A.P. (DIR Series) Circular No.69 [(1)/22(R)]
Date: May 12, 2016
All Authorised Dealers Category – I Banks
Madam / Sir,
Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) in
India by foreign entities – procedural guidelines
Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to Notification No. FEMA 22(R) /2016-RB dated March 31, 2016 viz. 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. The salient provisions of the procedure for a person resident outside India to open a branch office or a liaison office or a project office are outlined as under.
2. Eligibility criteria
i. Applications from persons resident outside India for establishing Branch Office (BO) / Liaison Office (LO)/ Project Office (PO) or any other place of business in India shall be considered by the AD Category-I bank as per the guidelines issued by the Reserve Bank of India. If the application to open a BO/LO/PO is received from an entity resident outside India whose principal business falls under sectors where 100 percent Foreign Direct Investment (FDI) is allowed in terms of FEMA Notification No. 20/2000-RB dated May 3, 2000, as amended from time to time, the AD Category-I bank may consider such applications under the delegated powers.
ii. An application from a person resident outside India for opening of a BO/LO/PO in India shall require prior approval of Reserve Bank of India in the following cases:
Such applications may be forwarded by the AD Category-I bank to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi-110 001 who shall process the applications in consultation with the Government of India.
iii. The non-resident entity desirous of establishing a BO/LO in India should have a financially sound track record as provided in Regulation 4 (a) of the Notification.
iv. An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) [as provided in Regulation 4. a. of the Notification] from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit. The LOC should be issued by the applicant’s parent / group company which undertakes to fund the operations if required.
3. Procedure for applying
The application for establishing BO / LO/ PO in India may be submitted by the non-resident entity in Form FNC [as provided in Regulation 4.c. of the Notification], to a designated AD Category – I bank (i.e. an AD Category – I bank identified by the applicant with whom they intend to pursue banking relations) along with 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, antecedents 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 may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.
4. 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 shall before issuing the approval letter to the applicant forward a copy of the Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each BO/LO. 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 in India.
5. Validity of LO and PO
The validity of an LO is generally for three years [as provided in Regulation 4.d. of the Notification], 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 validity of the PO is for the tenure of the project.
6. Other conditions
7. Opening of Bank Account by BO/LO/PO
i. An LO may open an account with the designated AD category I Bank in India for receiving remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permitted Credits and Debits to the account shall be:
Only for meeting the local expenses of the office.
ii. A BO may open a bank account with any AD Category-I Bank in India for its business operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds.
iii. An entity from Pakistan shall need prior approval of Reserve Bank of India to open a bank account for its PO in India. All other foreign entities who have been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank.
8. Foreign currency accounts by PO
POs can open non-interest bearing foreign currency accounts with AD Category – I banks subject to the following:
9. Extension of validity of the approval of LO and PO
i. Requests for extension of time for LOs may be submitted before the expiry of the validity of the approval, to the AD Category-I bank concerned under whose jurisdiction the LO/Nodal office is located. The designated AD Category – I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted, if the applicant has complied with the following conditions and the application is otherwise in order:
Such extension has to be granted as expeditiously as possible and in any case not later than one month from the receipt of the request, under intimation to the General Manager, Reserve Bank of India, CO Cell, New Delhi quoting the reference number of the original approval letter and the UIN. Reserve Bank shall update the information on the website immediately.
ii. As provided in Regulation 4.d. of the Notification, NBFCs and entities engaged in construction and development sectors are permitted to open an LO for two years only. LOs opened by such entities (excluding infrastructure development companies) shall not be allowed any extension of time. Upon expiry of the validity period, the LOs shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary in conformity with the extant Foreign Direct Investment policy.
iii. Extension of validity of PO needs to be reported by the AD Category-I bank to the CO Cell, RBI, New Delhi.
10. Registration with Police authorities
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 to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi for necessary action and record.
11. Application for additional offices and activities
i. Requests for establishing additional BOs / LOs may be submitted to the AD Category-I bank in a fresh FNC form. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.
ii. Requests for undertaking activities in addition to what has been permitted initially by Reserve Bank of India/ AD Category-I bank may be submitted by the applicant to the Reserve Bank through the designated AD Category -I bank justifying the need.
12. Extension of fund and non-fund based facilities
As provided in Regulation 4.h. of the Notification, AD Category-I bank may, extend fund/non-fund based facilities to BOs/POs only.
13. Remittance of profit/surplus
14. Annual Activity Certificate by BO/LO/PO
i. The Annual Activity Certificate (AAC) as at the end of March 31 each year along with the documents laid down in Regulation 4.l. of the Notification needs to be submitted by the following:
The LO/BO needs to submit the AAC to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi whereas the PO needs to submit the AAC only to the designated AD Category -I bank.
ii. The designated AD Category – I bank shall scrutinize the AACs and ensure that the activities undertaken by the BO/LO are being carried out in accordance with the terms and conditions of the approval given. In the event of any adverse findings reported by the auditor or noticed by the designated AD Category -I bank, the same should immediately be reported to the General Manager, Reserve Bank of India, CO Cell, New Delhi, along with the copy of the AAC and their comments thereon.
15. Closure of BO/LO/PO and remittance of winding up proceeds
16. Guidance note for the AD Category-I bank
17. Transfer of assets of BO/LO/PO
Proposals for transfer of assets may be considered by the AD Category-I bank only from BOs/LOs/POs who are adhering to the operational guidelines such as submission of AACs (up to the current financial year) at regular annual intervals; have obtained PAN from IT Authorities and have got registered with ROC under the Companies Act 2013, if necessary. Also,
18. The new regulations have been notified vide Notification No. FEMA 22(R)/2016-RB dated March 31, 2016 c.f. G.S.R. No. 384(E) dated March 31, 2016 and have come into force with effect from March 31, 2016. The Master Direction No. 10 of 2015-16 (Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities) and Master Direction No.18 of 2015-16 (Reporting under Foreign Exchange Management Act, 1999) are being updated accordingly to incorporate the above changes.
19. AD Category – I banks may bring the contents of this circular to the notice of their constituents/customers concerned.
20.The directions contained in this circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
Chief General Manager-in- charge
Name of the AD bank: ________________________________
|(a) Details of the BO/LO/PO opened during the month of __________|
|Sr. No||Name of the foreign entity||Country of Incorporation||Whether BO/LO/PO opened||UIN||Date of approval||Address of office in India|
|(b) Details of the BO/LO/PO closed during the month of ____________|
|Sr. No||Name of the foreign entity||Country of Incorporation||Whether BO/LO/PO closed||UIN||Date of closure||Address of office in India|