Establishment Of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) Or Any Other Place Of Business In India By Foreign Entities
In the present globalized scenario, where majority of businesses are operating internationally, it is inevitable for global players to set up place of business in various countries across the globe. In India setting up of place of business by foreign entity is governed by the provisions of FEMA. 1999. In this article, we will discuss the key provisions pertaining to establishment of place of business in India by foreign entity.
Applications from foreign companies (a body corporate incorporated outside India, including a firm or other association of individuals) for establishing Branch Office/ Liason Office/ Project Office, hereinafter referred to as BO/PO/LO, in India shall be considered by the AD Category-I bank as per the guidelines given by Reserve Bank of India (RBI).
PRIOR APPROVAL IN CERTAIN CASES:
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:
1. The applicant is a citizen of or is registered/incorporated in Pakistan;
2. 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 BO/LO/PO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
3. The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting.
In the case of proposal for opening a PO relating to defence 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 Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. No separate approval is required from Reserve Bank of India for such cases only.
4. The applicant is a Non-Government Organization (NGO), Non-Profit Organization, Body/ Agency/ Department of a foreign government.
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.
TRACK RECORD REQUIREMENT:
The non-resident entity applying for a BO/LO in India should have a financially sound track record. The requirement of track record is as under:
|1.||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.|
|2.||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.|
An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) (Annex A) from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit.
PROCEDURE FOR APPLYING:
GENERAL PERMISSION FOR SETTING UP BO IN SEZ:
There is a 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 that:
CLOSURE OF BRANCH OFFICE:
In the event of winding-up of business and for remittance of winding-up proceeds, the branch shall approach an AD Category – I bank with the requisite documents as specified by the RBI.
OPENING OF BANK ACCOUNT BY BO/LO/PO:
An BO/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 an BO/LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India.
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.
Author is a Company Secretary from Delhi and can be contacted @ firstname.lastname@example.org/08430645653.