RESERVE BANK OF INDIA
FOREIGN EXCHANGE DEPARTMENT
CENTRAL OFFICE
MUMBAI 400001
Notification No. FEMA 22(R)/RB-2016
March 31, 2016
Foreign Exchange Management (Establishment in India of a branch
office or a liaison office or a project office or any other place of business)
Regulations, 2016
In exercise of the powers conferred by sub-section (6) of Section 6 of the
Foreign Exchange Management Act, 1999 (42 of 1999), and in supersession of
Notification No. FEMA 22/2000-RB dated May 3, 2000, as amended from time to
time, the Reserve Bank of India makes the following regulations to prohibit,
restrict and regulate establishment in India of a branch office or a liaison
office or a project office or any other place of business by a person resident
outside India:-
1. Short title and commencement
- These Regulations may be called the Foreign Exchange Management
(Establishment in India of a branch office or a liaison office or a project
office or any other place of business) Regulations, 2016.
- They shall come into force from the date of their publication in the
Official Gazette.
2. Definitions
In these regulations, unless the context otherwise requires –
- 'Act' means the Foreign Exchange Management Act, 1999 (42 of 1999).
- ‘Authorised Dealer’ means a person authorised as an authorised dealer under
sub-section (1) of section 10 of the Act.
- 'Foreign company' means a body corporate incorporated outside India and includes
a firm or other association of individuals.
- 'Branch Office' in relation to a company, means any establishment described as
such by the company.
- 'Liaison Office' means a place of business to act as a channel of communication
between the principal place of business or Head Office or by whatever name
called and entities in India but which does not undertake any commercial
/trading/ industrial activity, directly or indirectly, and maintains itself out
of inward remittances received from abroad through normal banking channel.
- 'Project Office' means a place of business in India to represent the interests
of the foreign company executing a project in India but excludes a Liaison
Office.
- 'Site Office' means a sub-office of the Project Office established at the site
of a project but does not include a Liaison Office.
- ‘Stand-alone basis’ means such branch offices would be isolated and restricted
to the Special Economic Zone alone and no business activity/ transaction will be
allowed outside the Special Economic Zones in India which includes
branches/subsidiaries of its parent office in India.
- The words and expressions used but not defined in these Regulations, shall have
the same meanings respectively assigned to them in the Act.
3. Prohibition against opening a branch office or a liaison office or a project
office or any other place of business in India
No person resident outside India shall without prior approval of the Reserve
Bank open in India a branch office or a liaison office or a project office or
any other place of business by whatever name called except as laid down in these
Regulations.
Provided that
- A banking company resident outside India shall not require any approval under
these Regulations for establishing any office in India if such company has
obtained necessary approval under the provisions of the Banking Regulation Act,
1949.
- An insurance company resident outside India shall not require any approval
under these Regulations for establishing any office in India if such company has
obtained approval from the Insurance Regulatory and Development Authority
established under section 3 of the Insurance Regulatory and Development
Authority Act, 1999.
- A company resident outside India shall not require any approval under these
Regulations to establish a branch office in the Special Economic Zones (SEZs) to
undertake manufacturing and service activities, subject to the conditions that:
i.
such branch offices are functioning in those sectors where 100% FDI is
permitted;
ii.
such branch offices comply with Chapter XXII of the Companies Act, 2013; and
iii
such branch offices function on a stand-alone basis.
4. Approval for opening a branch office or a liaison office or a project office
or any other place of business in India
a. Eligibility
A person resident outside India can establish a branch office or a liaison
office in India provided it meets the following criterion:
- For Branch Office — a profit making track record during the immediately
preceding five financial years in the home country and net worth of not
- less
than USD 100,000 or its equivalent.
For Liaison Office — a profit making track record during the immediately
preceding three financial years in the home country and net worth of not less
than USD 50,000 or its equivalent.
Provided that a person resident outside India that is not financially sound and
are subsidiaries of other companies may submit a Letter of Comfort (Annex A)
from their parent company subject to the condition that the parent company
satisfies the prescribed criterion for net worth and profit.
b. Permissible activities
A person resident outside India permitted by the Reserve Bank under these
Regulations to establish a branch or liaison office in India may undertake or
carry on any activity specified in Schedule I or II (Annex B), as the case may
be, but shall not undertake or carry on any other activity unless otherwise
specifically permitted by the Reserve Bank.
c. Application form
A person resident outside India desiring to establish a branch office or a
liaison office or a project office or any other place of business in India shall
submit an application in Form FNC (Annex C) to an Authorised Dealer Category-I
bank who may, subject to the provisions of Regulation 5, grant approval as per
the directions and/or guidelines issued by the Reserve Bank in this regard. In
case no office is opened by the person resident outside India within six months
from the date of approval letter, the approval for establishing the office in
India shall be cancelled. In cases where the person resident outside India is
not able to open the office within the stipulated time frame due to reasons
beyond their control, the Authorised Dealer Category-I bank may consider
granting extension of time for setting up the office by a further period of six
months. Any further extension of time shall require the prior approval of the
Reserve Bank in this regard.
d. Extension of the validity period for liaison office
- A person resident outside India may establish in India under these
Regulations a liaison office for a period of three years subject to the
provisions of Regulation 4 d (III). The non-resident entity may apply to the Authorised Dealer Category-I bank concerned for extension of the validity period
of approval, and upon receipt of such an application, the Authorised Dealer
Category-I bank concerned may extend the validity period of approval for a
period of three years from the date of expiry of the original approval /
extension granted, subject to such directions issued by the Reserve Bank in this
regard.
- The application for extension of the validity period of the liaison office
of banks and entities engaged in insurance business has to be directly submitted
to the Department of Banking Regulation (DBR), Reserve Bank and the Insurance
Regulatory and Development Authority (IRDA) respectively.
- Entities engaged in construction and development sectors and which are
Non-Banking Finance Companies are permitted to open a Liaison Office for two
years only. No further extension would be considered for liaison offices of
entities which are Non-Banking Finance Companies and those engaged in
construction and development sectors (excluding infrastructure development
companies). Upon expiry of the validity period, the offices shall have to either
close down or be converted into a Joint Venture / Wholly Owned Subsidiary in
conformity with the extant Foreign Direct Investment policy.
e. Additional offices
A person resident outside India desiring to establish additional branch office
or liaison office may submit to the Authorised Dealer Category-I bank a fresh
FNC Form along with the justification for the need for additional office/s.
f. Project office
I. A foreign company may open 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; 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.
Explanation:
For the purpose of this Regulation,
- 'a bilateral or multilateral International Financing Agency' means the World
Bank or the International Monetary Fund or similar other body.
- “Public Financial Institution” is a public financial institution as defined in
Section 4A of the Companies Act, 1956.
II. A person from any country other than Pakistan who has been awarded a
contract for a project by a Government authority/ Public Sector Undertaking may
open a bank account with an Authorised Dealer Category-I bank without any prior
approval from the Reserve Bank.
g. Registration with State Police Authorities
A person from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or
Macau opening a branch office or a liaison office or a project office or any
other place of business in India shall have to register with the concerned State
Police Authorities. Copy of approval letter for ‘persons’ from these countries
shall be marked by the AD Category-I bank to the Ministry of Home Affairs,
Internal Security Division-I, Government of India, New Delhi.
h. Fund/non-fund based facilities
Authorised Dealer Category-I bank may extend fund and/or non-fund based
facilities to branch office and project offices based on the guidelines issued
by the Reserve Bank in this regard.
i. Remittance of profit or surplus
I. Branch office may 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 Category-I bank through whom the remittance is effected:
i. A certified copy of the audited Balance Sheet and Profit and Loss account for
the relevant year.
ii. 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.
II. Authorised Dealer Category – I bank may permit intermittent remittances by
project offices pending winding up / completion of the project subject to
submission of the following:
- certified copy of the final audited project accounts;
- the statutory auditor’s certificate showing the manner of arriving at the
remittable surplus and confirming that sufficient provisions have been made to
meet the liabilities in India including Income Tax, etc.; and
- An undertaking from the project office that the remittance will not, in any way,
affect the completion of the project in India and that any shortfall of funds
for meeting any liability in India will be met by inward remittance from abroad.
j. Acquisition of property
Acquisition of property by branch office/project office shall be governed by the
guidelines issued under Foreign Exchange Management (Acquisition and transfer of
immovable property outside India) Regulations.
k. Transfer of assets
A person resident outside India permitted under these Regulations to establish a
branch office or liaison office or project office may apply to the concerned
Authorised Dealer Category-I bank for transfer of its assets to a Joint
Venture/Wholly Owned Subsidiary or any other entity in India. Authorised Dealer
Category-I bank shall be guided by the instructions laid down by Reserve Bank in
this regard.
l. Annual Activity Certificate (AAC)
The branch office/liaison office may submit the Annual Activity Certificate
(Annex D) as at the end of March 31 along with the audited financial statements
including receipt and payment account on or before September 30 of that year. In
case the annual accounts of the office are finalized with reference to a date
other than March 31, the AAC along with the audited financial statements may be
submitted within six months from the due date of the Balance Sheets to the
Authorised Dealer Category-bank and the Director General of Income Tax
(International Taxation), Drum Shape Building, I.P. Estate, New Delhi 110002.
AAC from a Chartered Accountant showing the project status and certifying that
the accounts of the project office have been audited and the activities
undertaken are in conformity with the general/ specific permission given by the
Reserve Bank may be submitted by the project office to the designated Authorised
Dealer Category-I bank.
m. Closure of office and remittance of winding up proceeds
I. Requests for closure of the branch office/liaison office may be submitted to
the Authorised Dealer Category - I bank along with the following documents:
- Copy of the Reserve Bank's/Authorised Dealer Category-I bank’s approval for
establishing the office.
- Auditor's certificate :
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;
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;
confirming that no income accruing from sources outside India (including
proceeds of exports) has remained unrepatriated to India.
- Confirmation from the applicant/parent company that no legal proceedings in
any Court in India are pending against the office and there is no legal
impediment to the remittance.
- A report from the Registrar of Companies regarding compliance with the
provisions of the Companies Act, 2013, in case of winding up of the branch
office/liaison in India.
- Any other document/s, specified by the Reserve Bank/Authorised Dealer
Category-I bank while granting approval.
II. Remittance of winding up proceeds of branch or liaison office established in
India shall be governed by the guidelines issued under Foreign Exchange
Management (Remittance of assets) Regulations.
5. Approval of the Reserve Bank in certain cases for establishment of branch
office, liaison office or project office or any other place of business in India
Any application from a person resident outside for opening of a branch office or
a liaison office or a project office or any other place of business in India
shall require prior approval of Reserve Bank in the following cases where
- the applicant is a citizen of or is registered/incorporated in Pakistan;
- the applicant is a citizen of or is registered/incorporated in Bangladesh,
Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is
for opening a liaison, branch or project office in Jammu and Kashmir, North East
region and Andaman and Nicobar Islands;
- the principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting:
Provided that in the case of proposal for opening a project office relating to
defence sector, no separate reference or approval of Government of India shall
be required if the said non-resident applicant has been awarded a contract by/
entered into an agreement with the Ministry of Defence or Service Headquarters
or Defence Public Sector Undertakings.
- The applicant is a Non-Government Organisation, Non-Profit Organisation,
Body/ Agency/ Department of a foreign government.
Such applications shall be forwarded to the Reserve Bank, Foreign Exchange
Department, Central Office Cell, New Delhi by the Authorised Dealer Category-I
bank and be considered in consultation with the Government of India.
(Indira Nanu)
Chief General Manager
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