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Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) in India by foreign entities - procedural guidelines

FEMA - 69 [(1)/22(R)] - Dated:- 12-5-2016 - RBI/2015-16/397 A.P. (DIR Series) Circular No.69 [(1)/22(R)] May 12, 2016 To All Authorised Dealers Category - I Banks Madam / Sir, Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Notification No. FEMA 22(R) /2016-RB dated March 31, 2016 viz. 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. The salient provi .....

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an entity resident outside India whose principal business falls under sectors where 100 percent Foreign Direct Investment (FDI) is allowed in terms of FEMA Notification No. 20/2000-RB dated May 3, 2000, as amended from time to time, the AD Category-I bank may consider such applications under the delegated powers. ii. An application from a person resident outside India for opening of a BO/LO/PO in India shall require prior approval of Reserve Bank of India in the following cases: a. the applican .....

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relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. There shall be no requirement of any approval from RBI also only for such cases; d. The applicant is a Non-Government Organisation (NGO), a Non-Profit Organisation, or a Body/ Agency/ Department of a foreign governme .....

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a subsidiary of another company may submit a Letter of Comfort (LOC) [as provided in Regulation 4. a. of the Notification] from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit. The LOC should be issued by the applicant s parent / group company which undertakes to fund the operations if required. 3. Procedure for applying The application for establishing BO / LO/ PO in India may be submitted by the non-r .....

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ablishing BO/LO/PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms, grant approval to the foreign entity for establishing BO/LO/PO in India. The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions. 4. Issuance of UIN by Reserve Bank of India For the limited purpose of uploading and maintenance of up-to-date list o .....

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k shall issue the approval letter to the non-resident entity for establishing BO/LO in India. 5. Validity of LO and PO The validity of an LO is generally for three years [as provided in Regulation 4.d. of the Notification], except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity is two years only. The validity of the PO is for the tenure of the project. 6. Other conditions i. An applicant that has recei .....

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granted by the AD Category-I bank should include a proviso to the effect that in case the BO/LO/PO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse. In cases where the non-resident entity is not able to open the office within the stipulated time frame due to reasons beyond its control, the AD Category-I bank may consider granting extension of time for a further period of six months for setting up the office. Any f .....

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There is a general permission to non-resident companies for establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities subject to the conditions as provided in Regulation 3.c. of the Notification. 7. Opening of Bank Account by BO/LO/PO i. An LO may open an account with the designated AD category I Bank in India for receiving remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any .....

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f the office. ii. A BO may open a bank account with any AD Category-I Bank in India for its business 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. An entity from Pakista .....

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PO has been established in India as per these Regulations. ii. The contract governing the project specifically provides for payment in foreign currency. iii. Each PO can open two foreign currency accounts, usually one denominated in USD and the other in home currency of the project awardee, provided both are maintained with the same AD Category-I bank. iv. The permissible debits to the account shall be payment of project related expenses and credits shall be foreign currency receipts from the Pr .....

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tted before the expiry of the validity of the approval, to the AD Category-I bank concerned under whose jurisdiction the LO/Nodal office is located. The designated 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: a. The LO should have submitted the Annual Activity Certificates for the previo .....

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pdate the information on the website immediately. ii. As provided in Regulation 4.d. of the Notification, NBFCs and entities engaged in construction and development sectors are permitted to open an LO for two years only. LOs opened by such entities (excluding infrastructure development companies) shall not be allowed any extension of time. Upon expiry of the validity period, the LOs shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary in conformity with .....

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ry of Home Affairs, Internal Security Division-I, Government of India, New Delhi for necessary action and record. 11. Application for additional offices and activities i. Requests for establishing additional BOs / LOs may be submitted to the AD Category-I bank in a fresh FNC form. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier. a. If the number of offices exceeds 4 (i.e. one BO / LO in each zone viz; East, .....

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ame city subject to the condition that the new address is intimated to the designated AD Category-I bank. Changes in the postal address may be intimated to the CO Cell, New Delhi by the AD Category-I bank at the earliest. ii. Requests for undertaking activities in addition to what has been permitted initially by Reserve Bank of India/ AD Category-I bank may be submitted by the applicant to the Reserve Bank through the designated AD Category -I bank justifying the need. 12. Extension of fund and .....

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remittances by POs pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the documentation laid down in Regulation 4.i.II. of the Notification. 14. Annual Activity Certificate by BO/LO/PO i. The Annual Activity Certificate (AAC) as at the end of March 31 each year along with the documents laid down in Regulation 4.l. of the Notification needs to be submitted by the following: a. In case of a sole BO/ LO/PO, by the BO/LO/PO c .....

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carried out in accordance with the terms and conditions of the approval given. In the event of any adverse findings reported by the auditor or noticed by the designated AD Category -I bank, the same should immediately be reported to the General Manager, Reserve Bank of India, CO Cell, New Delhi, along with the copy of the AAC and their comments thereon. 15. Closure of BO/LO/PO and remittance of winding up proceeds i. Requests for closure of the BO / LO/ PO and for remittance of winding-up procee .....

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the General Manager, Reserve Bank of India, CO Cell, New Delhi. 16. Guidance note for the AD Category-I bank i. Once it establishes a place of business in India, a BO/LO/PO or any other place of business by whatever name called is required to register with the Registrar of Companies (ROCs) if such registration is required under the Companies Act, 2013. ii. The BOs / LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report .....

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heir existing AD Category-I bank subject to both the AD banks giving consent in writing for the transfer and the transferring AD bank confirming submission of all AACs and absence of any adverse features in conducting the account by the BO/LO/PO. vi. Acquisition of property by BO/PO shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations. vii. As per section 6 (3) (h) of the Foreign Exchange Managemen .....

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ia within 3 months of maturity. However, such facility may not be extended to shipping/airline companies. ix. In case a BO/LO has been established and continues to exist without approval of the Reserve Bank, it may approach its AD Category-I bank to regularise its office(s) under the extant instructions contained in the Notification and this circular 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 brou .....

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ication to this effect is received with the Board Resolution for change of name and documents/certificate from ROC India showing change of name, wherever applicable. 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 .....

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be considered by the AD Category-I bank only from BOs/LOs/POs who are adhering to the operational guidelines such as submission of AACs (up to the current financial year) at regular annual intervals; have obtained PAN from IT Authorities and have got registered with ROC under the Companies Act 2013, if necessary. Also, i. Transfer of assets by way of sale to the JV/WoS shall be allowed by AD Category-I bank only when the non-resident entity intends to close their BO/LO/PO operations in India. i .....

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the BO/LO/PO from inward remittances or profit/surplus generated in case of BO/PO 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. iv. AD Category-I bank must ensure payment of all applicable taxes while permitting transfer of assets. v. Credits to the bank accounts of BO/LO/PO on account of such transfer of assets will be treated as permi .....

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