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:
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.
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.
The following additional criteria are also considered by the Reserve Bank while Sanctioning Liaison/Branch Offices of foreign entities:
- Track Record
- For Branch Office — A profit making track record during the immediately preceding five financial years in the home country.
- For Liaison Office — A profit making track record during the immediately preceding three financial years in the home country.
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].
- For Branch Office — not less than USD 100,000 or its equivalent.
- For Liaison Office — not less than USD 50,000 or its equivalent
The application for establishing BO / LO in India should be forwarded by the foreign entity through a designated AD Category – I bank to the Chief General Manager-in Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400 001, along with the prescribed documents including.
- English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.
- Latest Audited Balance Sheet of the applicant entity.
- Permissible Activity for a Liaison Office:-
A Liaison Office (also known as Representative Office) can undertake only liaison Activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.
- Liaison Office can undertake the following activities in India: –
- Representing in India the parent company / group companies.
- Promoting export / import from / to India.
- Promoting technical/financial collaborations between parent/group companies and companies in India.
- Acting as a communication channel between the parent company and Indian companies.
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:
- Export / Import of goods
- Rendering professional or consultancy services.
- Carrying out research work, in areas in which the parent company is engaged.
- Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
- Representing the parent company in India and acting as buying / selling agent in India.
- Rendering services in information technology and development of software in India.
- Rendering technical support to the products supplied 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.
- Retail trading activities of any nature is not allowed for a Branch Office in India.
- Branch Office is not allowed to carry out manufacturing or processing Activities in India, directly or indirectly.
- Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.
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
- the project is funded directly by inward remittance from abroad; or
- the project is funded by a bilateral or multilateral International Financing
- the project has been cleared by an appropriate authority; or
- 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.
- However, if the above criteria are not met, the foreign entity has to approach the
Reserve Bank of India, Central Office, for approval.
We’ve prepared the ideal package of services for the company type listed above to help you start your business in India. In order to make the process go as smoothly as possible, we’ve prepared a limited list of necessary documents we’ll need so that we can prepare all the rest for you. If you have any questions about these please don’t hesitate to ask.