RBI Guidelines for Branch Office of Foreign Entities
Sub-
Establishment of Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO)
in India by foreign entities - procedural guidelines
Attention of Authorised Dealer Category - I (AD Category - I) banks is
invited to Notification No. FEMA 22(R) /2016-RB dated March 31, 2016 viz.
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. The salient provisions of the procedure for a person resident outside
India to open a branch office or a liaison office or a project office are
outlined as under.
i.
Applications
from persons resident outside India for establishing
Branch Office (BO) / Liaison Office (LO)/ Project Office (PO) or any other
place of business in India shall be considered by the AD Category-I bank as per
the guidelines issued by the Reserve Bank of India. If the application to open
a BO/LO/PO is received from an entity resident outside India whose principal
business falls under sectors where 100 percent Foreign Direct Investment (FDI)
is allowed in terms of FEMA Notification
No. 20/2000-RB dated May 3, 2000, as
amended from time to time, the AD Category-I bank may consider such applications
under the delegated powers.
ii.
An
application from a person resident outside India for opening of a BO/LO/PO in
India shall require prior approval of Reserve Bank of India in the following
cases:
a.
the
applicant is a citizen of or is registered/incorporated in Pakistan;
b.
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 BO/LO/PO in Jammu and Kashmir, North East region and Andaman and
Nicobar Islands;
c.
The
principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and
Broadcasting. In the case of proposal for opening a PO 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 Ministry of Defence or Service Headquarters or Defence
Public Sector Undertakings. There shall be no requirement of any approval from
RBI also only for such cases;
d.
The
applicant is a Non-Government Organisation (NGO), a
Non-Profit Organisation, or a Body/ Agency/
Department of a foreign government.
Such applications may be
forwarded by the AD Category-I bank to the General Manager, Reserve Bank of
India, Central Office Cell, Foreign Exchange Department, 6, Sansad
Marg, New Delhi-110 001 who shall process the applications in consultation with
the Government of India.
iii.
The
non-resident entity desirous of establishing a BO/LO in India should have a
financially sound track record as provided in Regulation 4 (a) of the
Notification. iv. An applicant that is not financially sound and is a
subsidiary of another company may submit a Letter of Comfort (LOC) [as provided
in Regulation 4. a. of the Notification] from its parent/ group company,
subject to the condition that the parent/ group company satisfies the
prescribed criteria for net worth and profit. The LOC should be issued by the
applicant’s parent / group company which undertakes to fund the operations if
required.
The application for
establishing BO / LO/ PO in India may be submitted by the non-resident entity
in Form FNC [as provided in Regulation 4.c. of the Notification], to a
designated AD Category - I bank (i.e. an AD Category – I bank identified by the
applicant with whom they intend to pursue banking relations) along with the
prescribed documents mentioned in the Form and the LOC, wherever applicable.
The AD Category-I bank shall, after exercising due diligence in respect of the
applicant’s background, and satisfying itself as regards adherence to the
eligibility criteria for establishing BO/LO/PO, antecedents of the promoter,
nature and location of activity of the applicant, sources of funds, etc., and
compliance with the extant KYC norms, grant approval to the foreign entity for
establishing BO/LO/PO in India. The AD Category-I banks may frame appropriate
policy for dealing with these applications in conformity with the FEMA
Regulations and Directions.
For the limited purpose of
uploading and maintenance of up-to-date list of all foreign entities which have
been granted permission for establishing BO/LO in India on Reserve Bank’s
website, the AD Category-I bank shall before issuing the approval letter to the
applicant forward a copy of the Form FNC along with the details of the approval
proposed to be granted by it to the General Manager, Reserve Bank of India, CO
Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each
BO/LO. After receipt of the UIN from the Reserve Bank, the AD Category-I bank
shall issue the approval letter to the non-resident entity for establishing
BO/LO in India.
The validity of an LO is
generally for three years [as provided in Regulation 4.d. of the Notification], except
in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged
in construction and development sectors, for whom the validity is two years
only.
The validity of the PO is
for the tenure of the project.
i.
An
applicant that has received a permission for setting up of a BO/LO/PO shall
inform the designated AD Category I bank as to the date on which the BO/LO/PO
has been set up. The AD category I bank in turn shall inform Reserve Bank of
India accordingly. In case an approval granted by the AD category I bank has
either been surrendered by the applicant or has expired without any BO/LO/PO
being set up, the AD Category I bank shall inform RBI accordingly.
ii.
In
accordance with Regulation 4.c. of the Notification, the approval granted by
the AD Category-I bank should include a proviso to the effect that in case the
BO/LO/PO for which approval has been granted is not opened within six months
from the date of the approval letter, the approval shall lapse. In cases where
the non-resident entity is not able to open the office within the stipulated
time frame due to reasons beyond its control, the AD Category-I bank may
consider granting extension of time for a further period of six months for
setting up the office. Any further extension of time shall require prior approval of
Reserve Bank of India.
iii.
All
applications for establishing BO/LO in India by foreign banks and insurance
companies shall be dealt with as per the directions issued by the Department of
Banking Regulation (DBR), Reserve Bank of India, Central Office and the
Insurance Regulatory and Development Authority (IRDA) respectively. No UIN for
such representative offices is required from the Foreign Exchange Department,
Reserve Bank of India.
iv.
There is
a general permission to non-resident companies for establishing BO in the
Special Economic Zones (SEZs) to undertake manufacturing and service activities
subject to the conditions
as provided in Regulation 3.c. of the Notification.
i. An LO may open an account with the designated AD category I
Bank in India for receiving remittances from its Head Office outside India. It
may be noted that an LO shall not maintain more than one bank account at any
given time without the prior permission of Reserve Bank of India. The permitted
Credits and Debits to the account shall be:
a. Credits
1. Funds received from Head Office through normal banking
channels for meeting the expenses of the office.
2. Refund of security deposits paid from LO’s account or paid
directly by the Head Office through normal banking channels.
3. Refund of taxes, duties etc., paid from LO’s bank account.
4. Sale proceeds of assets of the LO.
b. Debits
Only for meeting the local expenses of the
office.
ii. A BO may open a bank account with any AD Category-I Bank in
India for its business operations in India. Credits to the account should
represent the funds received from Head Office through normal banking channels
for meeting the expenses of the office and any legitimate receivables arising
in the process of its business operations. Debits to this account shall be for
the expenses incurred by the BO and towards remittance of profit/winding up
proceeds.
iii. An entity from Pakistan shall need prior approval of Reserve
Bank of India to open a bank account for its PO in India. All other foreign
entities who have been awarded a contract for a project by the Government
authority/Public Sector Undertakings or are permitted by the AD to operate in India
may open a bank account without any prior approval of the Reserve Bank.
POs can open non-interest
bearing foreign currency accounts with AD Category – I banks subject to the
following:
i.
The PO
has been established in India as per these Regulations.
ii.
The
contract governing the project specifically provides for payment in foreign
currency.
iii.
Each PO
can open two foreign currency accounts, usually one denominated in USD and the
other in home currency of the project awardee, provided both are maintained
with the same AD Category–I bank.
iv.
The
permissible debits to the account shall be payment of project related expenses
and credits shall be foreign currency receipts from the Project Sanctioning
Authority and remittances from parent/group company
abroad or bilateral / multilateral international financing agencies.
v.
The
responsibility of ensuring that only the approved debits and credits are
allowed in the foreign currency account shall rest solely with the AD
Category–I bank.
vi.
The foreign
currency accounts have to be closed at the completion of the project.
i. Requests for extension of time for LOs may be submitted
before the expiry of the validity of the approval, to the AD Category-I bank
concerned under whose jurisdiction the LO/Nodal office is located. The
designated AD Category - I bank may extend the validity period of LO/s for a
period of 3 years from the date of expiry of the original approval / extension
granted, if the applicant has complied with the following conditions and the
application is otherwise in order:
a. The LO should have submitted the Annual Activity Certificates
for the previous years and
b. The account of the LO maintained with the designated AD
Category – I bank is being operated in accordance with the terms and conditions
stipulated in the approval letter.
Such extension has to be
granted as expeditiously as possible and in any case
not later than one month from the receipt of the request, under intimation to
the General Manager, Reserve Bank of India, CO Cell, New Delhi quoting the
reference number of the original approval letter and the UIN. Reserve Bank
shall update the information on the website immediately.
ii. As provided in Regulation 4.d. of the Notification, NBFCs and
entities engaged in construction and development sectors are permitted to open
an LO for two years only. LOs opened by such entities (excluding infrastructure
development companies) shall not be allowed any extension of time. Upon expiry
of the validity period, the LOs 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.
iii. Extension of validity of PO needs to be reported by the AD
Category-I bank to the CO Cell, RBI, New Delhi.
Applicants from
Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan
desirous of opening BO/LO/PO in India shall have to register with the 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 for necessary
action and record.
i. Requests for establishing additional BOs / LOs may be
submitted to the AD Category-I bank in a fresh FNC form. However, the documents
mentioned in form FNC need not be resubmitted, if there are no changes to the
documents already submitted earlier.
a. If the number of offices exceeds 4 (i.e. one BO / LO in each
zone viz; East, West, North and South), the applicant
has to justify the need for additional office/s and it shall require prior
approval of the Reserve Bank.
b. 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.
c. Whenever the existing BO/LO is shifting to another city in
India, prior approval from the AD Category-I bank is required. However, no
permission is required if the LO/BO is shifted to another place in the same
city subject to the condition that the new address is intimated to the
designated AD Category-I bank. Changes in the postal address may be intimated
to the CO Cell, New Delhi by the AD Category-I bank at the earliest.
ii. Requests for undertaking activities in addition to what has
been permitted initially by Reserve Bank of India/ AD Category-I bank may be
submitted by the applicant to the Reserve Bank through the designated AD Category
-I bank justifying the need.
As provided in Regulation
4.h. of the Notification, AD Category-I bank may,
extend fund/non-fund based facilities to BOs/POs only.
i. BOs are permitted to remit outside India profit of the branch
net of applicable Indian taxes, on production of the documents given in
Regulation 4.i.I. of the Notification to the satisfaction of the AD Category-I
bank through whom the remittance is effected.
ii. AD Category – I bank can permit intermittent remittances by
POs pending winding up / completion of the project provided they are satisfied
with the bonafides of the transaction, subject to the
documentation laid down in Regulation 4.i.II. of the
Notification.
i. The Annual Activity Certificate (AAC) as at the end of March
31 each year along with the documents laid down in Regulation 4.l. of the
Notification needs to be submitted by the following:
a. In case of a sole BO/ LO/PO, by the BO/LO/PO concerned;
b. In case of multiple BOs / LOs, a combined AAC in respect of
all the offices in India by the nodal office of the BOs / LOs.
The LO/BO needs to submit
the AAC to the designated AD Category -I bank as well as Director General of
Income Tax (International Taxation), New Delhi whereas the PO needs to submit
the AAC only to the designated AD Category -I bank.
ii. The designated AD Category - I bank shall scrutinize the AACs
and ensure that the activities undertaken by the BO/LO are being carried out in
accordance with the terms and conditions of the approval given. In the event
of any adverse findings reported by the auditor or noticed by
the designated AD Category -I bank, the same should immediately be reported to
the General Manager, Reserve Bank of India, CO Cell, New Delhi, along with the
copy of the AAC and their comments thereon.
i. Requests for closure of the BO / LO/ PO and for remittance of
winding-up proceeds may be submitted to the designated AD Category - I bank by
the BO/ LO/ PO or their nodal office, as the case may be. The application for
winding up may be submitted along with the documents laid down in Regulation
4.m. of the Notification.
ii. AD Category-I bank shall send a consolidated list (as per
Annex) of all the BOs/LOs/ POs for which a UIN has been granted by RBI,
excluding those of banks and insurance companies, closed by them during the
month, by the fifth of the succeeding month, to the General Manager, Reserve
Bank of India, CO Cell, New Delhi.
i.
Once it
establishes a place of business in India, a BO/LO/PO or any other place of
business by whatever name called is required to register with the Registrar of
Companies (ROCs) if such registration is required under the Companies Act,
2013.
ii.
The BOs /
LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities
on setting up of their office in India and report the same in the AACs.
iii.
The
existing PAN and bank accounts can be continued when an LO is permitted to
upgrade into a BO.
iv.
A
BO/LO/PO, even if present in multiple locations, is required to transact
through the designated AD Category I bank who shall be responsible for due
diligence, KYC norms etc., in respect of the BO/LO/PO concerned. POs can open
bank accounts either in the place of their operations or in the place of their
registration, as per their convenience.
v.
BO/LO/PO
can change their existing AD Category-I bank subject to both the AD banks
giving consent in writing for the transfer and the transferring
AD bank confirming
submission of all AACs and absence of any adverse features in conducting the
account by the BO/LO/PO.
vi.
Acquisition
of property by BO/PO shall be governed by the guidelines issued under Foreign
Exchange Management (Acquisition and transfer of immovable property outside
India) Regulations.
vii. As per section 6 (3) (h) of the Foreign Exchange Management
Act, 1999, BOs/LOs/POs have general permission to carry out permitted/
incidental activities from leased property subject to lease period not
exceeding five years.
viii. AD Category-I bank can allow term deposit account for a
period not exceeding 6 months in favour of a BO/LO/PO
provided the bank is satisfied that the term deposit is out of temporary
surplus funds and the BO/LO/PO furnishes an undertaking that the maturity
proceeds of the term deposit will be utilised for
their business in India within 3 months of maturity. However, such facility may
not be extended to shipping/airline companies.
ix.
In case a
BO/LO has been established and continues to exist without approval of the
Reserve Bank, it may approach its AD Category-I bank to regularise
its office(s) under the extant instructions contained in the Notification and
this circular even if permission of Reserve Bank was not required as per the
regulations existing at the time of setting up of the office. Such cases may be
brought to the notice of the Reserve Bank immediately for allotment of UIN. The
foreign entities who may have established LO or BO with the permission from the
Government of India in the pre-FEMA period shall also approach their AD
Category–I bank with a
copy of the said approval for allotment of a UIN by the Reserve Bank.
x.
Change in
the name of the existing LO/BO may be permitted by the AD Category-I bank only
if the non-resident entity changes its name without change in ownership and if
the application to this effect is received with the Board Resolution for change
of name and documents/certificate from ROC India showing change of name,
wherever applicable. The change in name of the BO/LO should be reported to FED,
CO Cell, New Delhi. Where change in name is requested on account of
acquisitions or mergers of foreign entities involving change in ownership, the
acquired entity or
new entity is required to apply afresh by closing the existing
entity. Foreign entities should note that the approvals are given by the
Reserve Bank/AD Category-I bank after detailed scrutiny as per laid down
guidelines and FDI policy and hence the approvals given to one foreign entity
is not transferrable to another foreign entity.
xi.
Change in
the Top Management or CEO/MD/CMD etc. of the BO/LO does not require prior
approval from the Reserve Bank/AD Category-I bank. However, AD Category-I bank
should be intimated about the same.
Proposals for transfer of
assets may be considered by the AD Category-I bank only from BOs/LOs/POs who
are adhering to the operational guidelines such as submission of AACs (up to
the current financial year) at regular annual intervals; have obtained PAN from
IT Authorities and have got registered with ROC under the Companies Act 2013,
if necessary. Also,
i.
Transfer
of assets by way of sale to the JV/WoS shall be
allowed by AD Category-I bank only when the non-resident entity intends to
close their BO/LO/PO operations in India.
ii.
A
certificate is to be submitted from the Statutory Auditor furnishing details of
assets to be transferred indicating their date of acquisition, original price,
depreciation till date, present book value or written down value (WDV) and sale
consideration to be obtained. Statutory Auditor should also confirm that the
assets were not re-valued after their initial acquisition. The sale
consideration should not be more than the book value in each case.
iii.
The assets
should have been acquired by the BO/LO/PO from inward remittances or
profit/surplus generated in case of BO/PO and no intangible assets such as good
will, pre-operative expenses should be included. No revenue expenses such as
lease hold improvements incurred by the BO/LO can be capitalised
and transferred to JV/WOS.
iv.
AD
Category-I bank must ensure payment of all applicable taxes while permitting
transfer of assets.
v.
Credits
to the bank accounts of BO/LO/PO on account of such transfer of assets will be treated
as permissible credits.
vi.
Donation
by BO/LO/PO of old furniture, vehicles, computers and other office items etc.
to NGOs or other not-for-profit organisations may be
permitted by the AD Category-I banks after satisfying themselves about the bonafides of the transaction.
18.The new regulations have been notified vide Notification
No. FEMA 22(R)/2016RB dated
March 31, 2016 c.f.
G.S.R. No. 384(E) dated March 31, 2016 and have come into force with effect
from March 31, 2016. The Master Direction No. 10 of 2015-16 (Establishment of
Branch Office (BO)/ Liaison Office (LO)/ Project Office (PO) or any other place
of business in India by foreign entities) and Master Direction No.18 of 2015-16
(Reporting under Foreign Exchange
Management Act, 1999) are being updated
accordingly to incorporate the above changes.
19.AD Category - I banks may bring the contents of this circular
to the notice of their constituents/customers concerned.
20.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 is without prejudice to permissions / approvals, if any, required
under any other law.