Foreign Company (‘FC’) – Entry Strategy In India i.e. as an unincorporated entity
A Foreign Co. planning to set up its business operations in India has variety of options to establish direct as well as indirect presence in India.
It can directly establish its presence as an Incorporated Entity under the Companies Act, 2013 which could be wholly owned subsidiary of company incorporated outside India.
Indirectly, It can establish any of the following (with prior approval or RBI):
(a) Liaison office (i.e. Representative office) or
(b) Branch office or
(c) Project office
|(a)||Liaison office (‘LO’)
(also known as Representative office)
|As clearly appears from its name, LO means a place of business to act as a channel of communication between the principal place of business or Head Office or by whatever name called and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel. It can undertake only liaison activities, which acts as a channel of communication between Head office abroad and parties in India.
Liaison office can undertake following activities in India
(a) Representing in India the parent company / group companies.
(b) Promoting export / import from / to India.
(c) Promoting technical/financial collaborations between parent/group companies and companies in India.
(d) Acting as a communication channel between parent company and Indian companies.
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.
Application Form:– A person resident outside India willing to establish a liaison office or any other place of business in India shall submit an application in Form FNC (Annex C) to an Authorized Dealer Category-I bank. The AD Bank may grant approval as per the directions and/or guidelines issued by the Reserve Bank in this regard.
– The Approval shall be cancelled, in case no office is established within six months from the date of approval letter.
– In cases where the office could not be established within the stipulated time frame due to reasons beyond their control, the Authorized Dealer Category-I bank may consider granting extension of time for setting up the office by a further period of six months. Any further extension of time shall require the prior approval of the Reserve Bank in this regard.
Extension of the Validity Period (Case Specific):
– A person resident outside India may establish in India, a liaison office for a period of three years subject to the provisions of Regulation 4 d (III). However, AD Bank may extend the validity period upon the application as per the directions issued in this regard.
– In case of entities engaged in Banking and Insurance Sector, the application for extension has to be sent directly to DBR, RBI and IRDA.
|(b)||Branch Office (‘BO’)||Branch office is an extension of a foreign company. Any company incorporated outside India engaged in business of trading or manufacturing is permitted to open a branch office in India on specific approval from RBI. The functions of branch office are much wider as compared to those of a liaison office.
Under the branch office format, the following activities are permitted by RBI
(a) Export / Import of goods.
(b) Rendering professional or consultancy services.
(c) Carrying out research work, in areas in which the parent company is engaged.
(d) Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
(e) Representing the parent company in India and acting as buying/selling agent in India.
(f) Rendering services in information technology and development of software in India.
(g) Rendering technical support to the products supplied by parent/group companies.
(h) Representing a Foreign airline / shipping company.
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.
Same as Liaison Office.
Remittance of Profit or Surplus
Branch office may remit outside India profit of the branch net of applicable Indian taxes, on production of the following documents to the satisfaction of the Authorized Dealer Category-I bank through whom the remittance is effected:
i. A certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year.
ii. A Chartered Accountant’s certificate certifying
– The manner of arriving at the remittable profit;
– That the entire remittable profit has been earned by undertaking the permitted activities and
– That the profit does not include any profit on revaluation of the assets of the branch.
– RBI permission is required to set up a branch office.
– Profits earned by branch office are freely allowed to repatriate outside India.
|(c)||Project Office (‘PO’)||‘Project Office’ means a place of business in India to represent the interests of the foreign company executing a project in India but excludes a Liaison Office.
Reserve Bank has granted a 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
(a) the project is funded directly by inward remittance from abroad; or
(b) the project is funded by a bilateral or multilateral International Financing Agency; or
(c) the project has been cleared by an appropriate authority; or
(d) 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 will need to approach RBI, Central Office, for approval.
Remittance of Profit or Surplus
Authorized Dealer Category – I bank may permit intermittent remittances by project offices pending winding up / completion of the project subject to submission of the following:
– Certified copy of the final audited project accounts;
– The statutory auditor’s certificate showing the manner of arriving at the remittable surplus and confirming that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.; and
– 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.
Common Provisions in relation to LO/BO/PO
(Applicable to LO & BO)
|A person resident outside India willing to establish additional branch office or liaison office can submit to the Authorized Dealer Category-I bank a fresh FNC Form along with the justification for the need for additional office/s.|
|2||Registration with State
|A person from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau opening a branch office or a liaison office or a project office or any other place of business in India shall have to register with the concerned State Police Authorities. Copy of approval letter for ‘persons’ from these countries shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi.|
(Applicable to PO & BO)
|Authorized Dealer Category-I bank may extend fund and/or non-fund based facilities to branch office and project offices based on the guidelines issued by the Reserve Bank in this regard.|
(Applicable to PO & BO)
|Acquisition of property by branch office/project office shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.|
(Applicable to LO/BO)
|The branch office/liaison office may submit the Annual Activity Certificate (Annex D) as at the end of March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year. In case the annual accounts of the office are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheets to the Authorized Dealer Category-bank and the Director General of Income Tax (International Taxation), Drum Shape Building, I.P. Estate, New Delhi 110002.
AAC from a Chartered Accountant showing the project status and certifying that the accounts of the project office have been audited and the activities undertaken are in conformity with the general/ specific permission given by the Reserve Bank may be submitted by the project office to the designated Authorized Dealer Category-I bank.
|6||Approval of the
Reserve Bank in
certain cases for
branch office, liaison
office or project office
or any other place of
business in India
|Any application from a person resident outside for opening of a branch office or a liaison office or a project office or any other place of business in India shall require prior approval of Reserve Bank in the following cases where
a. the applicant is a citizen of or is registered/incorporated in Pakistan;
b. 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 liaison, branch or project office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
c. the principal business of the applicant falls in the four sectors namely Defense, Telecom, Private Security and Information and Broadcasting:
Provided that in the case of proposal for opening a project office relating to