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FOREIGN EXCHANGE MANAGEMENT (ESTABLISHMENT IN INDIA OF A BRANCH OFFICE OR A LIAISON OFFICE OR A PROJECT OFFICE OR ANY OTHER PLACE OF BUSINESS) REGULATIONS, 2016 – AN OVERVIEW

FEMA - Foreign Exchange Management - By: - Mr. M. GOVINDARAJAN - Dated:- 6-5-2016 Last Replied Date:- 10-5-2016 - Vide Notification No. FEMA 22/2000-RB, dated 03.05.2000, RBI made the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000 with effect from 01.06.2000 by virtue of power conferred by Section 6(6) of FEMA Act. Now, in supersession of the above regulations, RBI made new Regulations called Foreign Exchange Management (Establi .....

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tities 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. Regulation 2(f) defines the term project office as a place of business in India to represent the interests of the foreign company executing a project in India but excludes a liaison office. Regulation 2(g) defines the term site office as a sub office of the project office established at .....

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or a project office or any other place of business in India. Permissible activities Regulation 4(b) provides that a person may under or carry on any activity specified in Schedule I or II. Schedule I permits the following activities to be undertaken for a branch office in India of a person outside India- Export/Import of goods; Rendering professional or consultancy services; Carrying out research work in which the parent company is engaged; Promoting technical or financial collaborations betwee .....

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y/group companies in India; Promoting the 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. Prior approval Regulation 3 provides that the prior approval of the Reserve Bank of India shall be obtained to open in India a branch office or a liaison office or a project office or any other place of business by whatever named called. The foll .....

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omic Zone to undertake a manufacturing and service activities subject to the conditions that- Such branch offices are functioning in those sectors where 100% FDI is permitted; Such branch offices comply with Chapter XXII of the Companies Act, 2013; and Such branch offices function on a standalone basis. Conditions Regulation 4(a) provides that a person resident outside India can establish a branch office or a liaison office in India provides it meets the following criterion- For branch office - .....

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company subject to the condition that the parent company satisfies the prescribed criterion for net worth and profit. Application Regulation 4(c) provides that an application in Form FNC is to be submitted to an Authorized Dealer Category-I bank. The Authorized Dealer, subject to Regulations 5, grants approval as per the directions and/or guidelines issued by RBI. The applicant is to be open office within six months from the date of approval otherwise the approval will be cancelled. If the appli .....

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en of or is registered/incorporated in Bangaladesh, 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; The principal business of the applicant falls in the four sectors - defence, telecom, private security and Information and broadcasting.In the case of proposal for opening a project office to defence sector, no separate approval of Government of In .....

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ermitted to open a Liaison office for 2 years only. The application for extension of the validity period in respect of banks and insurance has to be directly submitted to the Department of Banking Regulation, Reserve Bank and the Insurance Regulatory Authority of India, respectively. Extension of validity period for liaison office The nonresident entity may apply to the Authorized Dealer Category I bank for extension of the validity period of approval. The bank, on receipt of such an application .....

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o Joint venture/wholly owned subsidiary in conformity with the extant FDI policy. Registration with State Police Authorities Regulation 4(g) requires that 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 .....

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appropriate authority; 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 project. A person from any country other than Pakistan who has been awarded a contract for a project by a Government authority/Public Sector Undertaking may open a bank account with an Authorized Dealer category - I bank without any prior approval from RBI. Opening of additional offices Regulation 4(e) provides that a person resident out .....

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t branch office may remit outside India profit of that office net of applicable taxes in India. This is subject to the production of the following documents to the satisfaction of the Authorized 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- The manner of arriving at the remittable profit; That the entire remittable profit has been earned by undertaki .....

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rming that the 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. Acquisition of property Regulation 4(j) provides that acquisition of property by branch/project office shall be governed by the guideline issue .....

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mit the Annual Activity Certificate as at the end of 31st March along with the audited financial statements including receipt and payment account, on or before 30th September of that year. If the annual accounts are finalized after 31st March, the Annual Activity Certificate shall be submitted within six month from the due date of the balance sheet. The said certificate shall be submitted to the authorized dealer and the Director General of Income Tax (International Taxation). The Annual Activit .....

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RBI s/authorized dealer category - I bank s approval for establishing the office; Auditor s certificate- 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; 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; Confirming that no in .....

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