Permissible Activities of Branch Office, Project Office and Liason Office

NOTIFICATION NO. FEMA 22(R)/RB-2016/GSR 384(E), DATED 31-3-2016

(06^th December 2023)

SHORT SUMMARY:

The author will cover the "Permissible activities by Branch Office, Liaison Office and Project Office" in this column.

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of starting of business in India. Following are the legal form in which a ‘Foreign Company’ can conduct business in India.

·      Corporate Entity (by Incorporation of Company in India) which could be wholly or partly owned by the foreign Company.

·      Joint Venture/ Partnerships etc.

·      Branch Office

·      Liaison Office

·      Project Office

For opening a Liaison Office (LO) / Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. After approval from RBI these entities are required to register with Registrar of Companies. The process of the same we will discuss in Article No 872.

'Foreign Company' means a body corporate incorporated outside India and includes a firm or other association of individuals.

A.  PERMITTED ACTIVITY OF BRANCH OFFICE IN INDIA:

Foreign Companies, incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India. Normally, the Branch Office should be engaged in the activity in which the parent company is engaged. Such Branch Offices are permitted to represent the parent / group companies and undertake the following activities in India;

   i.      Export/Import of goods

  ii.      Rendering professional or consultancy services.

 iii.      Carrying out research work, in which the parent Company is engaged.

 iv.      Promoting technical or financial collaborations between Indian companies and parent or overseas group Company.

   v.      Representing the parent Company in India and acting as buying/selling agent in India.

 vi.      Rendering services in Information Technology and development of software in India.

vii.      Rendering technical support to the products supplied by parent/group companies.

viii.      Foreign Airline/shipping Company.

Prohibited activities by the Branch –

Companies incorporated outside India prohibited doing following activities through branch office in India.

Branch Office in Special Economic Zones (SEZs)

Reserve Bank has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:

 i.        a. such units are functioning in those sectors where 100 per cent FDI is permitted;

ii.        b. such units comply with part XI of the Companies Act,1956 (Section 592 to 602);

iii.        c. such units function on a stand-alone basis.

B.  PERMITTED ACTIVITY OF LIASON OFFICE IN INDIA:

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. Such Liaison Offices undertake the following activities in India;

A Liaison Office can undertake the following activities in India:

iv.        Representing in India the parent company / group companies.

v.        Promoting export / import from / to India.

vi.        Promoting technical/financial collaborations between parent/group companies and companies in India.

vii.        Acting as a communication channel between the parent company and Indian companies.

Liaison Office of Foreign Insurance Companies / Banks

viii.        Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).

ix.        Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulation (DBR), RBI.

Prohibited activities by the Liason Office –

Liaison Office not allowed to undertake any business activity in India and cannot earn any income in India.

C.  PERMITTED ACTIVITY OF PROJECT OFFICE IN INDIA:

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

i. the project is funded directly by inward remittance from abroad; or

ii. the project is funded by a bilateral or multilateral International Financing Agency; or

iii. the project has been cleared by an appropriate authority; or

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

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. 

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