BRANCH OFFICE / LIAISON OFFICE

I. Meaning:

i) Branch:

Companies incorporate outside India and engaged in manufacturing or trading activities are allowed to setup Branch Offices with specific approval of the RBI. Normally, the Branch Office should be engaged in the activity of the Parent Company.

ii) Liaison Office:

Liaison Office is 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

II. Constitution:

An extension of the Parent Company with right to accrue income in India (Right to accrue income is only for Branch Office and not for Liaison Office)
It is a simple form of structure
No separate legal standing of its own

III. Requirement of Prior Approval of RBI:

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:

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 BO/LO/PO 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.
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. No separate approval is required from Reserve Bank of India for such cases only.
The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government.

IV. Financial Track Record of the Parent Company:

i) Branch Office:

To open Branch Office, the Parent Company should have 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.
Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called].

ii) Liaison Office:

To open Liaison Office, the Parent Company should have 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.

V. Permitted activities in India of a person resident outside India:

i) For a Branch Office

Normally, the branch office should be engaged in the activity in which the parent company is engaged.
Export/import of goods.
Rendering professional or consultancy services.
Carrying out research work in which the parent company is engaged.
Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
Representing the parent company in India and acting as buying/ selling agent in India.
Rendering services in Information Technology and development of software in India.
Rendering technical support to the products supplied by parent/group companies.
Representing a foreign airline/shipping company.

ii) For a Liaison Office:

Representing the parent company / group companies in India.
Promoting export / import from / to India.
Promoting technical/ financial collaborations between parent / group companies and companies in India.
Acting as a communication channel between the parent company and Indian companies.

VI. Validity period of RBI Approval:

i) For Branch Office:

FEMA regulations does not specify the validity period of approval given for establishment of Branch Office. Hence we can say the approval is valid till the closure.

ii) For Liaison Office:

The validity period of an LO is generally for three years, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only.

VII. Extension of Validity Period:

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:

· The LO should have submitted the Annual Activity Certificates for the previous years and
· 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.

VIII. Registrations required for BO/LO:

i) RBI Guidelines:

a. Registration with RBI:

· The Application to be submitted to AD Category I Bank in Form FNC along with the prescribed documents
· After due verification of documents and background check, AD Category I Bank will forward the same to RBI for UIN (Unique Identification Number)
· Approval Letter will be issued by the AD Category I Bank after receipt of the UIN from RBI.
· After receiving the approval, the applicant shall set up the office within 6 months and inform the AD Category I Bank, the date of setting up of Branch / Liaison Office.

b. Registration with police authorities:

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

ii) Registration with ROC:

Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration, prescribed Documents in Form FC-1

iii) Other Registrations:

Permanent Account Number
TAN
Karnataka Shops and Establishment

IX. Bank Account:

Branch office / Liaison Office to transact with single AD Bank. Change in AD is subject to:

· consent from both the banks
· transferring AD bank confirming submission of all AACs and absence of any adverse features in conducting the account by the BO

i) Permitted Credits:

· Funds received from Head Office through normal banking channels for meeting the expenses of the office.
· Refund of security deposits paid from LO’s account or directly by the Head Office through normal banking channels.
· Refund of taxes, duties etc., received from tax authorities, paid from LO’s bank account.
· Sale proceeds of assets of the LO.

ii) Permitted Debits:

Only for meeting the local expenses of the office.

X. Annual Activities:

i) FEMA / RBI Compliances for Branch Office / Liaison Office

a. Annual Activity Certificate

Annual Activity Certificate (AAC) as at 31st March alongwith the audited financial statements including receipt and payment account should be submitted by Branch Office / Liaison Office to

– Authorised Dealer Bank and
– Director General of Income Tax (International Taxation), Drum Shape Building, I.P. Estate, New Delhi – 110002

On or before September 30th of that year. In case of different FY, documents may be submitted within 6 months from the due date of financials.

ii) ROC Compliances:

a. Annual Accounts in Form FC-3

i) Relevant Provisions

Section 381 of the Companies Act, 2013 read with Rule 4, 5 & 6 of the Companies (Registration of Foreign Companies) Rules, 2014

Foreign company shall file the financial statements within 6 months from the close of its Financial Year to which the documents relate with the following enclosures. However, ROC can extend the said period to not more than 3 months on application made in writing by the foreign company for any special reason:

Accounts of the Company\
Latest consolidated financial statements of the parent company as submitted by it to relevant authorities in the country of incorporation.
Statement of Related Party Transaction
Statement of repatriation of profits
Statement of transfer of funds
A copy of a list in the prescribed form of all places of business established by the company in India
Approval letter obtained for every establishment in India by a foreign company

If the documents are in any other language other than English, certified translation in English language is mandatory.

b. Annual Return in Form FC-4

Relevant Provisions

Section 384 of the Companies Act, 2013 read with Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014

Annual Return shall be filed by the foreign company within 60 days from the last day of its Financial Year with the following attachments:

– Details of Promoters, Directors and Key managerial personnel and changes therein since close of previous financial year

– Details of directors and key managerial personnel and their remuneration

– Details of the meeting of the members or class thereof, board and its various committees along with attendance details

– Particulars of members and debenture holders along with changes therein since the close of previous financial year

– Particulars of Holding, subsidiary and associate companies and firms (Mandatory in case number of entities prescribed at serial no 6 is more than seven)

– Details of Penalties / punishment/ Compounding of offences, if any

c. Alteration

Relevant Provisions

Section 380(3) of the Companies Act, 2013 read with Rule 3(4) of the Companies (Registration of Foreign Companies) Rules, 2014.

Form FC-2

Foreign company shall file Form FC-2 in respect of any alteration in:

– Charter or statute or any other instrument governing the company

– Particulars of Director/Secretaries

– Registered or principal office of the company in the country of incorporation

– Change in the particulars of authorized representative(s) of the company

– Change in other places of business in India of the company