The establishment of Project Office/Branch Office/Liaison is regulated in terms of Foreign Exchange Management Act, 1999 -Section 6(6) with Foreign Exchange Management (Establishment in India of a BO (Branch Office) or a LO (Liaison Office) or a PO (Project Office) or any other place of business) Regulations, 2016.
Business entities registered outside India can establish business operations in India without making & registering a subsidiary company. According to the RBI guidelines, a foreign company can open a BO (Branch Office) or LO (Liaison Office) in India. The scope of operations of these kinds of offices is typically limited to functions & activities like country representative office, sourcing, technical support, marketing support, import & export and so on.
Let us take a brief about what is Project Office/Branch Office/Liaison Office?
Business entities who are incorporated outside India are allowed to set up Branch Offices in India with specific approval of the RBI. Such branch offices are allowed to represent the parent or group companies & responsible for these activities:
- Export/import of goods.
- Provide professional or consultancy services.
- Undertake research work in areas in which the parent company is engaged.
- Promote technical collaboration & financial collaboration between Indian companies & parent companies.
- Represent the parent company in India & act as the local buying or selling agent.
- Render services in Information Technology (IT) and development;
- Provide technical support to products supplied by parent/group companies.
- Function as a foreign airline/shipping company.
- Generally, branch offices should engage in the same activities as the parent company.
- Retail trading activities -any nature cannot be done by a branch office in India.
- A branch office is not able to carry out manufacturing or processing activities in India via directly or indirectly process.
- Profits earned by branch offices can be freely remitted from India, subject to the payment of applicable taxes.
A Liaison Office is also known as Representative Office can undertake only liaison activities like function as a communication channel between the business parties in India and foreign company’s head office overseas.
This kind of offices cannot undertake any business activities and/or get any income in India. Expenses of LO should be met well enough through inward remittances of foreign exchange from the head office situated outside of India.
A liaison office is responsible for the following activities in India:
- Represent the parent company/group of companies in India.
- Promote export/import from/to India.
- Promote technical collaboration and financial collaboration between parent or group companies & Indian companies.
- Act as a channel of communication between the parent company and Indian companies.
The RBI grants general permission to foreign companies for setting up PO in India, in instances where these companies secure contracts for executing projects in India from an Indian company.
The following conditions should also be satisfied:
- The project has been cleared by the responsible and appropriate authority.
- The project is funded by overseas inward remittances directly
- The project needs to be cleared by the appropriate authority.
Exceptions: If the above described criteria are not satisfied, or the foreign company’s parent entity is incorporated in these countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China; applications for setting up a PO (project office) should be forwarded to the Foreign Exchange Department, RBI (Reserve Bank of India), Central Office, Mumbai, for prior approval.
The validity period of an LO is generally for 3 years and can be renewed further for 3 years and so on and for PO till the tenure of the project. If their validity has been expired or their foreign companies are keen to close their place of business in India (LO/BO/PO), in such conditions there is a provision under the Master Directions issued by Reserve Bank of India and relevant sections of Companies Act, 2013 and other various statutory laws as applicable in India to undertake such closures.
Procedure for Closure Of LO/BO/PO IN ROC
These are the Steps for closure of LO/BO/PO in ROC
Drafting of board resolution passed by foreign company.
Drafting of other relevant documents for closure of their business presence in India.
In the second step Execution & document signing. Since the board resolution shall be executed by the foreign company in its native country, the same needs to be notarized & apostilled.
After receiving the executed documents, respective e-form is to be filed with ROC for closure of Project Office/Branch Office/Liaison Office in India.
ROC check the e-form and other documents annexed to it and if found all documents are valid and in order, shall issue certificate for closure of LO/BO/PO.
Procedure For Closure Of LO/BO/PO IN AD BANK RECORDS
These are the Steps for closure of LO/BO/PO in AD Bank records
Drafting & preparation of application for closure of LO/BO/PO along with other required and relevant documents for closure of bank account in this regard and also obtaining certificate from CA( Chartered Accountant) according to the prescribed format as given in master directions issued by RBI.
Execution and signing of documents. All the documents executing and signing outside India are reuired to be notarized & apostilled.
Upon receipt of the executed documents, submission of application & other documents along with certificate from CA & certificate of closure as issued by ROC with AD Bank.
The AD Bank may forward the entire documents to RBI for their approval, if required and may ask for some additional documents in this respect.
The AD Bank check all the documents and if found all documents are valid and in order, shall close the LO/BO/PO along with bank account in their records.