Establishment of Liaison/ Branch/ Project Offices in India by foreign entities

Dated 1st January, 2016 | Copy of | Notification FED Master Direction No.10/2015-16 |

  INDEX

  Master Direction - Establishment of Branch/Liaison/Project Offices in India by foreign entities

(A) General criteria – Liaison Office / Branch Office

A.1 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 have 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:

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

ii. Government Route — Where principal business of the foreign entity falls under the sectors where 100 per cent 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.

A.2 The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities:

a. Track Record

o For Branch Office — a profit making track record during the immediately preceding five financial years in the home country.

o For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.

b. Net Worth

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].

o For Branch Office — not less than USD 100,000 or its equivalent.

o For Liaison Office — not less than USD 50,000 or its equivalent

A.3 The application for establishing BO / LO in India should be forwarded by the foreign entity through a 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, along with the prescribed documents including

i. English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.

ii. 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 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). The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India and report the same in the Annual Activity Certificate (Annex 3).

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. AD banks shall also endorse a copy of each such renewal to the office of the DGIT (International Taxation).

The application for extension of the validity period of the LOs of banks and entities engaged in insurance business has to be directly submitted to the Department of Banking Regulation, Reserve Bank of India 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.

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 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 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, 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.

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.

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/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:

a. such units are functioning in those sectors where 100 per cent FDI is permitted;

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

c. 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 office in India. Such banks are, however, required to obtain necessary approval under the provisions of the Banking Regulation Act, 1949, from Department of Banking Regulation, Reserve Bank.

(D) Application for undertaking additional activities or additional Branch / Liaison Offices

(d) 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.

(e) Any other document/s, specified by the Reserve Bank while granting approval. The designated AD Category - I banks has 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.

E.2 With reference to 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.

E.3 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.

(F) Project Office

F.1 General permission

Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

i. the project is funded directly by inward remittance from abroad; or

ii. the project is funded by a bilateral or multilateral International Financing Agency; or

iii. the project has been cleared by an appropriate authority; or

vi. The Foreign Currency accounts have to be closed at the completion of the Project.

F.3 Intermittent remittances by Project Offices in India

(i) AD Category – I bank can permit intermittent remittances by Project Offices pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the following:

a. The Project Office submits an Auditors’ / Chartered Accountants’ Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.

b. An undertaking from the Project Office that the remittance will not, in any way, affect the completion of the Project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.

(ii) Inter-Project transfer of funds requires prior permission of the Regional Office concerned of the Reserve Bank under whose jurisdiction the Project Office is situated.

(G) Other general conditions applicable to Branch / Liaison / Project Offices of foreign entities in India

(i) Without prior permission of the Reserve Bank, no person being a citizen of / registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish in India, a Branch or a Liaison Office or a Project Office or any other place of business.

(ii) All new entities setting up LO/BO/PO in India shall submit a report containing information, as per format provided in Annex-4 within five working days of the LO/BO/PO becoming functional to the Director General of Police (DGP) of the state concerned in which LO/BO/PO 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 office in India.

(iii) Branch/Project Offices of a foreign entity are permitted to acquire immovable property by way of purchase for their own use and to carry out permitted/incidental activities.   

However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan or China are not allowed to acquire immovable property in India for a Branch / Project Office without prior RBI approval.

(iv) All Branch / Project Offices including Liaison Offices, have general permission to carry out permitted / incidental activities from lease property subject to lease period not exceeding five years.

(v) Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers for opening the accounts.

(vi) Powers relating to transfer of assets of Liaison / Branch Office/Project Office have been delegated to AD Category-1 Banks subject to compliance with the following stipulations:

a. Such proposals will be considered only from LO/BOs who are adhering to the operational guidelines stipulated in AP DIR Circular No.23 & 24 of December 30, 2009 such as (i) submission of AACs (up to the current financial year) at regular annual intervals with copies endorsed to DGIT (International Taxation) and (ii) obtained PAN from IT Authorities and have got registered with ROC under Companies Act 1956, if necessary. Similarly, proposals from POs should conform to the guidelines issued in AP DIR Cir.No.44 dated May 17, 2005 with regard to initial reporting requirements (para.2.3) and submission of CA certified annual report indicating project status (para.2.4).

b. A certificate is to be submitted from the Statutory Auditor furnishing details of assets to be transferred indicating their date of acquisition, original price, depreciation till date, present book value or WDV value and sale consideration to be obtained. Statutory Auditor should also confirm that the assets were not re-valued after their initial acquisition. The sale consideration should not be more than the book value in each case.

c. The assets should have been acquired by the LO/BO/PO from inward remittances and no intangible assets such as good will, pre-operative expenses should be included. No revenue expenses such as lease hold improvements incurred by LO/BOs can be capitalised and transferred to JV/WOS.

d. AD bank to ensure payment of all applicable taxes while permitting transfer of assets.

e. Transfer of assets to be allowed by AD banks only when the foreign entity intends to close their LO/BO/PO operations in India.

f. Credits to the bank accounts of LO/BO/PO on account of such transfer of assets will be treated as permissible credits.

(vi) Branch Offices are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorised Dealer through whom the remittance is effected

a. A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year

b. A Chartered Accountant’s certificate certifying

i. the manner of arriving at the remittable profit

ii. that the entire remittable profit has been earned by undertaking the permitted activities

iii. that the profit does not include any profit on revaluation of the assets of the branch.

(vii) Authorised Dealers can allow term deposit account for a period not exceeding 6 months in favor of a branch/office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.

(viii) Regularisation of LO / BO of foreign entities established during pre-FEMA period Under the provisions of FEMA 1999 foreign entities are permitted to establish a branch or liaison office in India with permission of the Reserve Bank of India. Liaison / Branch Offices established in pre FEMA period without approval of Reserve Bank of India may approach the Reserve Bank through their ADs to regularise their offices under FEMA 1999. The foreign entities who may have established LO or BO with the permission from the GoI shall also approach RBI with a copy of the said approval for allotment of a Unique Identification Number by RBI. All such applications should be submitted to the General Manager, Reserve Bank of India, Foreign Exchange Department, Central Office Cell, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001 in Form FNC and should be routed through the AD Category-I bank where the account of such LO/BO is maintained.

(H) Reporting by AD banks:

AD Category-I banks may refer to our separate Master Direction of Reporting (Master Direction No. 18 dated January 16, 2016) available in RBI website www.rbi.org.in for all the reporting requirements with reference to Liaison offices/ Branch offices/ Project offices in India.

  Annex 1

Form FNC

Application for establishment of Branch/Liaison Office in India

  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

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:

  Format of Report to DG of Police

Annex 4

  Appendix

LIST OF NOTIFICATIONS/CIRCULARS CONSOLIDATED IN THIS MASTER DIRECTION