BRANCH OFFICE/LIAISON

OFFICE/ PROJECT OFFICE

Vedang Amogh Gupte
 GOVERNING PROVISIONS
• FEMA Notification No. 22(R)/RB-2016 dated March 31, 2016 amended from time to time
• FED Master Direction No. 10/2015-16 – Establishing of LO/BO/PO of foreign entities in India
updated as on 10/05/2018
• FAQs on LO/BO/PO of foreign entities in India as on 26/12/2016
• Chapter XXII Companies Incorporated Outside India (Sec 379 to Sec 393)
• The Companies (Registration of Foreign Companies) Rules, 2014
 DEFINITIONS
Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or
any other place of business) Regulations, 2016

Branch Office Liaison Office Project Office

in relation to a company, means
any establishment described as
such by the company.
Regulation 2(d)
means a place of business to act as means a place of business in India
a channel of communication to represent the interests of the
between the principal place of foreign company executing a
business or Head Office or by project in India but excludes a
whatever name called and entities Liaison Office.
in India but which does not
Regulation 2(f)
undertake any commercial /trading/
industrial activity, directly or
indirectly, and maintains itself out
of inward remittances received
from abroad through normal
banking channel.
Regulation 2(e)

Branch Office
i. profit making track record
during the immediately
preceding five financial years
in the home country and
ii. net worth of not less than
$100,000 or its equivalent
Liaison Office
i. profit making track record
during the immediately
preceding three financial years
in the home country and
ii. net worth of not less than USD
50,000 or its equivalent.
ELIGIBILITY
Project Office
secured from an Indian company, a contract
to execute a project in India, and
i. the project is funded directly by inward
remittance from abroad
ii. ii. the project is funded by a bilateral
or multilateral International Financing
Agency
iii. iii. the project has been cleared by an
appropriate authority; or iv. 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.
 PERMISSIBLE ACTIVITIES

Branch Office Liaison Office Project Office

i. Export/import of goods i. Representing the parent company / Performing contract in india.
ii. professional or consultancy services group companies in India
iii. research work in which the parent company is ii. Promoting export / import from / to
engaged India.
iv. Promoting technical or financial collaborations iii. Promoting technical/ financial
between Indian companies and parent or
overseas group company. collaborations between parent / group
companies and companies in India.
v. Representing the parent company in India and
acting as buying/ selling agent in India iv. Acting as a communication channel
vi. Information Technology and development of between the parent company and Indian
software in India companies.
vii. technical support to the products supplied by
parent/group companies
viii. Representing a foreign airline/shipping
company
 SETTING UP PROCEDURE
Any non-residential entity can establish a Branch Office/Liaison Office/Project Office in India by
following the above procedure:
1. Identify the Authorised Dealer Bank, and submit the application form in Form FNC.
2. Submission of the following documents:
i. Certificate of Incorporation, Articles and Memorandum of Association attested by Notary Public of
the country of registration.
ii. Audited Balance Sheet of the applicant company of the past three/ five years in case of Liaison
Office/ Branch Office respectively.
iii. Banker’s Report from applicant’s banker in the home country of the banking relations with the
company.
iv. Power of Attorney in favour of the signatory of Form FNC. In case, the head of the applicant
company signing, AD Bank shall ,AD Bank shall after exercising due diligence in respect of the
applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for
establishing BO/ LO/PO, antecedents of the promoter, nature and location of activity of the applicant,
sources of funds, etc., and compliance with the extant KYC norm
3. Obtain approval from the Reserve Bank of India, for the allotment of Unique Identification Number
(UIN) after which the AD Bank shall issue the approval letter to the non resident entity.
4. Once received permission, the applicant has to inform the Reserve Bank of India, on the date of
setting up of the BO/LO/PO.
5. The BO/LO/PO shall be set up within six months of approval or else, the approval will lapse.
6. Applications for establishing a BO/LO in India by foreign banks and insurance companies will be
received and examined directly by the Department of Banking, Reserve Bank of India and the Insurance
Regulatory Development Authority of India respectively, with no UIN requirement.
7. BOs in Special Economic Zones:
i. Sectors having 100% Foreign Direct Investment (FDI)
ii. BOs comply with Chapter XXII of the Companies Act, 2013
iii. Functioning on a Stand Alone Basis
 REGISTRATION WITH STATE POLICE AUTHORITY
Applicants from the following countries have to register with the State Police Authorities as well:
1. Pakistan
2. Bangladesh
3. Afghanistan
4. Iran
5. China
6. Hong Kong
7. Macau
8. Sri Lanka
 REQUIRING RBI APPROVAL

Nation Region Sector Organisation

Pakistan Bangladesh, Sri Non-Government

Defence, Organization,
Lanka, Afghanistan,
Iran, China, Hong Telecom, Non-Profit
Kong & Macau Private Security Organization,
AND and Information Body/ Agency/
Office Set Up In and Department of a
J&K, North East Broadcasting foreign
region and
Andaman and
government
Nicobar Islands.
 NOT REQUIRING RBI APPROVAL

Banking Insurance
Awarded contract Government
company company
by the Ministry approval
having having
of Defence or obtained from
approval under approval
Service concerned
the Banking under the
Headquarters or Ministry/Registr
Regulation Act, Insurance
Defence Public y
1949 Regulatory
Development Sector
Authority Act, Undertaking
1999
 ADDITIONAL OFFICES
Types of additional offices:
Site Office- Sub-office of the Project Office established at the site of a project but does not include a
Liaison Office.
Request the AD Bank in Form FNC
Maximum number o offices should be four, one in each zone
If it exceeds four, applicant needs to justify the reason for the same and obtain the approval of the
Reserve Bank of India.
Applicant must appoint a Nodal Office to co-ordinate with the activities of the other offices.
 VALIDITY PERIOD

Branch Office Liaison Office Project Office

Permanent • 3 years (two years for Till the end of the project.
construction)
• Extension- For 3 years
• No extension for
NBFCs, construction
companies.
 EXTENSION OF VALIDITY PERIOD OF
LIAISON OFFICES
There can be a request to the AD Bank under whose jurisdiction the LO/Nodal Office is situated, for the
extension of the period by three years, from the date of expiry of the date of original approval.
Documents required:
Annual Activity Certificate of the previous years.
 REMITTANCE OF PROFITS

Branch Office Liaison Office Project Office

Through the AD Bank by submitting the No remittance outside India is permitted. Authorised Dealer Category – I bank may permit
following documents: intermittent remittances by project offices
pending winding up / completion of the project
1.Certified copy of the audited Balance Sheet subject to submission of the following:
and Profit and Loss account for the relevant
year i. certified copy of the final audited project
accounts;
2. Chartered Accountant’s certificate
certifying ii. the statutory auditor’s certificate showing the
manner of arriving at the remittable surplus and
1. the manner of arriving at the remittable confirming that sufficient provisions have been
profit; made to meet the liabilities in India including
Income Tax, etc.; and
2. that the entire remittable profit has been
earned by undertaking the permitted iii. An undertaking from the project office that
activities and the remittance will not, in any way, affect the
completion of the project in India and that any
3. that the profit does not include any profit shortfall of funds for meeting any liability in
on revaluation of the assets of the branch. India will be met by inward remittance from
abroad.
4. Forms A-2 & 15CA/CB
iv. Forms A-2 & 15CA/CB
 ANNUAL COMPLIANCES

Branch Office Liaison Office Project Office

1. Submission of Annual Activity Certificate (AAC) and Financial Statements 1. Filing of Annual Activity
Certificate (AAC) and Financial
with AD Bank
Statements to AD Bank
2. Submission of Financial Statement with Director General of 2. Filing of Form FC-3 (Annual
Accounts) & FC-4 (Annual Return
3. Income Tax (International Taxation), New Delhi. of a foreign Company) to the ROC
Filing of Form FC-3 (Annual Accounts) & FC-4 (Annual Return of a foreign
Company) to the ROC.

Submission of Report with State Police Authorities where applicant is from Bangladesh, Sri Lanka, Afghanistan, Iran, China,
Hong Kong, Macau or Pakistan
 EVENT BASED COMPLIANCES
• Change in Address of Foreign Company
• Change of Authorised Signatory
• Change of Directors
• Change of name
• Change of any other particular of head office.
 INCOME TAX COMPLIANCE

Branch Office Project Office Liaison Office

1. Taxable presence 1. Non Taxable presence
2. Taxed as foreign company in India 2. Not permitted to carry out
3. Taxed on income pertaining to Indian Operations. commercial activities in India.
4. Income Tax Return to be filed
5. TDS/WHT compliances in prescribed form 3. Form 49C to be filed
electronically, with Digital
6. Transfer Pricing Audit Report in Form 3CEB. Signature.
7. Copy of AAC to be filed with the Reserve Bank of India and Income Tax
Authority (Only for BO). 4. Copy of AAC to be filed with
the Income Tax Authorities.
5. TDS/WHT compliances in
prescribed form.

Branch Office- One INR
Account
Permissible Credits:
• Inward Remittance from HO;
• Refunds;
• Sale Proceeds of Assets
Permissible Debits:
• Local Expenses
OPENING BANK ACCOUNT
Liaison Office- One INR
Account
Permissible Credits:
• Inward Remittance from HO;
• Refunds;
• Sale Proceeds of Assets;
• Legitimate business dues
Permissible Debits:
• Local Expenses
Project Office- 2FCY
Accounts
Permissible Credits:
• Inward Remittance from HO/
Group Co.s;
• Refunds;
• Sale Proceeds of Assets;
• Receipts from Project Awarding
Authority
Permissible Debits:
• Local Expenses
 ACQUISITION OF IMMOVABLE
PROPERTY
Branch Office Liaison Office Project Office
Allowed to hold immovable Allowed to hold on lease Allowed to hold
property immovable property
 TRANSFER OF ASSETS
• Permission for transfer from AD Bank can be granted only when compliances such as:
 Annual Activity Certificate to DGIT (International Taxation)
 Obtained PAN from Income Tax authorities
 Got registered under the Companies Act, 2013.
• Sale to JV/WOS - only when non-resident entity closes its operations in India
• Assets have to be acquired from inward remittances and no intangible asset must be included.
• Certificate- submitted to the statutory auditor about the original price, depreciation and the Written
Down Value.
• AD Bank must ensure payment of all taxes before the transfer of assets.
• Credits of such transactions of transfer of assets to the bank accounts of the (BO/PO/LO) be
considered as permissible credits.
 PROCEDURE FOR WINDING UP
1. All compliances are complete and updated with the Registrar of Companies and the AD
Bank.
2. Submit application of closure with the Registrar of Companies, in Form FC-2 and obtain
approval of Registrar of Companies.
3. Submission of application of closure to the Registrar of Companies with prescribed CA
Undertakings.
4. Obtaining the approval of the AD Bank after remitting the surplus.
5. Surrender of registrations such as TAN, PAN, PF.

Branch Office
 Subsidiary of Indian company abroad
can’t open Branch Office in India
 Can’t open foreign currency account for
doing normal business transactions.
 Letter of Credit can be opened by Branch
Office in India for import/export of
goods.
 Register with the Registrar of Companies
under the Companies Act, 2013.
 Can place funds in FD for a period not
exceeding 6 months.
DOS AND DONTS
Liaison Office
 Can be upgraded to BO, under AD Bank
approval.
 Existing PAN and bank accounts can be
continued when upgraded to a BO.
 Change in top level of LO does not
require prior approval from RBI or AD
Bank.
 Shall obtain PAN from the Income Tax
Authorities.
 LOs can open only one bank account.
 Shall obtain PAN and report the same in
the AACs.
Project Office
 Local Letter of Credit can be opened for
purchase of goods locally.
 Can open two bank accounts provided
both are in the same AD Bank.
 Credit facility can be provided to PO in
foreign currency.
 There is no specific requirement for AD
Banks to obtain UIN from RBI for PO
Setting up of Office
outside India
 GOVERNING PROVISIONS
• FEMA Notification No. 10(R)/RB-2015 dated January 21, 2016
• FED Master Direction No. 16/2015-16 – Export of Goods and services updated as on
12/01/2018
 GUIDELINES
 A body corporate, company and firm can establish a permanent establishment or send a representative
outside India.
 It can be for trading or non trading activities.
 Overseas permanent establishment/ representative has to perform ordinary business activities of the
Indian entity.
 Remitances
 Initial expenses for set-up: 15% of average annual sales/ income or turnover of the Indian entity during
the last two financial years or up to 25 per cent of the net worth, whichever is higher
 Recurring expenses: 10% of average annual sales/ income or turnover during the last financial year
 DOS AND DONTS

• Capital account transactions must be kept in mind.

• Purchase of acquisition of office equipment and other assets required for normal business operations of
the overseas branch/ office/ representative is not deemed as a capital account transaction. However,
Acquisition of immovable property for business and residential purpose of its staff is allowed only by
an Indian company for its overseas office. LLP cannot acquire immovable property other than by lease
not exceeding 5 years.
• Overseas office (trading / non-trading) / branch / representative should not create any financial
liabilities, contingent or otherwise, for the head office in India.
• Overseas office cannot not invest surplus funds abroad without prior approval of RBI
• All surplus funds needs to be repatriated to India
 REGULATIONS
• Overseas office may constitute PE depending upon its activities
• Transfer Pricing is not applicable under Indian tax law for transactions between Indian HO
and overseas office
• WHT compliance needs to be adhered to under Indian tax law  Immediate taxation of
branch profits in India
• Prevalence of Branch remittance tax in certain countries
• HO expenses deduction limits under certain countries’ tax laws
• Liability of overseas office may devolve upon Indian HO in case of litigation
Case Studies
 CASE STUDY-1
Facts: ABC Ltd, is a company, incorporated and resident in Australia. It has been earning profit for the
past ten financial years. However, due to COVID-19, its net worth in the previous financial year dropped
below $100,000, and it was $83456 as per the latest audited balance sheet of the previous financial year.
Can it open a Branch Office in India? And what kind of establishment can it have.
Answer: No.
Reason: ABC Ltd has not met the criteria for establishment of a Branch Office in India, ie net worth of
more than $100,000 in the past five financial years and profitability in the past five financial years.
However, it can open a Liaison Office, as it is meeting its criteria, ie having earned profits in the
previous three financial years and having a net worth above $50,000.
 CASE STUDY-2
Facts: RST Ltd, a company incorporated in Germany wants to have a permanent establishment in India,
only for representation purposes. What kind of permanent establishment can it establish in the country.
What will it be required to do to take up trading activities.

Answer: It can establish a Liaison Office. It will have to upgrade itself to a Branch Office to carry out
trading activities.
 CASE STUDY-3

Facts: PQR Ltd is a company incorporated and resident in Japan. It is a company manufacturing car
engines, and wants to set up a manufacturing unit in India. What are the limitations for the same.

Answer: The manufacturing Branch Office must be in the Special Economic Zone.
THANK YOU