LIAISON, BRANCH OFFICE PROCEDURES

LIAISON, BRANCH OFFICE REGISTRATION PROCEDURES IN INDIA

What is the procedure of opening a Liaison/Branch office in India for foreign companies?

A Liaison Office can involve in the activities listed under:

With effect from February 1, 2010, foreign companies with a will to open up a Liaison Office / Branch Office (LO/BO) are required to submit their application for the same in Form FNC along with the relevant documents mentioned herein to the Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai, not directly but through an Authorized Dealer bank.

There are two modes for the Reserve Bank to receive such applications:

Reserve Bank Route		Reserve Bank Route this route is applicable for business sectors where 100 per cent Foreign Direct Investment (FDI) is allowed under the provisions of automatic route of the FDI scheme.
Government Route		Government Route this is for the rest of the entities which engage in activities which do not find 100% FDI under the automatic route. Applications from such entities should be directed to the Reserve Bank who in consultation with the Ministry of Finance, Government of India decide on whether the permission shall be granted or not.

In addition to the above criteria, a number of other factors are also taken into consideration by the Reserve Bank while allowing Liaison/Branch Offices of foreign entities :

Track Record
For Branch Office		the immediately preceding five financial years should have generated substantial profit in the home country..
For Liaison Office		a profit making track record during the immediately three financial years preceding the setting up of the liaison office, in the home country.

Net Worth which is made of the following components should add up to:

For Branch Office		not less than USD 100,000 or its equivalent.
For Liaison Office		not less than USD 50,000 or its equivalent.

Permission to constitute such offices is granted for an initial period of 3 years. Extensions to this period may be carried out on a regular basis by the Authorized Dealer under whose jurisdiction the office is created. a Unique Identification Number (UIN) will be assigned to the The BO/LO established with the Reserve Bank's prior approval. Obtaining a Permanent Account Number (PAN) from the Income Tax Authorities is also an issue of the utmost importance for The BOs / LOs setting up the offices in India.
To ensure that the BOs / Los carry out only the permitted activities they have to file an Annual Activity Certificate (AACs) from the Auditors, as at end of March 31, not to mention the audited Balance Sheet on or before September 30 of that year, accompanied with a declaration that the Liaison Office has engaged in only those activities allowed by the Reserve Bank of India. If the yearly accounts of the respective LO/ BO are prepared with reference to a date other than March 31, the AAC and the audited Balance Sheet should be submitted within a six month period from the due date of the Balance Sheet.

What are the permitted activities of Liaison Office/ Representative Office?

A Liaison Office or a Representative Office can engage in only liaison activities, i.e. act as a channel of communication between the Head Office abroad and suppliers or clients in India. Earning any sort of income is not allowed for the LO which also means they may not engage in any business activity in India. Expenses of such offices should be covered totally by inward remittances of foreign exchange from the parent company based outside India. The responsibility of such offices is restricted to gathering information about potential market opportunities and supplying relevant information about the company and its products and services to the prospective Indian customers. A Liaison Office is permitted to undertake the following activities in India :

Representing in India the parent company.
Promoting export / import from / to India.
Promoting technical/financial collaborations between parent/group companies and companies in India.
Acting as a means of communication between the parent company and Indian companies.

Can Foreign Insurance Companies / Banks set up Liaison Office in India?

Foreign Insurance companies can set up Liaison Offices in India only after Insurance Regulatory and Development Authority (IRDA) grants approval for the same. Department of Banking Operations and Development (DBOD), Reserve Bank of India performs a similar function for the foreign banks as well.

What is the procedure for setting up Branch office?

An application have to be made for gaining permission for setting up branch offices to the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. The Reserve Bank of India considers various variables including the track record of the applicant company, past as well as existing trade relations with India, the core business of the company registration india to set up office in India as well as the financial stability of the company while scrutinizing the application. The application is not made directly but through the Authorized Dealer bank on Form FNC.

What are the permitted activities of Branch Office?

Companies based outside India and involved in manufacturing activities are permitted to open up branch offices in India with prior approval of the Reserve Bank of India. Such Branch Offices are considered to represent the interests of the parent company and permitted to engage in the following activities in India:

Export and or Import of goods.
Rendering professional or consultancy services.
performing research work, in areas in which the parent company is engaged.
Promoting technical or financial partnerships between Indian companies and overseas parent group company.
Representing the parent company in India and acting as buying or selling agent in India.
Acting as a service provider in information technology and development of software in India.
Rendering technical support to the products sup¬plied by parent/group companies.
Foreign airline / shipping company.

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

Note:
The Branch Office should not indulge in any retail trading of any kind in India.
The Office is also not permitted to deal in any manufacturing or processing activities in India, whether directly or indirectly.
Profits generated by the Branch Offices are freely remittable from India, given that the requisite taxes have been paid.

Whether Branch Offices are permitted to remit profit outside India?

Branch Offices are allowed to remit outside India profit of the branch net of applicable Indian taxes, if the following documents are furnished to the satisfaction of the Authorized Dealer through whom the remittance is executed :

A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year
A Chartered Accountant’s certificate certifying -

The manner of arriving at the remittable profit
That the entire remittable profit has been earned only by carrying out the activities for which prior approval has been gained.
That revaluation of the assets of the branch have not in any way contributed to the profit of the branch.

What are the documents need to be submit to the AD Bank at the time of closure of the Liaison/Branch Office?

At the time of wrapping up of Branch offices, the company has to approach the concerned AD Category - I bank with the following documents:

Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for establishing the BO / LO.
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 the relevant liabilities in the country including but not limited to, arrears of gratuity and other benefits to employees, etc., of the concerned Office have been either fulfilled or adequately accounted for; and iii) confirming that all income gained from sources outside India (including remittances from exports) has been repatriated to India.
The profit should not consist of proceeds from revaluation of the assets of the concerned branch office.
In the case of issue of shares on preferential allotment, the price as applicable to transferring of shares from resident to non-resident as per the pricing guidelines laid down by the Reserve Bank from time to time.
No-objection / Tax Clearance Certificate is required from the Income-Tax authority for the remittance/s. Declaration from the parent company stating the absence of any legal proceedings against the company in any Court in India as well as illegal impediments to the remittance.
In case the operation of the office in India is coming to an end, a report from the Registrar of Companies is required regarding compliance with the provisions of the Companies Act, 2013.
Any other document/s, specified by the Reserve Bank while granting approval.

What are the Reporting requirements by Branch/Liaison Offices?

1. All new entities setting up LO/BO shall submit a report containing information, as per 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 office in India; [ as amended vide AP (DIR) No.35 dated September 25, 2012]

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 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.

1. 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]

Further Compliances:

Once it establishes a place of business in India, a BO/LO/PO or any other place of business by whatever name called is required to register with the Registrar of Companies (ROCs) if such registration is required under the Companies Act, 2013.
The BOs / LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the AACs.
AD Category-I bank can allow term deposit account for a period not exceeding 6 months in favour of a BO/LO/PO provided the bank is satisfied that the term deposit is out of temporary surplus funds and the BO/LO/PO 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.
In case a BO/LO has been established and continues to exist without approval of the Reserve Bank, it may approach its AD Category-I bank to regularise its office(s) under the extant instructions contained in the Notification and this circular even if permission of Reserve Bank was not required as per the regulations existing at the time of setting up of the office. Such cases may be brought to the notice of the Reserve Bank immediately for allotment of UIN. The foreign entities who may have established LO or BO with the permission from the Government of India in the pre-FEMA period shall also approach their AD Category–I bank with a copy of the said approval for allotment of a UIN by the Reserve Bank.
Change in the Top Management or CEO/MD/CMD etc. of the BO/LO does not require prior approval from the Reserve Bank/AD Category-I bank. However, AD Category-I bank should be intimated about the same.

For what purposes opening of Bank Account is permitted by BO/LO/PO?

i. An LO may open an account with the designated AD category I Bank in India for receiving remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permitted Credits and Debits to the account shall be:

a. Credits

Funds received from Head Office through normal banking channels for meeting the expenses of the office.
Refund of security deposits paid from LO’s account or paid directly by the Head Office through normal banking channels.
Refund of taxes, duties etc., paid from LO’s bank account.
Sale proceeds of assets of the LO.

b. Debits

Only for meeting the local expenses of the office.

ii. A BO may open a bank account with any AD Category-I Bank in India for its business operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds.

iii. An entity from Pakistan shall need prior approval of Reserve Bank of India to open a bank account for its PO in India. All other foreign entities who have been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank.

What is the procedure for setting up Project Office?

The Reserve Bank has granted an overall permission for foreign firms to set up Project Offices in India, given that they have secured a contract from an Indian company to carry out a project in India, and

the main source of funds for the project inward remittance from abroad or
an International Financing Agency, whether bilateral or multilateral is funding the project. or
the project has been permitted by the concerned authority or
a company in India granting the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the said project. Howbeit, if the any of the above criteria are not met or if the parent entity is based in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai for approval.

What are the bank accounts permitted to a Project Office?

AD Category – I banks can start non-interest bearing Foreign Currency Account for Project Offices only in India given they follow the below mentioned guidelines:

The Project Office has been established in India, with the general / specific permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.
The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I bank.
Only project related expenditures shall be debited to the account and credits shall be in foreign currency receipts from the Project Sanctioning Authority plus remittances from parent Company abroad or international financing agency.
The branch with the AD is the sole authority for ensuring only the permitted debits and credits are allowed in the Foreign Currency Account .Furthermore, the Accounts shall be subject to inspection by the Concurrent Auditor of the concerned AD banks.
The Foreign Currency accounts should be terminated at the completion of the Project.

What are the general conditions applicable to Liaison / Branch / Project Office of foreign entities in India?

The general conditions applicable to Liaison/Branch/Project Office of foreign entities in India are as given here

No citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China may set up in India, a Branch or a Liaison Office or a Project Office or any other place of business, without the prior approval of the Reserve Bank.
Partnership / Proprietary concerns set up in foreign country cannot establish Branch /Liaison/Project Offices in India.
Companies or firms based originally in Nepal are permitted to set up only Liaison Offices in India.
Branch/Project Offices of a foreign entity, other than a Liaison Office are allowed to possess property for conducting business other permitted activities but not for leasing or renting out the property. However, firms with holding companies in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire such immovable property in India even for a Branch Office. They may instead lease the needed property for a period limited to five years.
The various offices of the company are allowed to open non-interest returning Indian Rupee current accounts in the country. The creation of such accounts should be done through the Authorized Dealers.
Transfer of assets of the respective office to the other subsidiaries or other branches of the firm should be first approved by the Central Office of the Reserve Bank.
Authorized Dealers can authorize term deposit account for a period less than 6 months in favour of a office of a non-resident person given that the bank concerned is satisfied that the term deposit does not have temporary surplus funds and the office provides a declaration that the maturity proceeds of the term deposit will be spent for their business within the borders of India within 3 months of maturity. However, such allowances may not be granted to shipping/airline companies

Whether a branch office (BO) or project office (PO) can send outward remittances, permissible under FEMA, through any AD Category I bank or it has to be through the designated AD Category I bank only?

Wherever the BO or PO is required to remit funds outside India, within the applicable guidelines under FEMA, they may do so not necessarily through the designated AD Category I bank but through any AD Category I bank of its choice subject to obtaining no objection certificate (NOC) from the designated AD Category I bank. The remittances have to be for transactions settling on Cash / Tom / Spot basis only. The remittance has to be through banking channel in either of the two methods:

(1) The designated AD category I bank will transfer equivalent INR amount to the transaction handling bank. The transaction handling bank can remit the amount to the overseas parent office of BO / PO through SWIFT. However, the transaction handling bank will have to ensure KYC compliance and the necessary documentation. It will also be required to share the SWIFT message along with the details like UIN No, beneficiary and remittance details with the designated AD category I bank.

(2) The designated AD category I bank will transfer equivalent INR amount to the transaction handling bank. The transaction handling bank will then credit the NOSTRO account of the designated AD Category I bank which in turn will remit the amount to the final beneficiary.

Are the Remittance of profit/surplus allowed by BO/ PO outside India?

BOs are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of the documents given in Regulation 4.i.I. of the Notification to the satisfaction of the AD Category-I bank through whom the remittance is effected.
AD Category – I bank can permit intermittent remittances by POs pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the documentation laid down in Regulation 4.i.II. of the Notification.