Branch Office and Liaison Office Setup in India: Guidelines and Procedures

Foreign entities desirous of entering into a business in India can open a Branch office/Liaison office/Project Office or may even incorporate a Joint Venture or a Wholly owned Subsidiary in India. The reason for which Branch office/Liaison office is preferred is because of ease of operations, better manageability and less compliance cost.

These Branch offices/Liaison offices operating in India are generally regulated by the RBI guidelines framed in this regard. Branch Office/Liaison office, also known as Representative Offices, are under the direct control of the foreign entity. The cost of setting of these Branch offices/Liaison Offices is reasonable, considering the fact that no equity is required to be brought in by the person incorporating the same. You are simply required to meet certain operational cost to run these Branch Offices/Liaison Offices. In this article, we’ll delve into the guidelines, application process, and permissible activities for Branch Offices and Liaison Offices in India.

Guidelines

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 defines a ‘Branch Office’ in relation to a company, to mean any establishment described as such by the company. It also defines a ‘Liaison Office’ as a place of business to act as a channel of communication between the principal place of business or Head Office or by whatever name called and entities in India but 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.

The Regulation contains strict guidelines which govern the setting up of these Branch Offices/Liaison Offices in India and requires a Person Resident outside India to meet the following criterion:

In case the above criterion is not met and the person resident outside India is not financially sound, but is a subsidiary of other companies, then it may submit a Letter of Comfort (Annex A) from their parent company, subject to the condition that the parent company satisfies the prescribed criterion for net worth and profit.

The Guidelines further even lays down the list of permissible activities which can be carried out by a Branch office/ Liaison Office in India.

For further clarity, the Reserve Bank of India has also released a Master Direction on Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities

APPLICATION AND TIME LIMITS

The application for setting up of a Branch Office or Liaison Office in India is to be made in Form FNC to an Authorised Dealer Category-I bank, who shall subject to the guidelines laid down in Regulation 5, grant such approval, under any of the two routes listed below:

• Reserve Bank Route: Where the principal business of the foreign entity falls under sectors where 100% FDI is permissible under the automatic route.
• Government Route: Applications from entities which does not fall under the above and those from foreign Non-Government Organisations, Non-Profit Organisations, Foreign Government Bodies/Departments, etc. are considered by RBI in consultation with the Ministry of Finance.

On grant of such approval, the person resident outside India should ensure that within six months from the date of approval letter, the branch office is established, failing which the approval shall be cancelled. In cases where the lapse is due to reasons beyond their control, the Authorised Dealer Category-I bank may grant extension of time for setting up the office by a further period of six months. Any further extension of time shall require the prior approval of the Reserve Bank in this regard.

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