Setting up of Branch 0ffice

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 abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

• Representing in India the parent company / group companies.
• Promoting export / import from / to India.
• Pomoting technical/financial collaborations between parent/group companies and companies in India.
• Acting as a communication channel between the parent company and Indian companies.

• The Liaison Office cannot undertake any business activity in India nor can it generate any income in India without the approval of RBI.
• All expenses of the office must be met through inward remittances to the office from abroad through normal banking channels. However, at the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company.
• It is not subject to taxation in India. However, liaison office would be required to withhold taxes from certain payments.
• It cannot borrow, lend money, or accepts deposits.
• It cannot acquire, hold, (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India, without prior approval of RBI.
• However, the office must file regular returns to the RBI. Such returns must include Audited Annual Accounts and an Annual Activity Certificate by a Chartered Accountant.

• Easy operations
• Less formalities
• Simple closure process
• Normally, the transactions between the liaison office and the parent entity are not subject to Transfer Pricing (TP) regulations

• • Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India:
    • i. Export / Import of goods.1
    • Export / Import of goods.1
    • Rendering professional or consultancy services.
    • Carrying out research work, in areas in which the parent company is engaged.
    • Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
    • Representing the parent company in India and acting as buying / selling agent in India.
    • Rendering services in information technology and development of software in India.
    • Rendering technical support to the products supplied by parent/group companies.
    • Foreign airline / shipping company.

• Retail trading activities of any nature is not allowed for a Branch Office in India.
• A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly.
• Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

• Unlike a liaison office, branch offices can generate revenue from the sales in the local market and repatriate the profits to the foreign parent company.
• Funding is possible through the receipts from the parent company and from business operations in India.
• Branch offices set up with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.

• A branch office cannot carry on any manufacturing activities. Manufacturing activities can be carried on only through the means of a company incorporated in India.
• A branch office of a foreign company in india is taxed at higher rates of corporate income tax than a domestic company.

A person resident outside India permitted by the Reserve Bank to open a branch or a project office in India may remit outside India the profit of the branch or surplus of the project on its completion, net of the applicable Indian taxes, on production of the following documents, and establishing the net profit or surplus, as the case may be, to the satisfaction of the authorised dealer through whom the remittance is remitted.

• For remittance of profit of a branch
• 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 undertaking the permitted activities, and
  • that the profit does not include any profit on revaluation of the assets of the branch
• For remittance of surplus on completion of the Project:
• certified copy of the final audited project accounts
• a Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus income-tax assessment order or either documentary evidence showing payment of income-tax and other applicable taxes, or a Chartered Accountant’s certificate stating that sufficient funds have been set aside for meeting all Indian tax liabilities; and
• auditor’s certificate stating that no statutory liabilities in respect of the Project are outstanding.

Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

• 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 Public Financial Institution or a bank in India for the project.
• As a director, you are treated as an employee and must pay tax
• The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business.

However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank of India, Central Office, for approval.

A person resident outside India permitted by the Reserve Bank to open a branch or a project office in India may remit outside India the profit of the branch or surplus of the project on its completion, net of the applicable Indian taxes, on production of the following documents, and establishing the net profit or surplus, as the case may be, to the satisfaction of the authorised dealer through whom the remittance is remitted.

• For remittance of profit of a branch
• 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 undertaking the permitted activities, and
  • that the profit does not include any profit on revaluation of the assets of the branch
• For remittance of surplus on completion of the Project:
• certified copy of the final audited project accounts
• a Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus income-tax assessment order or either documentary evidence showing payment of income-tax and other applicable taxes, or a Chartered Accountant’s certificate stating that sufficient funds have been set aside for meeting all Indian tax liabilities; and
• auditor’s certificate stating that no statutory liabilities in respect of the Project are outstanding.

• Easy operations
• Less formalities
• Simple closure process

Normally, the transactions between the project office and the parent entity are subject to Transfer Pricing (TP) regulations

e Bank through their ADs to regularise the offices under FEMA 1999.

AD Category – I banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:

• The Project Office has been established in India, with the general / specific permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.
• The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
• Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I bank.
• The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority, and remittances from parent/group company abroad or bilateral / multilateral international financing agency.
• The responsibility of ensuring that only the approved debits and credits are allowed in the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.
• The Foreign Currency accounts have to be closed at the completion of the Project.

• Without prior permission of the Reserve Bank, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish in India, a Branch or a Liaison Office or a Project Office or any other place of business.
• Entities from Nepal are allowed to establish only Liaison Offices in India.
• Branch/Project Offices of a foreign entity are permitted to acquire immovable property by way of purchase for their own use and to carry out permitted/incidental activities. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India for a Branch / Project Office without prior RBI approval.All Branch / Project Offices including Liaison Offices, have general permission to carry out permitted / incidental activities from lease property subject to lease period not exceeding five years.
• Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers for opening the accounts.
• Transfer of assets of Liaison / Branch Office to subsidiaries or other Liaison/Branch Offices or any other entity is allowed with specific approval of the Central Office of the Reserve Bank.
• Branch Offices 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 Authorised 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 undertaking the permitted activities
    • that the profit does not include any profit on revaluation of the assets of the branch.
• Authorised Dealers can allow term deposit account for a period not exceeding 6 months in favor of a branch/office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking that the maturity proceeds of the term deposit will be utilised for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.
• Regularisation of LO / BO established during pre-FEMA period

Under the provisions of FEMA 1999 foreign entities are permitted to establish a branch or liaison office in India with permission of the Reserve Bank of India. Liaison / Branch Offices established in pre FEMA period without approval of Reserve Bank of India and those that have not been allotted a Unique Identification Number by the Reserve Bank of India may approach the Reserve Bank Of India