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TMI BlogMaster Direction - Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place of business in India by foreign entities (Updated as on May 18, 2021)X X X X Extracts X X X X X X X X Extracts X X X X ..... directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/constituents with a view to implementing the regulations framed. 3. This Master Direction consolidates the existing instructions on the subject of "Establishment of branch office/ liaison office / project office or any other place of business in India by foreign entities" at one place. Reporting instructions can be found in Master Direction on reporting (Master Direction No. 18 dated January 1, 2016) 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their customers/ constituents. The Master Direction issued herewith shall be amended suitably simultaneously. Yours faithfully, (Ravinder Singh Amar) Chief General Manager INDEX Sr. No Contents 1. General criteria 2. Procedure for applying 3. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. The term "permission" used in the Government of India Notification dated January 21, 2019 does not include general permission, if any, available under Foreign Direct Investment in the automatic route, in respect of the above four sectors. * The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under FEMA 22(R)3. iii. The non-resident entity applying for a BO/LO in India should have a financially sound track record viz: * 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. Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction and development sectors, for whom the validity period is two years only. The validity period of the project office is for the tenure of the project. iv. There is a general permission to non-resident companies to establish POs in India, provided they have secured a contract from an Indian company to execute a project in India. Also, the project must have secured the necessary regulatory clearances; andis funded directly by inward remittance from abroad; or the project is funded by a bilateral or multilateral International Financing Agency, 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. v. An applicant that has received a permission for setting up of a BO/LO/PO shall inform the designated AD Category I bank as to the date on which the BO/LO/PO has been set up. The AD Category I bank in turn shall inform Reserve Bank accordingly. In case an approval granted by the AD bank has either been surrendered by the applicant or has expired without any BO/LO/PO being set up, the AD Category I bank shall inform RBI accordingly. vi. The approval granted by the AD Category I bank s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the local expenses of the office. ii. A BO may approach any AD Category-I Bank in India to open an account for its operations in India. Credits to the account should represent the funds received from Head Office through normal banking channels for meeting the expenses of the office and any legitimate receivables arising in the process of its business operations. Debits to this account shall be for the expenses incurred by the BO and towards remittance of profit/winding up proceeds. iii. Any foreign entity except an entity from Pakistan who has been awarded a contract for a project by the Government authority/Public Sector Undertakings or are permitted by the AD to operate in India may open a bank account without any prior approval of the Reserve Bank. An entity from Pakistan shall need prior approval of Reserve Bank of India to open a bank account for its project office in India. iv. AD Category - I banks can open non-interest bearing foreign currency account for POs in India subject to the following: * The PO has been established in India, with the general / specific permission of Reserve Bank of India, having the requisite approval from the concerned Project Sanctioning Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AD Category - I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted if the applicant has complied with the following conditions and the application is otherwise in order: * The LO should have submitted the Annual Activity Certificates for the previous years and * The account of the LO maintained with the designated AD Category - I bank is being operated in accordance with the terms and conditions stipulated in the approval letter. Such extension has to be granted, as expeditiously as possible and in any case not later than one month from the receipt of the request under intimation to the General Manager, Reserve Bank of India, CO Cell, New Delhi quoting the reference number of the original approval letter and the UIN. Reserve Bank shall update the information on its website immediately. ii. Further, entities engaged in construction and development sectors and Non-Banking Finance Companies are permitted to open a liaison office for two years only. No further extension would be considered for liaison offices of entities which are Non-Banking Finance Companies and those engaged in construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s i. 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 AD Category-I bank through whom the remittance is effected: a. A certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year. b. 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. ii. AD Category - I bank can permit intermittent remittances by POs pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the following: * The PO submits an Auditors' / Chartered Accountants' Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc. * An undertaking from the PO 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 liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by AD Category-I bank only when the non-resident entity intends to close their BO/LO/PO operations in India. * A certificate is to be submitted from the Statutory Auditor furnishing details of assets to be transferred indicating their date of acquisition, original price, depreciation till date, present book value or written down value (WDV) value and sale consideration to be obtained. Statutory Auditor should also confirm that the assets were not re-valued after their initial acquisition. The sale consideration should not be more than the book value in each case. * The assets should have been acquired by the BO/LO/PO from inward remittances and no intangible assets such as good will, pre-operative expenses should be included. No revenue expenses such as lease hold improvements incurred by the BO/LO can be capitalised and transferred to JV/WOS. * AD Category-I bank must ensure payment of all applicable taxes while permitting transfer of assets. * Credits to the bank accounts of BO/LO/PO on account of such transfer of assets will be treated as permissible credits. * Donation by BO/LO/PO of old furniture, vehicles, computers and other office items etc. to NGOs or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se their offices under FEMA 1999, even if permission of Reserve Bank was not required as per the regulations existing at the time of setting up of the office. Such cases may be brought to the notice of Reserve Bank immediately for allotment of UIN. The foreign entities who may have established LO or BO with the permission from the Government of India in the pre-FEMA period shall also approach their AD Category-I bank with a copy of the said approval for allotment of a UIN by the Reserve Bank. * Change in the name of the existing LO/BO may be permitted by the AD Category-I bank only if the non-resident entity changes its name without change in ownership and if the application to this effect is received with the Board resolution for change of name and documents/certificate from ROC India showing change of name. The change in name of the BO/LO should be reported to FED, CO Cell, New Delhi. Where change in name is requested on account of acquisitions or mergers of foreign entities involving change in ownership, the acquired entity or new entity is required to apply afresh by closing the existing entity. Foreign entities should note that the approvals are given by the Reserve Bank/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exports to India ii. Particulars of existing arrangements if any, for representing the company in India iii. Particulars of the proposed liaison/ branch office: * Details of the activities/ services proposed to be undertaken/ rendered by the office * Place where the office will be located * Phone number * E-mail ID * Expected number of employees (with number of foreigners) 5. i. Name and address of the banker of the applicant in the home country ii. Telephone & Fax Number iii. E-mail ID 6. For Non-profit / Non-Government Organisations(NGOs): * Details of activities carried out in the host country and other countries by the applicant organisation. * Expected level of funding for operations in India. * Copies of the bye-laws, Articles of Association of the organisation. 7. For project offices: * Reference no. and date of letter awarding the contract * Particulars of authority awarding the project/contract * Total amount of contract * Address/e-mail/telephone number/fax number of the project office * Tenure of project office * Nature of project undertaken 8. Any other information which the applicant company wis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished by us in this behalf would render the approval granted under the Foreign Exchange Management (Establishment in India of a branch office or liaison office or a project office or any other place of business) Regulations, 2016, automatically as void ab initio and such approval by the Reserve Bank shall stand withdrawn without any further notice.4 iii. If we shift the office to another place within the city, we shall intimate the designated AD Category - I bank. In the event of shifting the office to any other city in India, prior approval of the AD Category-I bank will be obtained. iv. We will abide by the terms and conditions that may be stipulated by the Government of India / Reserve Bank of India/ designated AD Category - I bank, from time to time. v. We hereby commit that we are agreeable to a report / opinion sought from our bankers abroad by the Government of India /Reserve Bank. vi. We understand that the approval, if granted, is from FEMA angle only. Any other approvals / clearances, statutory or otherwise, required from any other Government Authority/ Department/ Ministry will be obtained before commencement of operations in India. vii. We have no objection to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial collaborations between parent / group companies and companies in India. * Acting as a communication channel between the parent company and Indian companies. The Hon'ble Supreme Court vide its interim orders dated July 4, 2012 and September 14, 2015, passed in the case of the Bar Council of India vs A.K. Balaji & Ors., has directed RBI not to grant any permission to any foreign law firm, on or after the date of the said interim order, for opening of LO in India. The Hon'ble Supreme Court has while disposing of the case, held that advocates enrolled under the Advocates Act, 1961 alone are entitled to practice law in India and that foreign law firms/companies or foreign lawyers cannot practice profession of law in India. As such, foreign law firms/companies or foreign lawyers or any other person resident outside India, are not permitted to establish any branch office, project office, liaison office or other place of business in India for the purpose of practicing legal profession. Accordingly, AD Category - I banks are directed not to grant any approval to any branch office, project office, liaison office or other place of business in India under FEMA for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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