FDI & FEMA

# Establishing Branch or Liaison Office in India

## Establishing Branch or Liaison Office of a Foreign Company in India

Foreign companies can establish a Branch Office (BO) for commercial activities or a Liaison Office (LO) for representational purposes in India under the Foreign Exchange Management Act, 1999 (FEMA), primarily governed by FEMA Notification No. 22(R)/2016-RB and RBI Master Directions. These offices require prior RBI approval via an Authorized Dealer (AD) Category-I bank and subsequent registration with the Registrar of Companies (ROC).

### The Two Approval Routes

The applications from foreign entities in Form FNC will be considered by the Reserve Bank of India under two routes:

- Automatic Route: Where the principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route, the RBI will consider the application and grant approval.
- Government Route: Where the principal business of the foreign entity falls under sectors where 100 per cent FDI is not permissible under the automatic route, the RBI will consider the application in consultation with the Ministry of Finance, Government of India.

### Branch Office (BO)

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Normally, the Branch Office should be engaged in the activity in which the parent company is engaged. However, retail trading activities of any nature or to carry out manufacturing or processing activities are not allowed for a Branch Office in India. Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable taxes.

### Liaison Office (LO)

A Liaison Office (also known as a Representative Office) can undertake only liaison activities, i.e., it can act as a channel of communication between the Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

### Eligibility Criteria

While considering the application for sanctioning Liaison/Branch Offices of foreign entities, the Reserve Bank will consider the financial track record and profitability:

- Branch Office: A profitable track record during the immediately preceding 5 financial years and a net worth of not less than USD 100,000.
- Liaison Office: A profitable track record during the immediately preceding 3 financial years and a net worth of not less than USD 50,000.

### Key Differences

Aspect | Branch Office (BO) | Liaison Office (LO)
--- | --- | ---
Purpose | Permitted to represent parent/group companies and undertake: Export/Import of goods. Rendering professional or consultancy services. Carrying out research work in areas of parent company. Promoting technical/financial collaborations. Representing parent as buying/selling agent. IT services and software development. Technical support to products supplied by parent. Foreign airline/shipping company operations. | Non-commercial representation, market research, and promoting collaborations only. No business activities.
Revenue Generation | Allowed from permitted activities. | Prohibited. Funded entirely by inward remittances from parent.

### Procedure of Registration

1. An application for establishing BO/LO in India should be forwarded by the foreign entity through a designated AD Category-I bank to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, New Delhi, along with the following documents:
   - English version of the Certificate of Incorporation/Registration or Memorandum & Articles of Association attested by the Indian Embassy/Notary Public in the Country of Registration.
   - Latest Audited Balance sheet of the applicant company. (If the home country laws do not insist on audit, an Account Statement certified by a CPA or Registered Accounts Practitioner showing the net worth may be submitted).
   - Bankers' Report from the applicant’s banker showing the number of years of banking relations.
2. On receipt of RBI approval and allotment of Unique Identification Number, the Company can file an application in prescribed Form FC-1 with the Ministry of Corporate Affairs within 30 days of the establishment of its place of business in India, along with:
   - Certified copy of the charter, statutes or memorandum and articles of the company in English.
   - Full address of the registered or principal office of the company.
   - List of Directors and secretary containing prescribed particulars.
   - Name and address of one or more persons resident in India authorized to accept service of process/notices.
   - Full address of the principal place of business in India.
   - Declaration that none of the Directors or the authorized representative has ever been convicted or debarred in India or abroad.