India: Entry Option For Foreign Investors In India

A foreign company planning to set up business operations in India has the following options:

As an Incorporated Entity

By incorporating a company under the Companies Act, 2013 (Companies Act) through:

  • Joint Ventures, or
  • Wholly Owned Subsidiaries.

Foreign equity in such Indian companies can be up to 100%, depending on the requirements of the investor, subject to any equity caps prescribed in respect of the area of activities under the Consolidated FDI policy effective from May 12, 2015, issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India (Consolidated FDI Policy).

As an Unincorporated Entity

As a foreign company through:

  • Liaison Office (LO)/Representative Office (RO)
  • Project Office (PO)
  • Branch Office (BO)

Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, as amended from time to time, along with other specific rules, regulations and circulars notified in this context, consolidated in Master Circular on "Establishment of Liaison/Branch/Project Offices in India by Foreign Entities issued by the Reserve Bank of India (RBI)".

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening an LO/BO in India, has to obtain permission from RBI under provisions of Foreign Exchange Management Act, 1999. The applications will have to be made by such entities in Form FNC and will be considered by RBI under two routes:

  1. Reserve Bank Route: Where the principal business of the foreign entity falls under sectors where 100% FDI is permissible -under the automatic route.
  2. Government Route: Where the principal business of the foreign entity falls under the sectors where 100% FDI is not permissible under the Government/ FIPB approval route.

Applications from entities falling under this category and those from Non-government Organisations/Non-profit Organisations/Government Bodies/Departments, are considered by RBI in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the RBI while sanctioning LOs/BOs of foreign entities:

  1. Track Record

    1. For Branch Office: A profit-making track record during the immediately-preceding five financial years in the home country.
    2. For Liaison Office: A profit-making track record during the immediately-preceding three financial years in the home country.
  2. 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).

    1. For BO: not less than US$100,000 or its equivalent.
    2. For LO: not less than US$50,000 or its equivalent.

The application in Form FNC for establishing BOs/LOs in India should be forwarded by the foreign entity through a designated AD Category-I bank (AD bank) to the Chief General Manager-in-charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai – 400001, along with the prescribed documents including:

  1. English version of the Certificate of Incorporation/Registration or Memorandum and Articles of Association attested by Indian Embassy/Notary Public in the Country of Registration.
  2. Latest Audited Balance Sheet of the applicant entity.

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. The designated AD bank should exercise due diligence in respect of the applicant's background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensure compliance with the Know Your Customer (KYC) norms before forwarding the application together with their comments/recommendations to the RBI.

The BO/LOs established with the RBI's approval will be allotted a Unique Identification Number (UIN).

After RBI's approval, the BO/LOs are also required to obtain a Certificate of Establishment of Place of Business in India from the Registrar of Companies (ROC).

The BOs/LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

Liaison Office

An LO is suitable for a foreign company, which wishes to set up a representative office as a first step to explore and understand the business and investment climate in the country. The LO generally acts as a channel of communication between the overseas parent company and its present/ prospective customers in India. The LO can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company or to promote export/import from/to India. Permission to set up LOs is initially granted for a period of 3 years which may be extended from time to time by an AD bank. Also, LOs have to submit Annual Activity Certificates from chartered accountants to designated AD bank. The LO cannot undertake any business activity in India nor earn any income in India. Expenses of such offices are met entirely through inward remittances of foreign exchange from the head office outside India.

Foreign Insurance companies can establish LOs in India only after obtaining approval from the Insurance Regulatory and Development Authority. Foreign banks can establish LOs in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), RBI.

Project Office

Foreign companies planning to execute specific projects in India can set up temporary Project/Site Offices in India. RBI has now granted general permission to foreign entities to establish PO provided:

  1. they have secured a contract from an Indian company to execute a project in India and the project is funded directly by inward remittance from abroad; or
  2. the project is funded by a bilateral or multilateral International Financing Agency; or
  3. the project has been cleared by an appropriate authority; or
  4. 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.

In all other cases, an approval from RBI has to be taken for setting up PO in India. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. POs may remit the surplus of the project outside India, after meeting the tax liabilities, on its completion. However, AD bank can permit intermittent remittances by PO pending winding up/completion of the project provided they are satisfied with the bona fides of the transaction, subject to the following:

  1. The PO submits an Auditors'/Chartered Accountants' Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.
  2. An undertaking from the PO that the remittance will not, in any way, affect the completion of the Project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.

Inter-project transfer of funds requires prior permission of the concerned regional office of the RBI under whose jurisdiction the PO is situated.

Branch Office

Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up BOs with specific approval of the RBI. Normally, the BO should be engaged in the activity in which the parent company is engaged.

The RBI does not permit a BO to undertake any manufacturing or processing activities in India, directly or indirectly. The range of activities to be undertaken by a BO is also very restricted and permission has to be obtained from the RBI, each time any new activity is to be undertaken. The BO will not expand its activities or undertake any new trading, commercial or industrial activity other than that expressly approved by the RBI. BO is permitted to represent the parent/group companies and undertake the following activities in India:

  1. Export/Import of goods (procurement of goods for export and sale of goods after import are allowed only on wholesale basis).
  2. Rendering professional or consultancy services.
  3. Carrying out research work, in areas 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 a 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.

Retail trading activities of any nature are not allowed for a BO in India.

Profits earned by the BOs are freely remittable from India, subject to payment of applicable taxes. BOs have to submit Annual Activity Certificates from chartered accountants to designated AD bank. A BO is not a separate legal entity unlike a company and any liability of the BO would be the liability of the foreign entity. BOs may remit their profits, net of applicable Indian taxes, outside India, subject to production of prescribed documents to the satisfaction of the AD Bank through whom the remittance is affected.

Branch Offices in Special Economic Zones

RBI has given general permission1 to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:

  1. Such units are functioning in those sectors where 100-per cent FDI is permitted;
  2. Such units comply with Part XI of the Companies Act, 1956 (Section 592 to 602)2; and
  3. Such units function on a standalone basis.

Application for undertaking additional Activities or Additional BOs/LOs

Requests for undertaking activities in addition to what has been permitted initially by the RBI may be submitted through the designated AD bank to the Chief General Manager-in-charge, RBI, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai, justifying the need with comments of the designated AD bank.

Requests for establishing additional BOs/LOs may be submitted through a fresh FNC form, duly signed by the authorised signatory of the foreign entity in the home country, to the RBI as explained above. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.

  • If the number of offices exceeds 4 (i.e. one BO/LO in each zone, viz. East, West, North and South), the applicant has to justify the need for additional office/s.
  • The applicant may identify one of its Offices in India as the nodal office, which will coordinate the activities of all Offices in India.

In the event of winding up of business and for remittance of winding up proceeds, the BO shall approach an AD bank with the following documents:

  1. Copy of RBI's permission/approval from the sectoral regulator(s) for establishing the BO/LO.
  2. Auditor's certificate:

    1. indicating the manner in which the remittable amount has been arrived and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
    2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc, of the BO have been either fully met or adequately provided for;
    3. confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India;
  3. No objection or tax-clearance certificate from Income tax authority for the remittance/s; and
  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 ROC regarding compliance with the provisions of the Companies Act, in case of winding up of the BO in India.
  6. Any other document/s, specified by the RBI while granting approval.

Closure of such BO has to be reported by the designated AD bank to the Central Office of RBI, along with a declaration stating that all the necessary documents submitted by the BO have been scrutinized and found to be in order. If the documents are not found in order or cases are not covered under delegated powers, the AD bank may forward the application to the RBI, with their observations, for necessary action. All the documents relating to the BO operations may be retained by the AD bank for verification by the internal auditors of the AD / inspecting officers of the RBI.

General conditions relating to Branch/Liaison/Project Offices

The following, are certain general conditions applicable to all the BOs, LOs and POs, as stipulated by the Master Circular on 'Establishment of Liaison/Branch/Project Offices in India by Foreign Entities issued by RBI:

  • Partnership/Proprietary concerns set up abroad are not allowed to establish BO/LO in India.
  • Without prior permission of the RBI, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish in India, a BO or a LO or a PO or any other place of business.
  • BOs/LOs/POs are allowed to open non-interest bearing current accounts in India. Such offices are required to approach their AD bank for opening of the accounts.
  • Transfer of assets of LO/BO to subsidiaries or other LO/BO is allowed with the specific approval of the Central Office of the RBI. BOs are permitted to acquire property for their own use and to carry out the permitted/incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan or China are not allowed to acquire immovable property in India even for a BO/PO. These entities are allowed to lease such property for a period not exceeding five years. Entities from Nepal are allowed to establish only LO in India.
  • Powers relating to transfer of assets of LO/BO/PO have been delegated to AD Category-1 Banks subject to compliance with certain conditions.
  • AD banks can allow term deposit account for a period not exceeding six months in favor of a branch/office of a person resident outside India provided the AD 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 utilised for their business in India within three months of maturity. However, such facility may not be extended to shipping/airline companies.


[1] Master Circular No. 7/ 2015-16 dated July 1, 2015 on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities (updated as on October 30, 2015)

[2] It is advised to check the applicability of corresponding provisions of the Companies Act, 2013

Article by

Vinay Vaish, Jt. Managing Partner, Vaish Associates Advocates Ph.: +91-11-42492525 and Hitender Mehta, Partner, Vaish Associates Advocates,

© 2015, Vaish Associates, Advocates,
All rights reserved with Vaish Associates, Advocates, 10, Hailey Road, Flat No. 5-7, New Delhi-110001, India.

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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