How to setup project office in India?

When a foreign entity wants to enter India for establishing an office, the main question revolves around the entry route. One of the main entry routes is by establishing an office. Based on the requirement the foreign company can establish a branch, liaison, or project office. Project Office is the best method for entry if the main objective of the company is time-barred. A project office basically represents the interests of the parent company in India.

In this article, we will cover about project office, the legal requirements in establishing a project office, and the related compliances under the Foreign Exchange Management Act, 1999 (FEMA) and Companies Act, 2013, and the closing down of project offices.

Table of Content:

What is a Project Office?

Foreign companies started expanding their business in India in the early 1990s. Establishing a foreign office is the first step towards setting the business. The foreign company can setup a business establishing a foreign office in the form of a project office.

The project office is usually defined as the place of business in India which represents the interest of a foreign company executing a project in India. Project offices are regulated by FEMA and Foreign Exchange Management Regulations, 2016 dealing with branch, liaison and project office.

One can setup a project office in India only after permission from RBI. Before establishing the office, they need to have a contract with an Indian company for starting their project. It has to be registered with the Registrar and comply with the Companies Act and RBI guidelines.

General Conditions for setting up Project Office

A foreign company can setup a project office if it fulfills the following conditions-

  • If the project is directly funded by the inward remittance from abroad.
  • If the funding is done by bilateral/multilateral International Financing Agency.
  • If the project has been cleared by the authorities.
  • The company awarding the contract is granted a loan by Public Financial Institution or bank.

Who can establish a project office in India?

A foreign company can open a project office if it has secured a contract with an Indian company and has fulfilled all the general conditions. RBI gives general permission for opening the project office. The applicant has to get prior approval of RBI for opening a project office in some cases.

Applications shall be forwarded by the AD Category-I Bank who later processes the applications in consultation with the government, in the following cases:

  • If the applicant is the citizen of or registered or incorporated company in Pakistan Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau.
  • If the application is for the opening of the project office in Jammu and Kashmir or any North East region, or Andaman and Nicobar Islands.
  • When the principal business is related to defense, telecom, private security, and information and broadcasting.

However, if the government approval is already taken, then there is no requirement of RBI approval as per FEMA notification dated 21st January 2019 and AP (DIR Series) circular dated 28th March 2019.

If the applicant is an NGO/NPO or any department of a foreign government and they are engaged in activities under FCRA, 2010 and have obtained registration certificate under Foreign Contribution (Regulation) Act, 2010. Then there is no need for permission under FEMA as per notification dated 31st August 2018 and AP (DIR Series) circular dated 27th February 2019.

Entry Routes

  • RBI Route: The RBI route is applicable when the principal business of the foreign entity comes under sectors where 100% FDI is permissible under the automatic route.
  • Government Route: If the principal business of the foreign entity does not come under sectors where 100% FDI is permissible then the application from entities falling in this category are considered by RBI in consultation with the Finance Ministry.

Registration process of Project Office in India

Following is a step-by-step process for project office registration in India-

  • Preparing the documents for establishing the project office.
  • The applicant can submit the application in form FNC to the designated AD Category-I bank along with the required documents.
  • Before issuing the approval letter, the copy of the FNC form is sent to the general manager, RBI for the allotment of the UIN i.e. Unique Identification number.
  • The AD Category-I bank after due diligence grants the approval for setting up of project office in India.
  • After the establishment of the project office the company shall file an e-form within 30 days.
  • It has to approach the AD bank for opening the bank account.
  • Once the project office is setup, the applicant has to comply with other registration and laws related to professional tax, GST and ESIC, and provident funds.

Documents Requirement

Following are for the list of documents required for the set-up of the project office in India to be submitted to the RBI-

  • Copy of the Certificate of Incorporation or the Registration and Memorandum of Association and Articles of Association attested by the Notary Public in the country of registration
  • Board resolution specifying the intent to setup a project office in India.
  • Documentary evidence of funding and latest audited balance sheet.
  • Bankers’ Report from the applicant’s banker showing the total number of years the applicant had banking relations with them.
  • Letter of authorities in favor of local representatives from the parent company.
  • Details of all the activities proposed to be undertaken.
  • Residential proof and copies of the passport of the authorized person.

The application has to be submitted to the ROC with 30 days of establishing project office, and the applicant needs to submit the following documents-

  • RBI permission for establishing the office
  • Copy of the Certificate of Incorporation or the Registration and Memorandum of Association and Articles of Association.
  • The notarized copy of the Power of Attorney which is in favor of a person who is resident in India, authorizing him to accept service of process.
  • List of directors of the company along with all the details.
  • KYC of the shareholders who are holding more than 10% equity in the parent company.
  • Notarized copy of board resolution of the foreign company.

Important Points

  • After the approval letter is granted by AD Category-I Bank, the project office should be opened in 6 months. After 6 months the approval lapses. In case of failure due to reasonable grounds, the AD Category-I bank may grant an extension of 6 months. Apart from this, any more extensions require RBI approval.
  • The project office has the validity for the entire tenure of the project.
  • Companies setting up project offices have to submit reports as per Annex 3 to the DGP of the State where the office is set up.
  • They have to submit a report under Annex 4 with DGP and AD along with an annual certificate.
  • The project office has to submit a certificate from the CA showcasing the status and certifying the accounts are audited and activities were undertaken with RBI permission.

Closure of Project office

Any request for closure of the project office by the company and the remittance of winding-up proceeds has to be submitted to the designated AD Category-1 bank along with the following list of documents-

  • A copy of approval for establishing the project office.
  • The auditor’s certificate.
  • A confirmation from the parent company or the applicant that no legal proceedings are pending in any Court in India.
  • A report from the Registrar regarding compliance with the provisions of the Companies Act, 2013.
  • The AD Category–I bank has to ensure that the project office has filed the respective AACs.
  • Any other documents which are specified by the Reserve Bank of India or the AD Category-I bank.

Conclusion

The RBI has from time to time brought out regulations for better management of project offices in India. These regulations have been issued with an aim to facilitate ease of business. It simplifies the procedure for setting up business in India and makes the entire procedure efficient. The foreign parent company has the liberty to choose which office to establish. The company while choosing the type of office looks into their prospective activities in India. If the company wants to carry a specific project for a specific time period, then only it establishes the project office.

CA Rohit Goyal has experience in multiple spheres including general functions in the field of Auditing, Accounting, and handling Scrutiny Assessments, Taxation Matters along with the specialized functions including Finance, Banking and also handles the field of Stock Audit, Internal Audit and other Various Assignments of Banks.

Copyright © 2022 Goyal Mangal & Company.