Process to Establishment of Branch/Liaison Offices In India By Foreign Entities

The establishment of a branch office/ liaison office or any other place of business in India by foreign entities is regulated in terms of Section 6(6) of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA 22(R)/2016-RB dated March 31, 2016. These Regulations are amended from time to time to incorporate the changes in the regulatory framework and published through amendment notifications.

(A) GENERAL CRITERIA – LIAISON OFFICE / BRANCH OFFICE

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening a Liaison Office (LO) / Branch Office (BO) in India has to obtain permission from the Reserve Bank under provisions of FEMA 1999. The applications from such entities in Form FNC (Annex-1) will be considered by Reserve Bank under two routes:

1. Automatic Route:

2. Government Route

Automatic Route or Reserve Bank Route —Where the principal business of the foreign entity falls under sectors where 100 percent Foreign Direct Investment (FDI) is permissible under the automatic route.

Government Route —Where the principal business of the foreign entity falls under the sectors where 100 percent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organisations / Non – Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities:

The non-resident entity applying for a BO/LO in India should have a financially sound track record viz:

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.

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.

• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].
• The application for establishing BO / LO in India should be forwarded by the foreign entity through a designated AD Category – I bank to General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India, along with the prescribed documents including
• English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by the Indian Embassy / Notary Public in the Country of Registration.
• Latest Audited Balance Sheet of the applicant entity.

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per Annex -2, subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. The designated AD Category – I bank should exercise due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of the activity, sources of funds, etc., and also ensure compliance with the KYC norms before forwarding the application together with their comments/ recommendations to the Reserve Bank.

The Branch / Liaison offices established with the Reserve Bank’s approval will be allotted a Unique Identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx). The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

(B) LIAISON OFFICE

b.1 Permissible Activities for a Liaison Office

A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between the Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

A Liaison Office can undertake the following activities in India:

1. Representing in India the parent company/group companies.

2. Promoting export/import from/to India.

3. Promoting technical/financial collaborations between parent/group companies and companies in India.

4. Acting as a communication channel between the parent company and Indian companies.

b.2. Liaison Office of Foreign Insurance Companies / Banks

Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).

Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulation (DBR), RBI.

b.3 Extension of Validity of the Approval of Liaison Offices

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 by the Reserve Bank, if the applicant has complied with the following conditions and the application is otherwise in order.

• The LO should have submitted the Annual Activity Certificates for the previous years and
• The account of the LO maintained with the designated AD Category-I bank is being operated in accordance with the terms and conditions stipulated in the approval.

Such extension has to be granted, as expeditiously as possible, within a period of one month from the receipt of the request under intimation to the Regional Office concerned of the Reserve Bank and to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India, quoting the reference number of the original approval letter and the UIN.

The application for extension of the validity period of the LOs of banks and entities engaged in the insurance business has to be directly submitted to the Department of Banking Regulations, Reserve Bank and Insurance Regulatory and Development Authority (IRDA), respectively as stipulated by them, as hitherto. Further, no extension would be considered for LOs of entities which are NBFCs and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in conformity with the extant Foreign Direct Investment policy.

Note: The Hon’ble Supreme Court vide its interim orders dated July 4, 2012 and September 14, 2015, passed in the case of the Bar Council of India vs A.K. Balaji & Ors., has directed RBI not to grant any permission to any foreign law firm, on or after the date of the said interim order, for the opening of LO in India. Hence, no foreign law firm shall be permitted to open any LO in India till further orders/notification in this regard. However, foreign law firms which have been granted permission prior to the date of the interim order for opening LOs in India may be allowed to continue provided such permission is still in force. No fresh permissions/ renewal of permission shall be granted by RBI/AD banks respectively till the policy is reviewed based on, among others, the final disposal of the matter by the Hon’ble Supreme Court.

(C) BRANCH OFFICES

c.1 Permissible Activities

a). Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent/group companies and undertake the following activities in India:

i. Export / Import of goods.

ii. Rendering professional or consultancy services.

iii. Carrying out research work, in areas in which the parent company is engaged.

1. Promoting technical or financial collaborations between Indian companies and the parent or overseas group company.

2. Representing the parent company in India and acting as buying/selling agent in India.

3. Rendering services in information technology and development of software in India.

vii. Rendering technical support to the products supplied by parent/group companies.

viii. Foreign airline/shipping company.

a) Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.

b) Retail trading activities of any nature is not allowed for a Branch Office in India.

c) A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.

d) Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

c.2 Branch Office in Special Economic Zones (SEZs)

(i) Reserve Bank has given general permission to foreign companies for establishing branch/units in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:

1. such units are functioning in those sectors where 100 percent FDI is permitted;

2. such units comply with part XI of the Companies Act,1956 (Section 592 to 602);

3. such units function on a stand-alone basis.

(ii) 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 documents as mentioned under “Closure of Liaison / Branch Office” except the copy of the letter granting approval by the Reserve Bank.

c.3 Branches of Foreign Banks

Foreign banks do not require separate approval under FEMA, for opening branch offices in India. Such banks are, however, required to obtain necessary approval under the provisions of the Banking Regulation Act, 1949, from the Department of Banking Regulation, Reserve Bank.

(D) Application for Undertaking Additional Activities or Additional Branch / Liaison Offices

Requests for undertaking activities in addition to what has been permitted initially by the Reserve Bank may be submitted through the designated AD Category-I bank to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India, justifying the need with comments of the designated AD Category – I bank.

Requests for establishing additional BO / LOs may be submitted through fresh FNC form (Annex 1), duly signed by the authorized signatory of the foreign entity in the home country to the Reserve Bank of India as explained above. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.

• If the number of Offices exceeds 4 (i.e. one BO / LO in each zone viz; East, West, North, and South), the applicant has to justify the need for additional office/s.
• The applicant may identify one of its Offices in India as the Nodal Office, which will coordinate the activities of all Offices in India.

(E) Reporting by Branch/Liaison Offices

e.1. All new entities setting up LO/BO shall submit a report containing information, as per the format provided in Annex 3 within five working days of the LO/BO becoming functional to the Director General of Police (DGP) of the state concerned in which LO/BO has established its office; if there is more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established an office in India; [ as amended vide AP (DIR) No.35 dated September 25, 2012]

e.2. Branch Offices / Liaison Offices have to file Annual Activity Certificates (AAC) (Annex 4) from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the LO/ BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank, and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account. [as amended vide AP (DIR) No.55 dated November 26, 2012]

The certificates are to be filed by the following offices as applicable:

• In the case of a sole BO/LO, by the BO/LO concerned;
• In case of multiple BO/LO, a combined Annual Activity Certificate in respect of all Offices in India by the Nodal Office of the BO/LOs.

The designated AD Category – I bank shall scrutinize the Annual Activity Certificate 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 by the Reserve Bank. In the event of any adverse findings being reported by the Auditor or noticed by the designated AD Category-I bank, the same should be reported immediately by the designated AD Category–I bank to the respective Regional Office of the Reserve Bank in respect of LOs and to the Central Office of the Reserve Bank in the case of BOs, along with the copy of the Annual Activity Certificate and their comments thereon.

e.3. A copy of the report in Annex 3 shall be filed with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate, and also with the AD concerned. [As amended vide AP (DIR) No.35 dated September 25, 2012]

(F) Closure of Branch/Liaison Offices

At the time of winding up of Branch/Liaison offices, the company has to approach the designated AD Category – I bank with the following documents:

1. Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the BO / LO.

2. Auditor’s certificate- i) 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; ii) 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; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.

3. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.

4. A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.

5. Any other document/s, specified by the Reserve Bank while granting approval. The designated AD Category – I banks have to ensure that the BO / LOs had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years, in respect of the existing Branch/Liaison Offices. Confirmation about the same can be obtained from the Central Office of the Reserve Bank in the case of BOs and from the Regional Office concerned in the case of LOs.

W.r.t the application made by a BO/LO for making remittance of its winding up proceeds, the designated AD Category – I bank may permit the remittance subject to the directions issued by the Reserve Bank in this regard from time to time and payment of applicable taxes in India if any.

Closure of such BO / LO has to be reported by the designated AD Category – I bank to the Reserve Bank (the Regional Office concerned for LOs and Central Office for BOs), along with a declaration stating that all the necessary documents submitted by the BO / LO have been scrutinized and found to be in order. If the documents are not found in order or cases are not covered under delegated powers, the AD Category – I bank may forward the application to the Reserve Bank, with their observations, for necessary action. All the documents relating to the BO / LO operations may be retained by the AD Category – I bank for verification by the internal auditors of the AD / inspecting officers of the Reserve Bank.

Annex 1

FNC
Application for Establishment of Branch/Liaison Office in India

A General Instructions to Applicants:

The application form shall be completed and submitted to the AD Category – I bank designated by the applicant for onward transmission to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India along with the documents mentioned in item (viii) of the Declaration.

DECLARATION

We hereby declare that:

i) The particulars given above are true and correct to the best of our knowledge and belief.

ii) Our activities in India would be confined to the activities indicated in column 4(iii) (a) above.

iii) If we shift the office to another place within the city, we shall intimate the designated AD Category – I bank and the Reserve Bank. In the event of shifting the Office to any other city in India, prior approval of the Reserve Bank will be obtained.

iv) We will abide by the terms and conditions that may be stipulated by the Government of India / Reserve Bank / designated AD Category – I bank from time to time.

v) We, hereby commit that we are agreeable to a report / opinion sought from our bankers abroad by the Government of India /Reserve Bank.

vi) We understand that the approval, if granted, is from FEMA angle only. Any other approvals / clearances, statutory or otherwise, required from any other Government Authority/ Department/ Ministry will be obtained before commencement of operations in India.

vii) We have no objection to the Reserve Bank placing the details of approval in public domain.

viii) We enclose the following documents:

1. Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration

[If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country].

2. Latest Audited Balance sheet of the applicant company.

[If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]

3. Bankers’ Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.

(Signature of Authorised Official
of the Applicant Company)

Name:
Designation:

Place:
Date:

Annex 2

FORMAT OF THE LETTER OF COMFORT

The General Manager,
Foreign Exchange Department
Central Office Cell
Reserve Bank of India
New Delhi Regional Office
6, Parliament Street
New Delhi- 110 001.

Dear Sir,

Sub: Application for establishment of Branch / Liaison Office in India by our subsidiary / group company, M/s_________________________

You may kindly refer to the application made by our subsidiary / group company, M/s_____________________________to your office for establishing Branch / Liaison Office in India.

2. In this connection, we, ______________________(the parent company) undertake to provide the necessary financial support for our subsidiary / group company’s operations as a Branch / Liaison Office in India. Any liability that may arise due to the functioning of the Branch/Liaison Office in India will be met by us (the parent company), in case of inability on part of the Branch/Liaison Office to do so.

3. We are also enclosing the financial background of our company in the form of our latest Audited Balance Sheet / Account Statement certified by a Certified Public Accountant.

Yours faithfully,

(              )
Authorised Representative of the parent company

Annex 3
Annual Activity Certificate
(To be submitted as on March 31,…….on or before April 30,………).
To whomsoever it May Concern

This is to certify and confirm that during the period from __________________to________________, the Branch/Liaison Office/s with PAN No. – ———————of M/s__________________ (UIN- ) has/ have undertaken only those activities that have been specifically permitted by the Reserve Bank vide its approval letter/s No/s. ______________________________dated______________and has/have complied with the terms and conditions specified in the above mentioned letter/s.

_______________________________
(Signature of the Auditor/s)

(Name of the Chartered Accountant)
ICAI Membership No.:
Address:

Place:
Date:

***

Annex 4

Annual Activity Certificate
(To be submitted as on March 31,…….on or before April 30,………).

To whomsoever it May Concern

This is to certify and confirm that during the period from __________________to________________, the Branch/Liaison Office/s with PAN No. ———————-of M/s__________________ (UIN- ) has/ have undertaken only those activities that have been specifically permitted by the Reserve Bank vide its approval letter/s No/s. ______________________________dated______________and has/have complied with the terms and conditions specified in the above mentioned letter/s.

_______________________________

(Signature of the Auditor/s)

(Name of the Chartered Accountant)
ICAI Membership No.:
Address:

Place:
Date: