Chapter -3 HOW FOREIGN COMPANIES CAN ENTER INDIA

A foreign company can enter into India through following vehicles

1. Liaison Office/Representative Office
2. Branch Office
3. Project Office
4. Site Office
5. Joint Ventures; or
6. Wholly Owned Subsidiaries

3.01 Liaison Office

There are quite a few foreign companies who want to first study the Indian markets and
obtain relevant information before they expand their operations in India. Some foreign
companies establish a liaison office as an intermediate step before entering into a Joint
Venture (JV) or setting up a Wholly Owned Subsidiary (WOS). The establishment of liaison
offices is governed by the Reserve Bank of India (RBI). By its very nature, a liaison office in
India can act only as a communicative channel for the parent company to supply
information on the Indian market and customers, and cannot carry on any business
activities in India. As a result, the liaison office cannot generate any revenue in India and
all the expenses of running and maintenance of the Indian office are required to be met out
of the foreign exchange remitted from abroad.
’Liaison Office’ means a place of business to act as a channel of communication between the
Principal place of business or Head Office 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;

Permitted activities for a Liaison Office in India

i) Representing in India the parent company/group companies.
ii) Promoting export import from/to India.
iii) Promoting technical/financial collaborations between parent/group companies and
companies in India.
iv) Acting as a communication channel between the parent company and Indian
companies.

Procedure to Set up a Liaison Office in India.

Foreign companies intending to set up a liaison office in India for undertaking liaison
activities on behalf of the parent company or foreign trading companies intending to set up
liaison offices in India for promotion of exports from India should submit their application
in Form FNC 1 to the Central office of RBI, Mumbai (Foreign Investment Division). In
approved cases, permission is granted initially for a period of 3 years. However,
application for renewal of application should be made to the concerned regional office of
the RBI under whose jurisdiction the office is situated.

1. The application should be completed in quadruplicate and submitted to the Chief

General Manager, Exchange Control Department (Foreign Investment Division), RBI,
Central office, Mumbai - 400 023.
2. English version of the certificate of incorporation / registration attested by Indian
Embassy / Notary public in the country of registration.
3. Latest balance sheet of the Applicant Company / firm.
4. Certified photo-copy of the agency Agreement, if any, with parties in India.
5. Photo-copy of the Agreement / draft- Agreement / correspondence indicating the terms
of appointment of the proposed representative duly authenticated by the applicant.
6. Where applicable, certified photocopy of Government of India.s approval for
undertaking projects in India.
7. Where applicable, certified photocopy of the contract / Agreement for undertaking
activities / rendering services.

Conditions Imposed While Granting Permission

The conditions precedents for setting a liaison office in India are as follows:
1. No commission / fee will be charged or any other remuneration received by the Indian
office of the foreign company for its liaison activities in India.
2. Except the liaison work, the office will not undertake any activity of a trading,
commercial or industrial nature without the prior permission of RBI
3. The entire expenses of the Indian office will be met exclusively by remittance from
abroad through normal banking channels.

Zero Tax Liability

Since a liaison office is not allowed to earn any income, there is no tax liability of a liaison
office or its parent company for this representative office.

Maintenance of Bank Accounts

A liaison office in India is permitted to maintain and operate bank accounts in India but
only with authorized dealers. Following are the documents required for opening such
account:
1. Account opening Form duly completed and signed by all authorized signatories.
2. Complete address and telephone number filled in account opening Form.
3. Account opening Form duly introduced (name, account No. and signature of the
introducer).
4. Specimen signature (s) on the signature card by all authorized signatories.
5. One photograph of each authorized signatory.
6. Board resolution authorizing opening of account (duly attested by Notary /
Banker).
7. Copy of the Government approval for setting up of a liaison office / branch office
in India or RBI approval to carry on activity in India.
8. Memorandum and Articles of Association (duly certified as true copy).
9. If the Memorandum and Articles of Association is in any other language other than
English, a copy of Memorandum and Articles of Association duly translated in
English and Notarized.
10. List of Directors along with their photographs.
11. Copy of Power of Attorney vesting authority to operate the account in case of
liaison / branch office (duly Notarized).
12. Copies of passport of the signatories

3.02 Branch Office

Branch Office in relation to a company means
1. any establishment described as a branch by the company: or
2. any establishment carrying on either the same or substantially the same activity as
that carried on by the head office of the company: or
3. Any establishment engaged in the production processing or manufacture; but does
not include any establishment specified in any order made by the Central
Government.

Permitted activities for a branch in India of a person resident outside India

i) Export/Import of goods
ii) Rendering professional or consultancy services.
iii) Carrying out research work, in which the parent company is engaged.
iv) Promoting technical or financial collaborations between Indian companies and
parent or overseas group company.
v) Representing the parent company in India and acting as buying/selling agent in
India.
vi) 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.

Restrictions on operations of the Branch Office

The RBI usually imposes the following conditions while granting permission to establish a
Branch Office:
The Branch Office would not expand its activities or undertake any new trading,
commercial or industrial activity other than that is expressly approved by the RBI
The entire expenses of the Branch Office in India will be met either out of the funds
received from abroad through normal banking channels or through income
generated by it in India
The Branch Office will not accept any deposits in India;
The commission earned by the Branch Office from parties abroad for any agency
business will be repatriated to India through normal banking channels.

Repatriation of profits
A Branch Office can remit the profits (net of any withholding tax) generated out of its
operations in India on production of the prescribed documents and on establishing that it
has earned a net profit by undertaking the permitted activities. The Branch Office need not
retain any profits as reserves in India

3.03 Project Office

’Project Office’ means a place of business to represent the interests of the foreign company
executing a project in India but excludes a Liaison Office;

The procedure for opening such an office is to apply to the RBI with details of the project to
be executed and the details of the project office to be set up. RBI will accord approvals
specific to the project. The project office cannot operate after the completion of the
specified project.
3.04 Site Office
’Site Office’ means a sub-office of the Project Office established at the site of a project but
does not include a Liaison Office

3.05 Joint Venture / 100% Subsidiary

A foreign company can also form a Joint Venture with any existing Indian
company or it can set up its 100% owned subsidiary subject to Law, Procedure and
guidelines and foreign investment policy of India