(Amended upto January 21, 2019)
The Reserve Bank of India makes the following regulations to prohibit, restrict and regulate establishment in India of a branch office or a liaison office or a project office or any other place of business by a person resident outside India:-
Prohibition against opening a branch office or a liaison office or a project office or any other place of business in India
No person resident outside India shall without prior approval of the Reserve Bank open in India a branch office or a liaison office or a project office or any other place of business by whatever name called except as laid down in these Regulations.
a. A banking company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained necessary approval under the provisions of the Banking Regulation Act, 1949.
b. An insurance company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained approval from the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999.
c. A company resident outside India shall not require any approval under these Regulations to establish a branch office in the Special Economic Zones (SEZs) to undertake manufacturing and service activities, subject to the conditions that:
i. such branch offices are functioning in those sectors where 100% FDI is permitted;
ii. such branch offices comply with Chapter XXII of the Companies Act, 2013; and
iii. such branch offices function on a stand-alone basis.
Approval for opening a branch office or a liaison office or a project office or any other place of business in India
Eligibility: – A person resident outside India can establish a branch office or a liaison office in India provided it meets the following criterion:
i. For Branch Office — a profit making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent.
ii. For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent.
Provided that a person resident outside India that is not financially sound and are subsidiaries of other companies may submit a Letter of Comfort in the prescribed format from their parent company subject to the condition that the parent company satisfies the prescribed criterion for net worth and profit.
Permissible activities:- A person resident outside India permitted by the Reserve Bank under these Regulations to establish a branch or liaison office in India may undertake or carry on any activity specified in Schedule I or II as the case may be, but shall not undertake or carry on any other activity unless otherwise specifically permitted by the Reserve Bank.
Application form:- A person resident outside India desiring to establish a branch office or a liaison office or a project office or any other place of business in India shall submit an application in Form FNC to an Authorised Dealer Category-I bank who may, subject to the provisions of Regulation 5, grant approval as per the directions and/or guidelines issued by the Reserve Bank in this regard.
In case no office is opened by the person resident outside India within six months from the date of approval letter, the approval for establishing the office in India shall be cancelled.
In cases where the person resident outside India is not able to open the office within the stipulated time frame due to reasons beyond their control, the Authorised Dealer Category-I bank may consider granting 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.
Additional offices:- A person resident outside India desiring to establish additional branch office or liaison office may submit to the Authorised Dealer Category-I bank a fresh FNC Form along with the justification for the need for additional office/s.
I. A foreign company may open project office/s in India provided it has secured from an Indian company, a contract to execute a project in India, and 1. the project is funded directly by inward remittance from abroad; or 2. the project is funded by a bilateral or multilateral International Financing Agency; or 3.the project has been cleared by an appropriate authority; or 4. a company or entity in India awarding the contract has been granted term loan by a Public Financial Institution or a bank in India for the Project.
II. A person from any country other than Pakistan who has been awarded a contract for a project by a Government authority/ Public Sector Undertaking may open a bank account with an Authorised Dealer Category-I bank without any prior approval from the Reserve Bank.
Registration with State Police Authorities: – A person from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau opening a branch office or a liaison office or a project office or any other place of business in India shall have to register with the concerned 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.
Fund/non-fund based facilities :- Authorised Dealer Category-I bank may extend fund and/or non-fund based facilities to branch office and project offices based on the guidelines issued by the Reserve Bank in this regard.
Remittance of profit or surplus :- I. Branch office may remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorised Dealer Category-I bank through whom the remittance is effected: i. A certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year. ii. A Chartered Accountant’s certificate certifying 1. the manner of arriving at the remittable profit; 2. that the entire remittable profit has been earned by undertaking the permitted activities and 3. that the profit does not include any profit on revaluation of the assets of the branch.
II. Authorised Dealer Category – I bank may permit intermittent remittances by project offices pending winding up / completion of the project subject to submission of the following: 1. certified copy of the final audited project accounts; 2.the statutory auditor’s certificate showing the manner of arriving at the remittable surplus and confirming that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.; and 3. 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 for meeting any liability in India will be met by inward remittance from abroad.
Acquisition of property: Acquisition of property by branch office/project office shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.
Transfer of assets:-A person resident outside India permitted under these Regulations to establish a branch office or liaison office or project office may apply to the concerned Authorised Dealer Category-I bank for transfer of its assets to a Joint Venture/Wholly Owned Subsidiary or any other entity in India. Authorised Dealer Category-I bank shall be guided by the instructions laid down by Reserve Bank in this regard.
Annual Activity Certificate (AAC) :-The branch office/liaison office may submit the Annual Activity Certificate in the prescribed Format as at the end of March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year.
In case the annual accounts of the office are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheets to the Authorised Dealer Category-bank and the Director General of Income Tax (International Taxation), Drum Shape Building, I.P. Estate, New Delhi 110002.
AAC from a Chartered Accountant showing the project status and certifying that the accounts of the project office have been audited and the activities undertaken are in conformity with the general/ specific permission given by the Reserve Bank may be submitted by the project office to the designated Authorised Dealer Category-I bank.
Closure of office and remittance of winding up proceeds :- I. Requests for closure of the branch office/liaison office may be submitted to the Authorised Dealer Category – I bank along with the following documents:
i. Copy of the Reserve Bank’s/Authorised Dealer Category-I bank’s approval for establishing the office.
ii. Auditor’s certificate:
1. indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been either fully met or adequately provided for;
3. Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un repatriated to India.
iii. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the office and there is no legal impediment to the remittance.
iv. A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the branch office/liaison in India.
v. Any other document/s, specified by the Reserve Bank/Authorised Dealer Category-I bank while granting approval.
II. Remittance of winding up proceeds of branch or liaison office established in India shall be governed by the guidelines issued under Foreign Exchange Management (Remittance of assets) Regulations.
Approval of the Reserve Bank in certain cases for establishment of branch office, liaison office or project office or any other place of business in India
Any application from a person resident outside for opening of a branch office or a liaison office or a project office or any other place of business in India shall require prior approval of Reserve Bank in the following cases where
a. the applicant is a citizen of or is registered/incorporated in Pakistan;
b. the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a liaison, branch or project office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
c. the principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting:
Provided that approval of the Reserve Bank of India is not required in case where Government approval or license/permission by the concerned Ministry/ Regulator has already been granted. Further, in the case of proposal for opening a project office relating to defense sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings.
d. The applicant is a Non-Government Organisation, Non-Profit Organisation, Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under this regulation.