Brief gist of a Liaison Office (LO/Branch Office
(B.O) Regulations:-
Branch office as the name suggest is a Branch
Structure which a Foreign Company or Individual or Association of Individuals
wish to setup in India to carry out the Branch activities in India for it
business .Branch office in
India is governed under Reserve
Bank of India laws of establishment of
Branch office rules prescribed under FEMA (Foreign exchange management Act 1999)
provisions. It acquires a
Legal entity status when RBI grants license to carry out permissible Branch
office activities in India.
2. Process/Route for Setting up
Branch office:
To set up Branch Office the applicant can file application in Form FNC&
is has an option to follow a
two way process .
Reserve
Bank of India provides a Branch Office License to an entity in India of a
Foreign Company only if Foreign Entity falls under sectors where 100 percent
Foreign Direct Investment is allowed under Automatic Route. Which means that
there is no need to take a separate approval of the same.
Route 2- Government of India Process:
In case where the principal Business of
foreign Entity which is going to setup the Branch office falls under the sectors of
business where 100 percent Foreign Direct Investment is not permissible under automatic route. Applications
from entities falling under this category and those from Non - Government
Organizations / Non - Profit Organizations / Government Bodies / Departments
are considered by the Reserve Bank in consultation with the Ministry of
Finance, Government of India.
3. Prerequisites of
Forming a Liaison Office/Branch office in India :
Reserve bank of India
allows Liaison Office/Branch office to be setup in India and consider following
key points:
A. Track Record:- For
Branch Office :A Profit Making Track record during the Immediately
Preceding five years in home country is
essential.
For
Liaison Office: A Profit Making Track Record during the three years Immediately
Preceding three years in the Home Country.
B. Net worth(Total
of paid up capital and Free reserves Less Intangible assets as per latest
Audited Balance sheet or Accounts Statements must be certified by the certified
Public Accountant or any registered Practitioner is mandatory provision as per FEMA
1999.
In case of Branch Office: Net worth must not be
Less than USD 100,000or its equivalent.
In case of Liaison Office: Net worth must not be
less than USD 50,000 or its equivalent.
C. In case Companies willing to setup Branch Office
are Subsidiaries’ of the Foreign Parent Company they need to provide Letter of
Comfort from the parent Company provided the other conditions of eligibility
are satisfied.
D. Foreign Entity intending to apply for Branch
Office license in India must get through detailed Due Diligence, by Authorized
Merchant bankers– category 1 on Criteria’s of background check, promoter antecedent’s
check, nature and location of activity and other KYC norms.
E.. The Liaison Office/Branch Office must also get
PAN Permananent Account Number from Tax Authorities and Unique identification
numbers from RBI before getting License of setting up operations in India.
F.The name of Indian Branch office shall be same as parent company.
G.The Branch
office does not have any ownership; it is just extension of the exiting company
in the foreign country.
H. All the
expenses of the BRANCH office are met by the head office, if it does not have
the revenue from Indian operations.
4. Basic procedures to setup a Branch office
in India:
1. Applicant
if satisfy the eligibility criteria shall submit application Form FNC-1(
Annex-1) Duly completed /submitted to the Authorised Dealer Category – I bank,
who submit the same to General manager , Foreign exchange Department ,Central Office cell, RBI(New Delhi) Regional
Office-6,parliament Street Delhi- 110001.
2. Letter from the
principal officer of the Parent company to RBI. *
3. Letter of authority
from the parent company in favor of Local Representative.
4. Letter of authority/
Resolution from parent company for setting up branch office in India.
5. Comfort letter from
the parent company intending to support the operation in India.
6. Two copies of the
English version of the Certificate of Incorporation, Memorandum & Articles
of association (Charter Document) of the parent company duly attested by the
Indian embassy or notary public in the country of registration.
7. Certification of
Incorporation – Translated & Duly Notarized and Certified by Indian
Consulate.
8. The Latest audited
Balance sheet and annual accounts of parent company duly Translated notarized
for past Three years. & Certified by Indian Consulate & Directors.
9. Name, Address, email
ID and telephone number of the authorized person in Home Country.
10. Details of Bankers
of the Organization the Country of Origin along with the bank account number.
11. Commitment from the
Organization to the effect that it will be open to report / opinion sought from
its banker by the Government of India / Reserve Bank of India.
12. Expected funding
level for operations in India.
13. Details relating to
address of the proposed local office, number of persons likely to be employed,
number of Foreigners among such employees and address of the head of the Local
office, if decided.
14. Details of Activity
carried out in Home Country by the applicant organization in brief about the
product and services of company in Brief.
15. Bankers
Certificate.
16. Latest Proof of
identity of all the Directors – Certified by Consulate and Banker in Home
Country.
17. Latest Proof of
address all of Directors – Certified by Consulate and Banker in Home Country.
18. Details of the
Individuals / Company holding more 10% of Equity.
19. Structure of the
Organization w.r.t Shareholding pattern.
20. Complete KYC of
Shareholders holding more than 10% Equity in the Applicant Company.
21. Resolution for
Opening up Bank Account with the Banker.
22. Duly Signed Bank
Account Opening Form for Indian Bank.
5.
Permitted Activities under Branch office:
Companies incorporated outside India and
engaged in manufacturing or trading activities are allowed to set up Branch
Offices in India and undertake the following activities in India;
1. Export/Import of
goods.
2. Rendering
professional or consultancy services.
3. Carrying out
research work, in which the parent company is engaged.
4. Promoting technical
or financial collaborations between Indian companies and parent or overseas
group company.
5. Representing the
parent company in India and acting as buying/selling agent in India.
6. Rendering services
in Information Technology and development of software in India.
7. Rendering technical
support to the products supplied by parent/group companies.
8. Foreign
Airline/shipping Company.
6
Reporting Compliances to be followed for Branch office in India:
The Branch Office also
needs to inform ROC of certain changes as and when there is made in E- form FC-2:
a). Intimating any
change in constitution of Foreign Company to RBI & ROC.
b). Intimating any
change in Directors of Foreign Company to RBI & ROC.
c). Intimating each and
every change in the BRANCH office to RBI & ROC.
d). No additional place
of business can be started unless approval is taken from RBI.
e). No addition
activity can be started unless approval is taken from RBI.
Repatriation of funds :
a)Profits earned by the
Branch Offices are freely remittable from India, subject to payment of
applicable taxes.
There are many common errors
committed by Branch Office and there are certain non permissible activities
which need to be considered and remedial measures be taken in Advance.
a). Without prior
permission of the Reserve Bank, no person being a citizen of Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish in India, a
Branch Office so prior permission
must be taken otherwise it will be considered as illegitimate activity.
b). Branch Offices are
allowed to open non-interest bearing INR current accounts in India. Such
Offices are required to approach their Authorized Dealers for opening the accounts. The entire fund management
must be done through banking channels.
c). Transfer of assets
of Branch Office to subsidiaries or other Branch Offices or any other entity is
allowed with specific approval of the Central Office of the Reserve Bank it
must be done in consultation with RBI with prior approval otherwise it may
tantamount to illegitimate activity.
d) The Branch Offices
are permitted to remit outside India its profits net of applicable Indian taxes, on production of the
following documents to the satisfaction of the Authorised Dealer 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.
iii. That the entire
remittable profit has been earned by undertaking the permitted activities.
iv. That the profit
does not include any profit on revaluation of the assets of the branch.
all the above points
must be considered carefully and any violation can cause stiff penalties and may result into a situation
that the branch office compliance is questioned by the RBI. .
e). Authorised Dealers
can allow term deposit account for a period not exceeding 6 months in favor of
a branch/office of a person resident outside India provided the bank is
satisfied that the term deposit is out of temporary surplus funds and the
branch / office furnishes an undertaking that the maturity proceeds of the term
deposit will be utilized for their business in India within 3 months of
maturity. However, such facility may not be extended to shipping/airline
companies.
f). A copy of the
report shall be filed with the Director General Police (DGP) concerned on
annual basis along with a copy of the annual certificate, and also with the AD
concerned and non compliance of same is a common lapse committed by Branch
Office..
g). The designated AD
Category - I bank shall scrutinize the Annual Activity Certificate and ensure
that the activities undertaken by the BO are being carried out in accordance
with the terms and conditions of the approval given by the Reserve Bank.
h) . All new entities
setting up BO shall submit a report containing information, as per format
within five working days of the BO becoming functional to the Director General
of Police (DGP) of the state concerned in which BO has established its office;
if there is more than one office of such a foreign entity, in such cases to
each of the DGP concerned of the state.
i). Branch office
in SEZ must note down point is that a
branch/unit in Special Economic Zones (SEZs) to
undertake manufacturing and service activities. The general permission is
subject to the following conditions:
Such units are functioning in those sectors where 100
per cent FDI is permitted;
Such units comply with relevant provisions of Companies Act,2013
Such units function on a stand-alone basis.
J.) Retail trading activities of any nature is not
allowed for a Branch Office in India.
k). A Branch Office is not allowed to carry out
manufacturing or processing activities in India, directly or indirectly.
8.
Forms and checklists of various compliances: : Form FNC- 1 and Letter of Comfort
and Declaration and Annual activity form must be filled diligently and there
must be in consonance with RBI provisions. A Brief Checklist is complied for
various Compliances as Follows:
1. General Details like
Name, email and Incorporation details must be accurately filled in form FNC-1
and must be checked from all angles and must be cross verified before
submitting same with AD bank.
2. Activities of the
Branch Office must be reported as follows:-
a). Total amount of
Goods Imported from India or
exported to India by any other name or
business name or entity must be checked carefully before filling FNC-1.
b).The parent Company
must be vigilant to provide accurate discloser..
c).The applicant must
also provide the reasons for taking up BO license in India and as bonafide
business.
d).Detailed services to
be offered through proposed BO and activities must be explained in FNC-1 and
any non disclosure can result into serious consequences.
e). Location and nature
of Proposed BO must be clearly mentioned in FNC-1.
f).Applicant for
proposed BO must provide a Bankers certificate which must be true and fair
providing clear picture on status of applicant as defaulter or not in home
country.
g). Applicant for
proposed BO must also disclose expected foreign with accurate information about
them to RBI in adherence with the law.
h). For Non profit or
Non Government Organization following points must be explained clearly:
1. Activities carried
by applicant which is Non-profit organization in home country and all expenses
or income incurred in home country.
2. Expected level of
funding required for proposed BO must also be disclosed to RBI in FNC-1.
3. Bye laws of Home country
applicant nonprofit organization must also be revealed like MOA.
i). For shifting of
Registered office address prior approval required from RBI..
j). Attachments of FNC-
1 must contain true and fair declaration by applicant of proposed BO and must have state the following :
1.Copy of certificate
of incorporation attested by notary in public In the country of registration ,
if providing original certificate of incorporation then same must be translated
in English and must be notarized and cross verified and attested by the embassy
of the country of which this certificate , applicant is presenting as a proof.
2. Latest audited
Balance sheet by a certified Public Accountant or Registered practioner and its must be adhered
specially.
3. Bankers report of
applicant proving the status of fair banking terms with home banker before
applying for BO in India and declaring the same in India as proof.
k). Annexure 2 must
give a true and fair view of the compliance to the various statutes by the BO.
l). Format of report to
DG of Police must contain a declaration by applicant on ongoing arrangements,
equipments in use by BO in accordance with rules and details of Foreign
Employees must be submitted in all respect.
m). The certificate of
Annual Activity provide a True position of what Annual activities have been
taken and audited books of accounts be kept at BO. Audited
accounts duly certified by the Chartered Accountant be filed with the RBI.
.
9. How to close
Branch office- Checklist:
Generally the BRANCH office licenses is
given for three years, if at any time the Company plans to close the BRANCH
office setup in India it shall file the necessary documents with the Authorized
Dealer, and the application for the closure shall be forwarded by the
Authorized Dealer.
1. Copy of the Reserve Bank’s permission/ approval
from the sectoral regulator(s) for establishing the BO / LO.
2. Auditor’s certificate-
i) 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;
ii) 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; and
iii) Confirming that no income accruing from
sources outside India (including proceeds of exports) has remained un-
repatriated to India.
3. No-objection / Tax Clearance Certificate from
Income-Tax authority for the remittance/s.
4. Confirmation from the applicant/parent company
that no legal proceedings in any Court in India are pending and there is no
legal impediment to the remittance.
5. A report from the Registrar of Companies
regarding compliance with the provisions of the Companies Act, 1956/2013, in
case of winding up of the Office in India.
10.
Notifications and circulars from past to current:-
There are a series of
Circulars and Notifications on Branch office and same will be highlighted here
in as below providing the evaluation of the concept till its recent point which
is now providing same as below in link formats which are as follows:-
List of Notifications/Circulars
consolidated in this Master Circular
Sr. No.
|
Notification / Circular No.
|
Date
|
1
|
May 03, 2000
|
|
2
|
May 03, 2000
|
|
3
|
May 03, 2000
|
|
4
|
July 02, 2003
|
|
5
|
Oct. 03, 2003
|
|
6
|
May 07, 2005
|
|
7
|
Sept 18,2007
|
|
8
|
Sept. 24, 2009
|
|
9
|
April 05, 2010
|
|
10
|
July 06,2002
|
|
11
|
Nov. 15, 2003
|
|
12
|
Jan. 16, 2004
|
|
13
|
April 25, 2005
|
|
14
|
May 17, 2005
|
|
15
|
July 31, 2008
|
|
16
|
December 30, 2009
|
|
17
|
December 30, 2009
|
|
18.
|
August 09, 2010
|
|
19
|
A.P. (DIR series) Circular No. 02
|
July 15, 2012
|
20
|
February 9, 2012
|
|
21.
|
March 1, 2012
|
|
22.
|
September 17, 2012
|
|
23.
|
September 25, 2012
|
|
24.
|
November 26, 2012
|
Note: It is clarified for the information
of all users that the Master Circular need not necessarily be exhaustive and a
reference to the relevant A.P. (DIR Series) Circular is needed, wherever
further information/clarification is required.
Company Secretary GAURAV SHARMA+919990694230 Email us [email protected]
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