices comply with Chapter XXII of the Companies Act 2013 and
3. Such branch offices function on a standalone basis

BANK ACCOUNT FOR BO/LO/PO:

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 the LO shall not maintain more than one bank account at any time without the prior permission of the Reserve Bank of India. The permitted debits and credits to the account shall be:
I. Credits

1. Funds received from Head Office through normal banking channels to meet office expenses.
2. Refund of security deposits from LO’s account or directly by the Head Office through normal banking channels.
3. Refund of Duties and taxes, received from tax authorities, paid from the bank account of LO.
4. Sale proceeds of assets of the Liaison Office (LO).

II. Debits

1. For meeting the local expenses of the office.
2. The BO may approach any AD Category-I bank in India for opening an account for its operations in India. The credit in the account should represent money received from the head office through normal banking channels to meet office expenses and any legitimate receivables arising in the process of its business operations.
3. Any foreign entity other than an entity from the Pakistan that has been awarded a contract for a project by a Government Authority/Public Sector Undertaking or are permitted by the AD Category-I bank to operate in India may open a bank account without any prior approval of the Reserve Bank.

ANNUAL ACTIVITY CERTIFICATE BY BO/LO/PO

The Annual Activity Certificate (AAC) as at the end of 31^st March each year along with the required documents needs to be submitted by the following:

1. IN CASE -Sole BO/ LO/PO, by the BO/LO/PO concerned;
2. IN CASE– Multiple BOs/LOs, a combined AAC in respect of all the offices in India by the nodal office of the BOs /LOs.

The LO/BO will have to submit the AAC to the designated AD Category-I bank as well as to the Director-General of Income Tax, New Delhi whereas the PO needs to submit the AAC only to the designated AD Category-I bank.

REGISTRATION WITH POLICE AUTHORITIES IN INDIA

Applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau, or Pakistan wishing to open a BO/LO/PO in India will have to register with the state police authorities. the copy of the letter of approval for ‘persons’ from these countries shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi for necessary record and action.

REMITTANCE OF PROFIT AND SURPLUS

I. BO are permitted to remit outside India profit of the branch after net of applicable Indian taxes, on the production of the following documents to the satisfaction of the AD Category-I bank through which the remittance is made:

1. A certified copy of the audited balance sheet and profit and loss account for the relevant year,
2. Certificate of a Chartered Accountant.

II. AD Category-I banks may allow remittances by POs pending winding up / completion of the project, subject to the following:

1. The PO produces a certificate from the Auditor’s/Chartered Accountants that adequate provisions have been made in India to meet the liabilities including income tax.
2. An undertaking from the Project Office that the remittance will not, in any way, affect the completion of the project in India and that any shortfall of funds to meet any obligation in India shall be met by inward remittances from abroad.

Author-Mr. Ajay Kacher (M.Com, LLB, CS), is a Legal Associate in IP & Legal Filing, In case of any queries please contact/write back to us at support@ipandlegalfilings.com.