India being a developing country there is a lot of interest among foreign companies to start their operations in India. Setting up a Liaison office/ branch office or Project office is one of the ways to do business in India. Setting up of such an entity is governed by both RBI and Ministry of corporate affairs and hence regulation of both laws must be complied with for registering such entity.
RBI has issued a Master Direction specifying law framework for Liaison office/ branch office or Project office registration in India following are key features of same: –
Applications from foreign companies (a body corporate incorporated outside India, including a firm or other association of individuals) for establishing Liaison office/ branch office or Project office in India shall be considered by the AD Category-I bank as per the guidelines given by Reserve Bank of India (RBI). If the principal business of the entity resident outside India falls under sectors where 100 percent Foreign Direct Investment (FDI) is allowed and the entity seeks to open a BO/LO/PO, the AD Category-I bank may consider such applications under the delegated powers.
An application from a person resident outside India for opening of a BO/LO/PO in India shall require prior approval of Reserve Bank of India in the following cases
- The applicant is a citizen of or is registered/incorporated in Pakistan;
- The applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a BO/LO/PO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
- The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting.
- In the case of proposal for opening a PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. No separate approval is required from Reserve Bank of India for such cases only.
Such applications may be forwarded by the AD Category-I bank to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi – 110 001 who shall process the applications in consultation with the Government of India.
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 called].
Further there is a general permission to non-resident companies to establish POs in India, provided they have secured a contract from an Indian company to execute a project in India
Under Companies Act, 2013 there is no difference between LO/BO/PO. All three together are referred as foreign companies. As per Section 2(42) of Companies Act, 2013 foreign company” means any company or body corporate incorporated outside India which
- has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
- conducts any business activity in India in any other manner.
Procedure for forming a Project office/ Branch office/ Liaison office in India:
Step 1: Preparing documents for Applying with AD Bank
For getting approval of setting up of Project office/ Branch office/ Liaison office in India approval of Reserve Bank of India is required. Reserve Bank of India has delegated the power to AD Bank to grant approval for opening of such office hence foreign company is required to submit necessary documents to AD bank for grating approval.
Step 2: Submitting of form FNC along with necessary documents to AD Bank
The application for establishing BO / LO/ PO in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category – I bank (i.e. an AD Category – I bank along with the prescribed documents
Step 3: Approval for opening LO/BO/PO by AD bank
AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself about 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 norms grant approval to the foreign entity for establishing BO/LO/PO in India.
In case the BO/LO/PO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse
The validity period of an LO is generally for three years. After three years extension need to be taken from AD bank for further operations
Step 4: Making DSC of Authorised Representative
The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form to any authority to ensure the security and authenticity of the documents filed electronically. Hence all filings done formation of company are required to be filed by using DSC (Digital Signatures certificate)
Step 5: Filling of Form FC-1 with ROC
Every foreign company shall within thirty days of the establishment of its place of business in India shall file a E form FC-1 intimating ROC regarding establishment of place of business in India.
Step 6: Issue of Certificate of place of business by ROC
ROC issues certificate of place of business if it has no objection in E form FC-1 filled.