Procedure for Opening of Branch Office by Foreign Entity

ESTABLISHMENT OF BRANCH/LIAISON OFFICES IN INDIA

{Ref. Notification No.FEMA.22/2000-RB dated 03rd May, 2000 as amended from time to time}

Prohibition against establishment of branch or office in India by certain persons of certain countries

No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong kong and Macau without prior permission of Reserve Bank of India, shall establish in India, a branch or a liaison office or a project office or any other place of business by whatever name called.

No fresh permission /renewal of permission to LOs of Foreign Law firms-Supreme court’s directions

The Hon’ble Supreme Court vide its interim orders dated July 4, 2012 and September 14, 2015, passed in the case of the Bar Council of India vs. A.K. Balaji & Ors., has directed RBI not to grant any permission to any foreign law firm, on or after the date of the said interim order, for opening of Liaison Office (LO) in India. Hence, no foreign law firm shall be permitted to open any LO in India till further orders/notification in this regard. However, foreign law firms which have been granted permission prior to the date of interim order for opening LOs in India may be allowed to continue provided such permission is still in force. No fresh permission/ renewal of permission shall be granted by RBI/AD banks respectively till the policy is reviewed based on, among others, final disposal of the matter by the Hon’ble Supreme Court.

2. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

3. The directions contained in this Circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

{Ref. A.P.(DIR Series) Circular No.23 dated October 29,2015}

Eligibility Criteria for establishment of Branch/Liaison office in India

An application from a foreign entity to establish Branch/Liaison Office in India is considered on the basis of two criteria viz: basic and additional:

Basic criteria

Reserve Bank Route:

Principal business of the foreign entity falls under sectors where 100% foreign direct investment (FDI) is permissible under the automatic route.

Government Route:

Principal business of the foreign entity falls under the sectors where 100% FDI is not permissible under the automatic route. Application from entities falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.

Additional Criteria

Track Record

For Branch Office: a profit making track record during the immediately preceding five financial years in the home country.

For Liaison office: a profit making track record during the immediately preceding three financial years in the home country.

Net worth [total of paid up capital] and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account statement certified by a certified Public Accountant or any Registered Accounts Practitioner by whatever name]

For Branch office-not less than USD 1,00,000 or its equivalent.

For Liaison Office: not less than USD 50,000 or its equivalent.

Applicants that do not satisfy the eligibility criteria and are subsidiaries of other companies may submit a Letter of Comfort from their parent company as appended, subject to the condition that the parent company satisfies the eligibility criteria as prescribed.

Application form and documentation:

1. The application for establishing BO/LO in India may be forwarded by the foreign entity in Form FNC through a designated AD Category-I bank to the Chief General Manager-in –charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400 001, along with the prescribed documents.

2. The designated AD Category-I Bank should exercise due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds etc. and also ensure compliance with the KYC norms before forwarding the application together with their comments/recommendations to the Reserve Bank.

3. Application in Form FNC duly completed in all respects and signed by the authorized signatory of the foreign entity in the home country may be submitted alone with the letter of comfort, wherever applicable, to the designated AD Category-I bank for onward transmission to the Reserve Bank, along with their comments and recommendations and the prescribed documents as given in item (viii) of Form FNC.

4. In order to provide a uniform framework, a Unique Identification Number (UIN) would be allotted to both, the existing as well as the new BOs/Los. The UIN will have to be quoted in all reference to the Reserve Bank by the BO/LO and the designated AD Category-I  bank.

5. Application from foreign bank and insurance companies will continue to be directly received and examined by the Department of Banking Operations and Development (DBOD), Reserve Bank, Central office and Insurance Regulatory and Development Authority (IRDA) respectively, as hitherto.

Permanent Account Number:

The Branch office/Liaison offices shall obtain Permanent Account Number (PAN) from the Income tax authority on setting up of their office in India and report the same in the Annual Activity Certificate.

Permitted activities for Branch office in India

1. Export/Import of goods.
2. Rendering professional or consultancy services.
3. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
4. Representing the parent company in India and acting as buying/selling agent in India.
5. Rendering services in Information Technology and development of software in India.
6. Rendering technical support to the products supplied by parent/group companies.
7. Foreign/shipping company.

*** Normally the Branch office should be engaged in the activity in which the parent company is engaged.

Regularization of Liaison/ Branch Offices of foreign entities established during the pre-FEMA Period

1. The foreign entities who have established or BO within India and continuing the function without obtaining permission from the Reserve Bank of India should approach the Reserve Bank within a period of 90 days from the date of issue of this circular for regularization of establishment of such offices in India, in term s of the extent FEMA provisions.

2. The foreign entities who may have established LO or BO with the permission from the Government of India may also approach the Reserve Bank along with a copy of the said approval for allotment of a Unique Identification Number (UIN) by the Reserve Bank of India.

Permitted activities Liaison office in India:

1. Representing the parent company/ group companies in India.
2. Promoting Export/Import from/to India.
3. Promoting technical/financial collaborations between parent/group Companies in India.
4. Acting as a communication channel between the parent company and Indian Companies.

Applications for additional offices or undertaking additional activities

1. Request for establishing additional BO/Los as may be submitted to the Reserve Bank in the same manner.

2. Fresh FNC form duly signed by the authorized signatory of the foreign entity in the home country should be submitted. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.

3. If the number of Offices exceeds 4 in each zone, the applicant has to justify the need for additional office/s.

4. The Applicant may identify one of its offices in India as the Nodal Office, which will coordinate the activities of all of its offices in India.

5. Requests for undertaking activities in addition to what has been permitted initially by the Reserve Bank may be submitted through the designated AD Category-I Bank to the Chief- General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai, justifying the need with comments of the designated AD Category-I bank.

Extension of validity of the approval of Liaison Offices:

1. Request on the letter head of LO for extension of time for continuance of LOs (other than those from entities in the Insurance sector, banks, NBFCs and Construction and Development Sectors (excluding infrastructure development companies) may be submitted to the AD Category-I Bank concerned under whose jurisdiction the LO/ Nodal office is located before the expiry of the validity of the approval.

2. Applications from foreign banks and Insurance companies will continue to be directly received and examined by the Department of Banking Operations and Development, Reserve Bank and Insurance Regulatory and Development Authority (IRDA) respectively, as hitherto.

3. No extension would be considered for Los of entities which are NBFCs and those engaged in Construction and Development companies). Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV/Wholly Owned Subsidiary (WOS), in conformity with the extant FDI policy.

Winding up of the Branch/Liaison Offices:

Request for closure of the BO/LO and allowing the remittance of winding up proceeds of BO/LO may be submitted to the designated AD Category-I bank by the BO/LO or their Nodal Office, as the case may be. The application for winding up may be submitted along with the following documents:

1. Copy of the Reserve Bank’s permission/approval from the sectoral regulator(s) for establishing the BO/LO

2. Auditors Certificate:

a. Indicating the manner in which the remittance 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.

b. Confirming that no income accruing from sources outside India has remained unrepatriated to India. No-objection or Tax Clearance Certificate from the Income tax authority for the remittance.

c. Confirmation from the applicant/parent company that no legal proceedings in any Court of India are pending against the BO/LO and there is no legal impediment to the remittance.

d. A report from the Registrar of Companies regarding Compliance with the provision of the Companies Act,1956, in case of winding up of the BO/LO in India.

e. Designated AD Category-I bank should ensure submission of all the above mentioned documents by the BO/LO before considering the request for closure of the BO/LO and subsequent remittance if any, to the head   Authorised Dealers may allow remittance of winding up proceeds in respect of Offices of banks and Insurance companies, after obtaining copies of closure permission from the sectoral regulators along with the documents mentioned below.

Branch Office in Special Economic Zones (SEZs)

1. RBI 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:

1. Such units are functioning in those sectors where 100% FDI is permitted.
2. Such units comply with part XI of the Companies Act (Section 592 to 602).
3. Such units function on the standalone basis.

2. In the event of winding up of business and for remittance of winding up proceeds, the branch shall approach as AD Category-I bank.