Setting up a Branch Office (BO), Liaison Office (LO), or Project Office (PO) in India is governed by the provisions of the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI). In particular, the Branch or Liaison or Project Office Regulations 2016 and the Establishment of Branch or Liaison or Project Office Master Direction contain the law governing establishing such offices of foreign companies in India that can help foreign entities explore the unlimited potential of the rapidly growing market in India. The article gives you comprehensive knowledge of the essential aspects of establishing a Branch, Liaison, or Project Office in India.
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Understanding the Regulatory Framework
Foreign Businesses can foray into the Indian market without establishing a new and separate legal entity in India by just setting up a Branch Office, Liaison Office, or Project Office as per the regulations and master direction issued by the RBI. The initial step to setting up a branch, project, or liaison office in India is to check the eligibility criteria. In general, establishing branch offices requires certain requirements, such as the foreign company must be at least 5 years old, have a healthy and consistent profitability record, and have a net worth of more than USD 1,00,000. In the case of setting up a liaison office in India, the applicant’s company must be more than 3 years old with a consistent track record of making a good profit and a net worth of USD 50,000.
Exceptions: The broader criteria are a five-year profitability track record in the case of the branch office and three years in the case of the liaison office. In cases where the applicant does not meet these specific criteria, the applicant can submit a letter of comfort from the holding or group company of the applicant that holds equity in the applicant.
As far as setting up a Project Office is concerned, it requires the execution of a project under an agreement with the government, public or private sector company. Therefore, checking and determining eligibility for establishing a branch, liaison, or project office in India helps you make the initial move to your India entry. Seeking expert consultation is always advisable while setting up the branch, liaison or project offices in India.
Check Eligibility
When it comes to eligibility criteria for a Branch/Liaison or Project Office set up in India, a foreign company willing to start its subsidiary offices in India must fulfill specific requirements to make a valid legal entry into the Indian market. The eligibility criteria specified for a foreign company to establish any permitted office varies from type to type and are described below;
- Branch Office: To open a branch office in India, a foreign entity must have been actively operating for at least five years with a consistent record of profitability and a net worth of over USD 100,000.
- Liaison Office: To form a liaison office in India, a foreign company must have at least three years of active involvement in operations, consistently growing and profitability records, and a net worth of at least USD 50,000.
- Project Office: To set up a project office, a foreign entity must enter into a contract with any government, public, or private sector for the execution of a project in India.
By meeting the above-mentioned criteria, a foreign entity can mark its presence in India through opening an office in India.
Arranging/Preparing Requisite Set of Documents
The next crucial step is to understand the documents’ requirements thoroughly. In the same phase, the applying foreign entity is required to provide some basic documents like a Certificate of Incorporation, Articles of Association (AOA), Audited Financial Statements, and the CPA or Statutory Auditor net worth certification. Since it is the most crucial aspect, reaching out for professional assistance is always a better way to get your requisite set of documents prepared and drafted properly along with obtaining specific undertakings and declarations.
Attestation or Legalisation of Documents
Before submitting the specified documents of a foreign entity to the RBI through the AD Bank, the documents having foreign origin or those executed overseas must be legalised for establishing any branch, liaison, or project office. There are three ways to legalise documents of a foreign company, which may vary from country to country.
1. If the foreign applicant entity is from Commonwealth nations, the notary public attestation is permissible in India. It is a simple and easier process.
2. If the applicant is from any Non-Commonwealth nation, then it is required to check whether it is a part of the Hague Convention or not. If the applicant’s country is a party of the Hague Convention, the apostille attestation from the designated apostille office is accepted. Many Commonwealth nations are also the Hague Signatories; the United Kingdom (UK), Australia, and Canada are to name a few. For the applicants of such nations, it is required to opt for apostille instead of just notarial attestation.
3. Contrary to these conditions, if the applicant entity’s nation is neither a Commonwealth nation nor a party to the Hague Convention, then their documents require attestation by the Indian Embassy or Indian consulate offices in the home country of the applicant.
Simply put, the safest route is usually apostille if the party belongs to a signatory of a Hague convention or attestation by the Indian Embassy if it’s not a part of the Hague convention.
Filing the Application with RBI through AD Bank
The application for setting up a Branch, Liaison, or Project office in India needs to be submitted using the prescribed FNC form to the RBI through an Authorised Dealer (AD) Bank of the RBI. This AD Bank has a significant role in the establishment of any branch, liaison, or project office. This bank acts as an intermediary between the applicant and the regulator, the RBI.
The AD bank is entrusted with the responsibility of the documents verification meticulously which is also called vetting. Recommended by AD Bank, the RBI issues permission for establishing a branch, liaison or project office in India. However, in case, the proposal doesn’t fall under the automatic route, the AD Bank refers it to the RBI for prior approval.
KYC Verification from Banker of Parent Company
Once the FNC Form is filed, the Authorised Dealer bank sends a swift verification message to the overseas banker of the parent company to authenticate KYC information of the applicant. For the processing of the application further, an affirmative reply from the applicant banker is necessary. Depending upon the case, the RBI may also ask for certain clarification or any other documents through the AD Banker from the applicant.
Seeking RBI Approval
As per a specific policy for establishing a BO, LO, or PO in India, the AD Banker can approve the establishment. Only cases in which the automatic route is not allowed are forwarded to the RBI for prior approval. The approval process after swift verification may take an estimated week. When the RBI approves any branch, liaison, or project office setup, it also grants a UIN for each applying entity.
Foreign Entity Office Registration with ROC
Within 30 days of obtaining BO/LO/PO approval for setting up in India, the Foreign entity must register with the Registrar of Companies (ROC) through an online application filing at the official portal of the Ministry of Corporate Affairs (MCA), which is www.mca.gov.in using the prescribed form FC-1. Upon successful approval of the filed application in FC-1, the office of the Registrar of Companies issues a Certificate of Registration of the foreign company office in India.
Post Registration Requirements
Similar to the Indian businesses, the branch office of a foreign company in India is also a taxable entity. Therefore, it needs to comply with certain obligations set forth by the Income Tax Department, mainly Income Tax Payment and Return Filing. For that, a foreign company office in India must file prescribed Form 49AA to obtain a unique ten-digit Permanent Account Number (PAN).
Each business in India is obliged to deduct tax at source while paying to its vendors which is known as withholding tax. To fulfill this purpose, a Tax Deductor Number (TAN) is required. Since the supply of goods or services is taxable under GST, registering under GST is a must for the businesses. They also need to open bank accounts for their BO, LO or PO is India to ensure a smooth working of the established office in India.
Make sure to file tax obligations and other prescribed compliances for your branch, project of liaison office in India to let your Indian office run hassle-free.
Conclusion
In conclusion, to set up a legitimate business office in India, you must adhere to specified guidelines and provisions of RBI and other authorities in India. Following certain steps, a foreign entity can establish its branch office, liaison office, or project office in India without complications. However, it is always advisable to consult an experienced and expert compliance service-providing company to help you navigate all the complexities associated with setting up a business office in India.
About Company
Setindiabiz is a pioneering name having specialises in providing top-notch compliances and regulatory services to help domestic and foreign businesses to establish and begin their operations in India. With a focus on simplifying complex regulatory processes, Setindiabiz offers end-to-end professional support and guidance for business registration, licensing, taxation, and statutory compliance. Combining the power of digital evolution and a team of experienced professionals, the company provides seamless service delivery to empower businesses to thrive well in the dynamic economic landscape of India.
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