Frequently Asked Questions

• Incorporate a company under the Companies Act, 1956, as a Joint Venture (JV) or a Wholly Owned Subsidiary(WOS) or;
• Set up a Liaison Office (LO) / Representative Office (RO) or a Project Office (PO) or a Branch Office (BO) of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

• 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.

• Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up BOs in India with specific approval of the RBI.
• Such BO is permitted to represent the parent / group companies.
• Normally, the BO should be engaged in the activity in which the parent company is engaged.

• Foreign companies desirous of setting up of Liaison Office (LO)/ Branch Office (BO) are required to submit their application in Form FNC along with the prescribed documents to Foreign Investment Division, Foreign Exchange Department, RBI, Central Office, Mumbai through an Authorized Dealer bank.
• The above application in Form FNC will be considered by the RBI under two routes:
  1. Reserve Bank Route - Where principal business of the foreign entity falls under sectors where 100 % Foreign Direct Investment (FDI) is permissible under the automatic route.
  2. Government Route - When 100 % FDI is not permitted under the automatic route. Then the applications from entities falling under this category and those from Non - Government Organisations etc are considered by the RBI in consultation with the Ministry of Finance, Government of India.
• While sanctioning LO/BO of foreign entities, following additional criteria are also considered by the RBI :
• Track Record
  1. For BO a profit making track record during the immediately preceding 5 financial years in the home country.
  2. For LO a profit making track record during the immediately preceding 3 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].
  1. For BO — not less than USD 100,000 or its equivalent.
  2. For LO — not less than USD 50,000 or its equivalent.
• Initially, permission for setting up such offices is granted for a period of 3 years and this may be extended.
• The BO / LO established with the RBI’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.
• LO/BO have to file an Annual Activity Certificate (AACs) from the Auditors, as at end of March 31, along with the audited Balance Sheet on or before September 30 of that year, stating that the LO/BO has undertaken only those activities permitted by RBI.

• 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.

• Foreign Insurance companies can establish LOs in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).
• Foreign banks can establish LOs in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), RBI.

• 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.
• Note :
  1. Retail trading activities of any nature is not allowed for a BO in India.
  2. A BO is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.

• BOs 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 Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year
• A Chartered Accountant’s certificate certifying –
  1. the manner of arriving at the remittable profit
  2. that the entire remittable profit has been earned by undertaking the permitted activities
  3. that the profit does not include any profit on revaluation of the assets of the branch.

At the time of winding up of BO/LO, the company has to approach the designated AD Category - I bank with the following documents:

• Copy of the RBI's permission/ approval from the sectoral regulator(s) for establishing the BO / LO.
• Auditor’s certificate –
  1. 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
  2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and
  3. Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
• No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
• Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.
• A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the Office in India.
• Any other document/s, specified by the RBI while granting approval.

• The Reserve Bank has granted general permission to foreign companies to establish PO in India, provided they have secured a contract from an Indian company to execute a project in India, and
  1. the project is funded directly by inward remittance from abroad; or
  2. the project is funded by a bilateral or multilateral International Financing Agency; or
  3. the project has been cleared by an appropriate authority; or
  4. 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.
• If the above criteria are not met or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to the Foreign Exchange Department, RBI, Central Office, Mumbai for approval.

• AD Category –I banks can open non-interest bearing Foreign Currency Account for POs in India subject to the following conditions:
  1. The PO has been established in India, with the general / specific permission of RBI, having the requisite approval from the concerned Project Sanctioning Authority concerned.
  2. The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
  3. Each PO 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.
  4. The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority, and remittances from parent/ Group Company abroad or bilateral / multilateral international financing agency.
  5. The responsibility of ensuring that only the approved debits and credits are allowed in the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.
  6. The Foreign Currency accounts have to be closed at the completion of the Project.

• Without prior permission of the RBI, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China can set up in India, a BO or a LO or a PO or any other place of business.
• Partnership / Proprietary firms set up abroad are not allowed to establish BO /LO/PO in India.
• Entities from Nepal are allowed to establish only LO in India.
• BO/PO of a foreign entity, excluding a LO are permitted to acquire property for their own use and to carry out permitted activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India even for a BO. These entities are allowed to lease such property for a period not exceeding 5 years.
• BO/ LO / PO are allowed to open non-interest bearing INR current accounts in India.
• Transfer of assets of LO / BO to subsidiaries or other LO/BO is allowed with specific approval of the Central Office of the Reserve Bank.