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A foreign investor may establish a structure in India depending on the nature of activities envisaged and the prevailing government policy in the
proposed sector of investment. There are two types of investment vehicles that are possible to be set up for carrying on business: –
(a)
Unincorporated entities viz: liaison, project and branch offices; subject to permitted activities under the Foreign Exchange Management
(Establishment in India of Branch or Office or Other Place of Business) Regulations 2000.
(b)
Incorporated entities viz: wholly owned subsidiaries and joint venture companies by incorporating a company under the Companies Act,
1956.
Companies incorporated in India and foreign corporations having a presence in India (in the form of liaison / project/ branch offices etc) are regulated
by the provisions of the Companies Act, 1956.
A Comparitive Chart of matters relating to establishment of Unincorporated and Incorporated Entities Meaning
Liaison Office
'Liaison Office' means a place of business to act
as a channel of communication between the
Principal place of business or Head Office 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.
Branch Office
Branch Office’ in relation to a company
means(a) any establishment described as a
branch by the company, or
(b) any establishment carrying on either
the same or substantially the same
activity as that carried on by the head
office of the company, or
(c) any establishment engaged in any
production, processing or
manufacture,
but does not include any establishment
specified in any order made by the
Central Government.
Project Office
‘Project Office’ means a place of
business to represent the interests of
the foreign company executing a
project in India but excludes a
Liaison Office.
Company
An incorporated entity formed and
registered under the Companies
Act, 1956. Is a distinct legal entity,
apart from its shareholders.
Permitted
Activities
Liaison Office
i)
Representing in India the parent
company/group companies.
ii) Promoting export import from/to India.
iii) Promoting technical/financial
collaborations between parent/group
companies and companies in India.
iv) Acting as a communication channel
between the parent company and Indian
companies.
Branch Office
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.
Project Office
A foreign Company may be
permitted to open a Project Office/s
in India provided it has secured from
an Indian company, a contract to
execute a project in India. Project
Office shall not undertake or carry on
any other activity other than the
activity relating and incidental to
execution of the project.
Company
As per its ‘main objects’ stipulated
in the Memorandum & Articles of
Association.
However under the foreign direct
investment (“FDI”) policy of the
Government of India foreign
investment in the following
industries is prohibited
1.
Retail trading (except single
brand product retailing)
2.
Atomic Energy
3.
Lottery business
4.
Gambling & Betting.
However in the following activities
the foreign investor shall require
prior government approval:
•
•
Types of -
Not Applicable
Not Applicable
Not Applicable
1.
2.
Proposals in which the
foreign collaborator has an
existing
financial/technical/trademar
k arrangement in the ‘same
field’ as per Press Note 1 of
2005 Series read with Press
Note 3 of 2005 Series (copies
of the said notifications are at
Attachment 5).
Proposals where more than
24%
foreign
equity
is
proposed to be inducted for
manufacture of items reserve
for the Small Scale Sector.
Public sector (which is owned
and controlled by the
Government)
Private Sector
Further, a private-sector company
can be classified as a public or
private company having limited or
Liaison Office
Branch Office
Project Office
Company
unlimited liability. A company can
be limited by shares or by
guarantee. In the former, the
personal liability of members is
limited to the amount unpaid on
their shares while in the latter the
personal liability is limited by a
pre-decided nominated amount.
For a corporation with unlimited
liability, the liability of its members
is unlimited.
A private company is required to
be incorporated with a minimum
paid-up capital of Rupees 100,000
and minimum two subscribers.
Broadly, it:
•
restricts the right to
transfer its shares;
•
limits the number of its
members (shareholders)
to fifty;
•
prohibits any invitation
to the public to subscribe
for any of its shares or
debentures; and;
•
prohibits any invitation
or acceptance of deposits
from persons other than
its members, directors or
their relatives.
A public company (as opposed to a
private company) is required to be
incorporated with a minimum
paid-up capital of Rupees 500,000
or such higher capital as may be
prescribed and minimum seven
subscribers.
Listed public companies are
regulated
by
the
Securities
Exchange Board of India (SEBI)
Application
for
establishment
under Indian
statute
Authority
granting the
approval
Liaison Office
Branch Office
Project Office
Company
and the listing agreements with the
respective stock exchange on
which their shares are listed.
Presently, the minimum public
participation in a listed company
shall be 25% of its paid up capital.
FEMA (Establishment in India of branch or
office or other place of business) Regulations
2000
FEMA (Establishment in India of branch
or office or other place of business)
Regulations 2000
FEMA (Establishment in India of
branch or office or other place of
business) Regulations 2000
Companies Act, 1956.
Reserve Bank Of India
(Central Office, Mumbai)*
Reserve Bank Of India
(Central Office, Mumbai)
Reserve Bank Of India
(Central Office, Mumbai)
*all applications to RBI are scrutinized by the Ministry of
*all applications to RBI are scrutinized by the
Finance, Ministry of External Affairs, Ministry of Defense
and Ministry of Home Affairs before directing the Reserve
Bank of India to issue the approval
Ministry of Finance, Ministry of External Affairs,
Ministry of Defense and Ministry of Home Affairs
before directing the Reserve Bank of India to issue the
approval
Registrar of Companies
(of the relevant jurisdiction where
the registered office is to be
located)
&
Foreign Investment Promotion
Board (“FIPB”) in cases where its
approval is specifically required.
Form FNC 1
Form FNC 1
*all applications to RBI are scrutinized by the
Relevant
Application
for grant of
approval to
establish office
in India.
Ministry of Finance, Ministry of External
Affairs, Ministry of Defense and Ministry of
Home Affairs before directing the Reserve Bank
of India to issue the approval
Form FNC 1
1.
2.
Prescribed E-Form 1 A (for
availability of name) alongwith
corporate resolutions (duly
notarized and authenticated
by the Indian Embassy in the
country where the parent
office is situate)–
ƒ
if the name of the foreign
parent is to form part of
the name;
ƒ
if the foreign company is
to be a promoter
/subscriber shareholder
Application for Director
Identification Number (DIN)
and Digital Signature
Certificate (DSC) to be
obtained.
Application to the FIPB shall need
to be made in prescribed Form FCIL.
Accompanying
Documents
Liaison Office
Branch Office
Project Office
Company
1.
1.
Documentary evidence that the –
ƒ
the project is funded by a
bilateral or multilateral
International Financing Agency;
or
ƒ
the project has been cleared by
an appropriate authority; or
ƒ
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.
Filing of the Memorandum &
Articles of Association containing
the Name of the company, the
Objects of the company, the
location of its Registered Office
and, its Authorized Capital.
None
ƒ
2.
3.
English version of the certificate of
incorporation/registration
and
Memorandum and Articles of Association
attested by the Indian Embassy/Notary
Public in the country of registration; and
Certified Copy of the Latest Audited
Balance
Sheet
of
the
applicant
company/firm.
Letter of Authority authorizing the local
representative of the proposed Indian
liaison office, to submit the application,
provide clarifications to RBI and also
receive the original letter of approval from
the RBI.
In addition, it is recommended that the
brochures of the parent company setting out its
various operations, countries of operations,
products on sale etc be submitted to RBI
Preincorporation /
establishment
- Statutory &
Filing Fees
None
2.
3.
English version of the certificate of
incorporation/registration
and
Memorandum and Articles of
Association attested by the Indian
Embassy/Notary Public in the
country of registration; and
Certified Copy of the Latest Audited
Balance Sheet of the applicant
company/firm.
Letter of Authority authorizing the
local representative of the proposed
Indian liaison office, to submit the
application, provide clarifications to
RBI and also receive the original
letter of approval from the RBI.
In addition, it is recommended that the
brochures of the parent company setting
out its various operations, countries of
operations, products on sale etc be
submitted to RBI
None
Prescribed E-Forms 1, 18, 29 and
32.
ƒ
ƒ
ƒ
Approval
Typical terms of approval as issued by RBI
would contain the following 1. Except the proposed liaison work, the office in
India will not undertake any other activity of a
trading, commercial or industrial nature, nor
shall it enter into any business contracts in its
own name without the prior permission of the
RBI.
Filing fees (Rs. 500) on EForm 1A
Stamp duty on the
Memorandum (calculated as
per Stamp Act)
Stamp duty on the Articles of
Association (calculated as per
Stamp Act)
Registration fees on
Memorandum & Articles and
on the E-Forms (calculated as
per ROC schedule of fees)
Typical terms of approval as issued by
RBI would contain the following
conditions:
Certificate
of
Incorporation
(evidencing the registration of the
company)
ƒ
Commencement
of
Business
Certificate (only in the case of a
public company)
The Branch Office would not expand its
activities or undertake any new trading,
commercial or industrial activity other
Liaison Office
2. No commission/fees will be charged or any other
remuneration received/income earned by the
office in India for the liaison activities/services
rendered by it or otherwise in India.
3. The entire expenses of the office in India will be
met exclusively out of the funds received from
abroad through normal banking channels.
4. The office in India shall not borrow or lend any
money from/to any person in India without the
prior permission of the RBI.
5. The office in India will furnish to the RBI
Regional Office (on a yearly basis) a certificate
from the auditor that the liaison office has
complied with the terms and conditions
stipulated in the letter of approval issued by the
RBI and that all the expenses are met by way of
inward remittances only henceforth in lieu of
Audited Annual Accounts.
6. The office in India will not render any
consultancy
or
any
other
services
directly/indirectly with or without any
consideration.
7. The office in India will not have any
signing/commitment powers except than those
which are required for normal functioning of the
office, on behalf of the Head Office.
8. In case you desire to open a Head Office account
in the books of your liaison office in India, the
RBI can grant you their approval to maintain
such an account subject to the conditions that the
credits to the account should represent the funds
received from Head Office through normal
banking channels for meeting the expenses of the
office. Debits to this account could be raised only
for meeting the local expenses of the office.
9. The permission granted by the RBI is limited to
Branch Office
than that is expressly approved by the
RBI.
ƒ 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.
ƒ The Branch Office will not accept any
deposits in India;
ƒ The commission earned by the Branch
Office from parties abroad for any agency
business will be repatriated to India
through normal banking channels
Project Office
Company
Liaison Office
and for the purpose of the provisions of the
FEM(E), 2000 only and shall not be construed in
any way as regularizing, condoning or in any
manner
validating
any
irregularities,
contraventions or other lapses, if any, under the
provision of any other law for the time being in
force.
Branch Office
Project Office
Company
Three (3) years from the date of approval
Generally for the period of the project
Until deletion of name from the
Register of the ROC.
10. The liaison office is to obey the law of the land
and there shall be no compromise or excuse for
the ignorance of the Indian Legal System in any
manner.
11. While no specific permission is required for
crediting security refunds, income refunds,
insurance claims and Govt. refunds to the bank
account of the liaison office, specific permission of
the RBI is necessary for the remittance of these
amounts.
Time limit of
Approval
Post
incorporation
regulatory
filings
Three (3) years from the date of approval;
extendable for further period of 3 years at the
discretion of the RBI
After receipt of the necessary approval from
the RBI and a decision is taken to set up the
branch office from any specified date
commonly known as ‘SET UP DATE’,
ƒ
ƒ
ƒ
inform the RBI of the detailed address for
the liaison office in accordance with the
approval for setting up of a branch office;
under section 592 of the Companies Act,
1956, (within 30 days of the Set Up Date)
register with the Registrar of Companies,
in the jurisdiction where the office is
located by filing prescribed E-Form 44.
Register under the local laws such as the
Shops & Establishments Act, the relevant
employment laws such as provident fund
(Social Security benefit) in case number
of employees employed exceeds 20
employees.
After receipt of the necessary approval
from the RBI and a decision is taken to set
up the branch office from any specified
date commonly known as ‘SET UP DATE’,
ƒ
ƒ
ƒ
inform the RBI of the detailed
address for the branch office in
accordance with the approval for
setting up of a branch office;
under section 592 of the Companies
Act, 1956, (within 30 days of the Set
Up Date) register with the Registrar
of Companies, in the jurisdiction
where the office is located by filing
prescribed E-Form 44.
Register under the local laws such
as the Shops & Establishments Act,
the relevant employment laws such
as provident fund (Social Security
benefit) in case number of
ƒ
ƒ
Inform location of office to
RBI
Submit E-Form 44 to ROC
Liaison Office
Yearly filings include the filing of audited
accounts of the liaison office & also submit an
activity certificate from a practicing Chartered
Accountant in India.
Branch Office
employees employed exceeds 20
employees.
Permitted
Incomes
Only receipt of inward remittance from the
Principal / Head Office through normal
banking channels.
Remittance
outside of
India
None, except upon closure of the liaison office
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.
A branch Office in India may remit
outside India the profit of the branch net
of applicable Indian taxes, on production
of the following documents, and
establishing the net profit or surplus, as
the case may be, to the satisfaction of the
authorized dealer through whom the
remittance is effected.
a) certified copy of the audited balancesheet and profit and loss account for
the relevant year;
b) a Chartered Accountant’s certificate
certifying, i)
the manner of arriving at the
remittable profit,
ii) that the entire remittable profit
has been earned by undertaking
the permitted activities, and
iii) that the profit does not include
any profit on revaluation of the
assets of the branch.
Indian Income
tax
None, since a liaison office is not meant to earn
any income in India.
It requires to only submit a Statement of Affairs
setting out the inward remittances as received
and expenses made in India during any
financial year.
Project Office
Company
Only receipt of inward remittance
from the Principal / Head Office
through normal banking channels.
All income arising out of its
business activities.
Yearly filings include the filing of
audited accounts of the branch office &
also submit an activity certificate from a
practicing Chartered Accountant in
India.
Since a branch office of a foreign company
is taxed as a foreign company in India @
41.82%.
It requires to file a tax return in India.
•
•
•
Dividends
Royalties
Fees towards technology
knowhow
Remittances under Supply
Contracts (subject to limitation of
matters of ‘Related Party
transactions’)
Any Indian company is taxed @
33.66%.
It requires to file a tax return in
India.
Executives /
Directors
Liaison Office
1 or more representatives in India
Branch Office
1 or more representatives in India
Project Office
1 or more representatives in India
Company
In a private company Minimum 2
members & 2 directors.
In a public company Minimum 7
members & 3 directors