Liaison Office, Branch Office & Project Office


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   abroad   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 fulfil 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 fulfil 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, and5. Further, a foreign entity intends to open a branch office (BO) in SEZ, to undertake manufacturing activity, following conditions are to be satisfied:

·      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  the 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.

6

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 mentioned in point 4 above are not satisfied.

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 mentioned in point 4 above are not satisfied.

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 mentioned in point 4 above are not satisfied.

7

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.

8

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 fulfilment 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 AD Category Bank for  opening  the accounts.

9

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.

10

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.

11

Extension of fund and non-fund based facilities

Not Allowed

Allowed as per RBI guidelines

Allowed as per RBI guidelines

12

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 funds 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    office 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 maybe 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 maybe 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 maybe submitted to the AD Bank along with the requisite documents.

                                                                                                           Updated: 02/2024