Liaison Office, Branch Office & Project Office

Sr. No.

Particulars

Liaison Office [LO]

Branch Office [BO]

Project Office [PO]

1

Meaning

1.  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/Parent company   aborad   and   parties in India.

2.  It  is  not  allowed  to  undertake any   business   activity   in   India   and cannot have any income in India.

1. Person Resident Outside India are  allowed  to  setup  Branch  Offices.
 
2. Normally,  the  Branch  Office  should be   engaged   in   the   activity   of   the Parent entity

A  PO  means  a  place  of  business  established to   represent   the   interests   of   a   foreign entity  executing  a  project  in  India.  Such offices  are  prohibited  from  undertaking  or carrying   on   any   activity   other   than   the activity   relating   to   the   execution   of   the project for which such office is established.

2

Separate legal entity

1. An extension of the Head Office

2. No separate legal standing of its own

1. An  extension  of  the  Head  Office with right to accrue income in India

2. No  separate legal standing of  its own

1. An extension of the Head Office

2. No  separate legal standing of  its own

3

Permitted Activities

1. Representing    the parent company / group companies in India.

2. Promoting   export   /   import from / to India.

3. Promoting                  technical/ financial        collaborations        between parent /     group      companies     and companies in India.

4. Acting  as  a  communication channel  between  the  parent  company and Indian companies.

1.  Export/import of goods.

2.  Rendering     professional  or consultancy services (other than practice of legal profession in any matter).

3.  Carrying  out  research  work,  in areas  in  which  the   parent  company   is engaged.

4.  Promoting technical or financial collaborations  between  Indian  companies and parent or overseas group company.

5.  Representing          the          parent company  in  India   and  acting  as  buying selling    agent    in    India.    

6.    Rendering services   in   Information   Technology   an development of software in India.

7.  Rendering  technical  support  to the   products   supplied by parent/group companies.

8.  Representing a Foreign airline/  shipping company.

PO  is   permitted  to   undertake  only   specific activities   in   relation   and   incidental   to   the execution of the project

4

Criteria for set up (without RBI permission)

• Parent entity is required to make an application in Form FNC and is required to fulfill below conditions to set up LO:

1. Parent  Company should have  a profit   making   track   record   during   the immediately    preceding    three    financial years in the home country and

2. Net     Worth     of     the     Parent Company not less  than USD 50,000 or its equivalent.

3. In case company is not financially sound and are a subsidiary company, then letter of comfort is obtained from their parent company/group company and such parent / group company satisfies the above conditions.

4. In case, foreign company is a banking or insurance company, then necessary approvals shall be required under Banking Regulation Act or from Insurance Regulatory and Developmental Authority.

• Parent entity is required to make an application in Form FNC and is required to fulfill below conditions to set up BO:

1. Parent  Company  should  have profit   making   track   record   during  the immediately preceding five financial year in the home country.

2.  Net      Worth      of      the     Parent Company not less than USD 100,000 or it equivalent.

3. In case company is not financially sound and are a subsidiary company, then letter of comfort is obtained from their parent company/group company and such parent / group company satisfies the above conditions.

4. In case, foreign company is a banking or insurance company, then necessary approvals shall be required under Banking Regulation Act or from Insurance Regulatory and Developmental Authority.

5. Further, a foreign entity intends to open a branch office (BO) in SEZ, to undertake manufacturing activity , following conditions are to be satisfied:

a. BO should operating in the sectors where 100% FDI is permitted

b. BO should comply with the Chapter XXII of the Companies Act, 2013 and function on a standalone basis

Reserve Bank has  granted general  permission to foreign companies to establish POs 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 Agency; or

• 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  PFI  or  a Bank in India for the project.

However,  if  the  above  criteria’s  are  not  met then  the  foreign  entity  has  to  approach  th RBI for getting the special approval.

5

Timeline to set up office after approval of application

Office should be opened within 6 months from the approval date. Further, 6 months period are allowed if office is not opened for reasons beyond the control of office. In all other cases, prior approval of RBI is required.

Office should be opened within 6 months from the approval date. Further, 6 months period are allowed if office is not opened for reasons beyond the control of office. In all other cases, prior approval of RBI is required.

In case  of  general  permission,  approval from AD Category Bank is required.

In all other cases, approval from RBI shall be required.

6

Renewal of approval

Approval of the office is valid till 3 years and thereafter renewal of approval is required for another 3 years by making an application with AD Bank.

Approval of the office is valid till 3 years and thereafter renewal of approval is required for another 3 years by making an application with AD Bank.

Generally, approval is valid till completion of project.

7

Specific cases in which prior approval of RBI is required

Prior approval of RBI is required in the following cases if the foreign entity/parent company is:

a. A citizen of / registered in Pakistan.

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, North east region and Andaman and Nicobar Islands.

c. Having principal business of one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted.

d. A Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the LO

Prior approval of RBI is required in the following

cases if the foreign entity is:

a. A citizen of / registered in Pakistan

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, North east region and Andaman and Nicobar Islands.

c. Having principal business of one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted.

d. A Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the BO

Prior approval of RBI is required in below mentioned cases:

a. A citizen of / registered in Pakistan

b. A citizen of / registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and application is for opening such office in Jammu and Kashmir, Northeast region and Andaman and Nicobar Islands.

c. Principal business of applicant is one among Defense, Telecom, Private Security and Information and Broadcasting. However, RBI approval not required where Government approval or Regulator /ministry permission is granted. Further, in case of defense sector and project has been awarded by/ entered into Ministry of Defense or Service Headquarters or Defense Public Sector Undertakings, then no approval is required.

d. The applicant is a Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government. No approval is required if entity is engaged in any of the activities covered under FCRA and are registered under the same.

e. If the conditions mentione in point 4 above are not satisfied. One year has lapsed from date of approval for opening the PO

8

Registration with Police Authorities

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

Foreign entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan need to register with the state police authorities.

9

Bank accounts

Liaison Offices  are  allowed  to  open  non-interest   bearing   INR  current  accounts   in India.     Such     offices     are     required     to approach    their    AD Category Bank    for opening the accounts.

Branch Offices  are  allowed  to  open  non-interest  bearing  INR  current  accounts  in India.     Such     offices     are     required     to approach    their    AD Category Bank    for opening the accounts.

1.  Project     offices     can     open     non-interest   bearing   Foreign   Currency  Account        in        India, subject to fulfillment of certain conditions.

2. Project  Offices  are  allowed  to  open non-interest    bearing    INR    current accounts  in  India.  Such  Offices  are   required  to        approach their Authorized  Dealers  for  opening  the accounts.

10

Permitted Debits/Credits in the Bank Account

Permitted Debits and Credits to the Account shall be:

a. Credits:

1. Funds received from HO through normal banking channels for meeting the expenses

2. Refund of Security Deposit through normal banking channels either paid from LO’s bank account or HO directly.

3. Refund of taxes, duties, etc. received from tax authorities paid from LO’s Bank Account.

4. Sale proceeds of the assets of the LO.

b. Debits:

Only for meeting the local expenses of the Office.

Permitted Debits and Credits to the Account shall be:

Credits to the bank account should be:

a. Credits:

1. Funds received from Head Office (HO) through normal banking channels for meeting the expenses of the Branch.

2. Any legitimate receivables arising in the course of business operations.

b. Debits:

1. Expenses incurred by the Branch

2. Remittance of profit
3. Winding up proceeds

Permitted Debits and Credits to the Account shall be:

a. Credits:

1.  Foreign Currency receipts from the Project Sanctioning Authority

2. Remittances from the parent/group company abroad or bilateral/multilateral international financing agency.

b. Debits:

1. Payment of Project related expenditure.

11

Opening of Term Deposit A/c

Allowed to open term deposit account for a period not exceeding 6 months if its is out of temporary surplus funds and the maturity proceeds will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.

12

Extension of fund and non-fund based facilities

Not Allowed

Allowed as per RBI guidelines

Allowed as per RBI guidelines

13

Restrictions

1. Not to undertake any activity of a trading, commercial or  industrial  nature and not to enter    into    any    business contracts  in  its  own  name  without  RBI's prior permission.

2. No   commission/fees   shall   be charged     or     any     other     remuneration received/ income earned by  the  office  in India    for    the    liaison    activities/services rendered by it or otherwise in India.

3. The entire expenses of the office in India will be met  exclusively  out  of  the funds  received  from  head  office   through normal banking channels.

4. The    office    in    India   shall   not borrow or lend  any  money  from/to  any person    in    India    without    RBI's     prior permission

5. A LO cannot be opened in case of a Foreign Law Firm for purpose of practicing legal profession.

1. Not to expand its activities or undertake any new trading, commercial or industrial  activity  other  than  that  is expressly approved by the RBI.

2. The entire expenses in  India will   be   met   either   out   of   the   funds received     from     head     office     through normal   banking   channels   or   through income generated by it in India.

3. The    Branch    Office   will   not accept any deposits in India

4. The commission earned by the Branch   Office   from   parties   abroad   for any  agency  business  will  be  repatriated to     India     through     normal     banking channels

5. Not   to   undertake   any   retail trading  activity 

6.  A Branch  Office  is  not allowed  to  carry  out  manufacturing  or
processing  activities  in  India,  directly  or indirectly.

1. Not to undertake or carry any activity
other    than    the    activity    relating    to    the execution of the project for which such
office is established.

2. Inter-Project   transfer   of   funds   requires prior permission of the RBI.

14

Application for additional offices and activities

Allowed for opening any additional offices upto 4 (one in each zone viz; East, West, North and South) by applying to the AD Bank. However, the foreign entity shall identify one of its offices as the Nodal office for co-ordination of all the activities of all its offices in India.

Further, prior permission of the RBI is required more than 4 offices in India or more than one office in each zone is to be opened.

If LO is shifted to another city in India, prior approval of Designated AD is required.

Allowed for opening any additional offices upto 4 (one in each zone viz; East, West, North and South) by applying to the AD Bank. However, the foreign entity shall identify one of its offices as the Nodal office for co-ordination of all the activities of all its offices in India.

Further, prior permission of the RBI is required more than 4 offices in India or more than one office in each zone is to be opened.

If BO is shifted to another city in India, prior approval of Designated AD is required.

NA

15

Indian Income Tax Compliance

Since there is  no  income  accrual,  there  is no income tax.
LO is required to e-file  Form 49C with the Income Tax Department.

Since BO is extension of foreign entity, income earned in India is liable to tax in India.

Since PO is extension of foreign entity, income earned in India is liable to tax in India.

16

Funding        of         local operations

The entire expenses of the LO in India will be met out of the funds received from Head Office through normal banking channels.
There will not be any income of the LO.

The entire  expenses  of  the  BO  in  India will   be   met   either   out   of   the   funds received    from    Head    Office    through normal   banking   channels   or   through income generated by it in India.

The funding can be through
1. Foreign currency   receipts  from the          Project            Sanctioning Authority
2. Remittances from  parent/group company abroad
3. Bilateral/Multilateral international financing agency.

17

Transfer of fund to Parent

Cannot transfer any funds to parent company except on closure of office

Approval is  not  required  for  repatriation of    post-tax   profits   to   the   head    offic outside  India,  subject  to  filing  of  requisite documents.

Intermittent remittances are allowed by the AD Bank,  subject  to  filing  of requisite documents.

18

Audit

a.Statutory Audit

Financials would  be  liable  to  Statutory Audit by a Chartered Accountant.

Financials would  be  liable  to  Statutory Audit by a Chartered Accountant.

Financials   would   be   liable   to   Statutory Audit by a Chartered Accountant.

19

b. Tax Audit

Not Applicable

Applicable in  case of Turnover/Professional      fees exceeding certain   prescribed monetary   limits. No Compliance would result into a penalty @
0.5     %     of     the     total     turnover     or Rs.1,50,000/- whichever is less.

Applicable in case  of  Turnover/Professional fees    exceeding   certain   prescribed   monetary limits.  Non   Compliance   would result   into penalty   @   0.5   %   of   the   total   turnover   o Rs.1,50,000/- whichever is less.

20

Annual Compliance Filing

1. Filing of audited accounts of the LO, World Accounts with Registrar of Companies

2. Yearly submission of Annual Activity Certificate with AD Bank

3. Filing Quarterly TDS returns

4. Yearly filing of audited accounts of the LO with the DGIT and Director of General Police

5. E-File Form 49 C with Income Tax Department

6. Auditing of accounts

7. Filing PT Returns

8. Attending to RBI Inquiries/AD’s inquiries

9. Attending to notices of IT Department/Company Law and other statutory departments

1.  Filing of audited accounts of BO, World Accounts with Registrar of Companies

2. Yearly submission of Annual Activity Certificate with AD Bank

3. Annual return with the Income Tax Department

4. Filing of Quarterly TDS returns

5.  Filing of Goods and   Service Tax returns

6. Auditing of accounts

7. Tax Audit

8. Filing PT Returns

9. Repatriation of funds outside India

10. Attending to RBI Inquiries/AD’s inquiries

11. Attending to notices of IT Department/Company Law and other statutory departments

12. Transfer pricing audit if applicable

1. Filing of audited accounts of PO, World Accounts with Registrar of Companies

2. Yearly submission of Certificate from a Chartered Accountant with AD Bank

3.  Annual return with the Income Tax Department

4.  Filing of Quarterly TDS returns

5. Filing of Goods and Service Tax returns

6. Auditing of accounts

7. Tax Audit

8. Filing PT Returns

9. Repatriation of funds outside India

10. Attending to RBI

Inquiries/AD’s inquiries

11. Attending to notices of IT Department/Company Law and other statutory departments

12. Transfer pricing audit if applicable

21

Exit mechanism

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

However, in case  of offices of bank and insurance companies, closure permission shall be required from the sectoral regulators by the AD Bank

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

However, in case of offices of bank and insurance companies, closure permission shall be required from the sectoral regulators by the AD Bank

Request for closure of LO and allowing the remittance of winding up proceeds may be submitted to the AD Bank along with the requisite documents.

                                                                                                                                                                                                                                                                                                                  - Updated 02/2024