Foreign Offices

Any foreign Company intending to set-up business in India has in addition to incorporating a company in India, the following additional options for carrying on its business, which are outlined below.

Liasion Office

Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. It is in the nature of a representative office set up primarily to explore and understand the business and investment climate.

A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and is required to maintain itself out of inward remittances received from abroad through normal banking channels. It therefore, cannot, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.

For establishing Liasion Office in India, it is necessary to appoint any person in India as Authorized Representative of Foreign Company for this office

Permitted Activities
The Liaison Office is permitted to undertake only the following activities:

Representing in India the Parent Company / Group Companies
Promoting export/ import from/ to India
Promoting technical / financial collaborations between the Parent / Group Companies and Companies in India
Acting as a communication channel between the Parent Company and Indian Companies

Restricted Activities
There are strict restrictions on the activities of the liaison office:

No commercial operation can be done by the liaison office (No invoicing)
The liaison office can neither borrow, nor lend money.
All expenses of the office must be met through inward remittances to the office from abroad (parent company) through the bank. The liaison office is not subject to taxation in India.

Suitability of Liasion Office

The Liaison Office generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The Liaison Office can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company.

The Liaison Office cannot undertake any business activity in India nor earn any income in India. The entire expense establishing and operating of liaison office are received from the parent company through normal banking channels. At the time of closure of the Liaison Office, the Reserve Bank of India grants permission to repatriate the balance in the Indian bank account to the Parent Company.

Since the Liaison Office is not permitted to earn any income, it will not constitute a taxable entity in India. However, the Liaison Office would be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law.

Winding-up of Liaison office

Requests for winding up of Branch / Liaison Office(s) may be submitted to the AD Category - I bank designated by their Nodal Office.
The application for winding up may be submitted along with the following documents:
- Chartered Accountant's certificate :
  1. Indicating the manner in which the remittable 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;
  2. 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;
  3. Confirming that no proceeds accruing from sources outside India has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance or an undertaking from the applicant and a certificate from the Chartered Accountant as mentioned in AP (DIR Series) Circular No. 56 dated November 26, 2002.
- Confirmation from the parent entity that no legal proceedings in any Court in India are pending against the Liaison Office and there is no legal impediment to the remittance

Branch Office

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

Export/Import of goods
Rendering professional or consultancy services in the areas of parent's entity activity.
Carrying out research work, 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 agents in India.
Rendering services in Information Technology and development of software in India.
Rendering technical support to the products supplied by the Parent/ Group Companies.
Foreign Airline/shipping Company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer.

Necessary conditions to be fulfilled by Branch Office
The Reserve Bank of India usually imposes the following conditions while granting permission to establish a Branch Office:

The Branch Office would not expand its activities or undertake any new trading, commercial or industrial activity other than that is expressly approved by the Reserve Bank of India.
The entire expenses of the Branch Office in India will be met either out of the funds received from abroad through normal banking channels or through income generated by it in India.
The Branch Office will not accept any deposits in India;
The commission earned by the Branch Office from parties abroad for any agency business will be repatriated to India through normal banking channels.

Suitability of Branch Office

This is considered a part of the foreign company and is not treated as a separate legal entity. The office can undertake trading activities, but not manufacturing.

It is subject to taxation in India at 40% (normal entities are taxed @ 30%) on income accrued in India. If there is a double taxation agreement with the country in which the foreign company is incorporated, the tax paid in India can be set off against the total tax payable by the parent company abroad.

In certain cases, where income is deemed to have originated in India and such income includes royalties, fees for technical services, interest and capital gains including capital gains from share of capital in India, Branch offices may repatriate profits to their Head Office without obtaining prior approval.

Branch Office on ‘STAND ALONE BASIS’

Such Branch Offices would be isolated and restricted to the Special Economic zone (SEZ) alone and no business activity/transaction will be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India.

No approval shall be necessary from Reserve Bank of India for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities subject to specified conditions.

Such units are functioning in those sectors where 100 % Foreign Direct Investment is allowed. Such units comply with provision given under section 592 to 602 of the Companies Act, 1956. Such units function on stand alone basis. In the event of winding up of business and for remittance of winding-up proceeds, the branch shall approach an authorized dealer wit documents prescribed

Remittance of Profits

A Branch Office can remit the profits (net of any withholding tax) generated out of its operations in India on production of the prescribed documents, and on establishing that it has earned a net profit by undertaking the permitted activities. The Branch Office need not retain any profits as reserves in India.

Following Documents are required to be provided:

Certified True copy of balance Sheet and Profit & Loss Account for the relevant year
Chartered Accountant certificate certifying the manner of arriving the remittable profit, that only permitted activity has been carried and profit does not include any profit on revaluation of assets
Auditors certificate stating that no statutory liability is pending

Winding-up of Branch office

Requests for winding up of Branch / Liaison Office(s) may be submitted to the AD Category - I bank designated by their Nodal Office.
The application for winding up may be submitted along with the following documents:
- Chartered Accountant's certificate :
  1. Indicating the manner in which the remittable 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;
  2. 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;
  3. Confirming that no proceeds accruing from sources outside India has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance or an undertaking from the applicant and a certificate from the Chartered Accountant as mentioned in AP (DIR Series) Circular No. 56 dated November 26, 2002.
- Confirmation from the parent entity that no legal proceedings in any Court in India are pending against the Liaison Office and there is no legal impediment to the remittance

Project Office

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. Reserve Bank of India has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.

Generally, companies engaged in turnkey projects or installation projects, set up Project Offices. All expenses of Project Offices must be met through inward foreign currency remittances if the rupee component of the contract, if any, is not sufficient to meet the said expenses.

A company executing (or planning to execute) a large contract can open a project office. An example would be the laying of gas pipeline. Typically, these are granted in respect of Government approved projects. However, private sector projects can also be given permission.

Necessary Conditions to be fulfilled for formation of Project Office:

A foreign Company may open a Project Office/s in India provided it has secured from an Indian company, a contract to execute a project in India, and
The project is funded directly by inward remittance from abroad or
The project is funded by a bilateral or multilateral International Financing Agency;
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.
The project has been cleared by an appropriate authority;

or
Following details are required to be submitted at the time of opening of Project Office in India with Reserve Bank of India.

Name and Address of foreign Company
Reference No and date of letter awarding the contract referred to above
Total amount of Contract
Address and Tenure of Project Office
Nature of Project Undertaken

Remittance of Profits earned

A project office may remit outside India the surplus of project office after its completion net of applicable Indian taxes on production of the following documents to authorized dealer:

Certified copy of final audited project accounts
A chartered accountants certificate showing the manner of arriving the remittable surplus
Income tax assessment order or either documentary evidence showing the payment of income tax and applicable taxes.
A certificate from Auditor of Project Office stating that no statutory liability in respect of project is pending

Request Quote >