Overview
In a move to streamline the regulations for establishment of a place of business in India by overseas entities, the Reserve Bank of India ("RBI") on October 3, 2025, released the draft Foreign Exchange Management (Establishment in India of a branch or office) Regulations, 2025 ("Draft Regulations"). Once notified, these Draft Regulations will supersede the existing Foreign Exchange Management (Establishment in India of a Branch Office, a Liaison Office, a Project Office or any other Place of Business) Regulations, 2016 ("2016 Regulations"). The Draft Regulations are a part of RBI's broader efforts to rationalise and consolidate FEMA-related regulations, aligning them with current business realities and India's evolving foreign investment ecosystem.
Key Highlights of the Draft Regulations vis-à-vis the 2016 Regulations
- Simplified definitions: A new defined term, "entity resident outside India" (EROI), has been introduced to encompass all entities resident outside India other than natural persons that can set up a place of business in India. This replaces the earlier reference to "person resident outside India" which, while applied mainly to non-natural persons in practice, lacked a clear exclusion for natural persons. Further, the categorisation of foreign establishments has been streamlined into two broad forms — branch and office (office includes a project office).
- Removal of financial eligibility conditions: The Draft Regulations do away with the detailed financial eligibility requirements such as minimum net worth, a profit-making track record that previously governed the establishment of branch and liaison offices in India They provide for a principle-based assessment of an EROI's application by the AD Banks.
- Permissible activities and restrictions: The 2016 Regulations specified a list of activities that branch and liaison offices could undertake in India. The Draft Regulations, in contrast, impose a general prohibition on any activity that is either prohibited or falls under the FDI approval route, unless expressly authorised by the government. Further, legal consultancy services are explicitly prohibited.
- Establishment of additional places of business: A fresh FNC form had to be submitted for approval of the AD bank to open an additional office, and prior RBI approval was required if the total number of offices exceeded 4 under the 2016 Regulations. The Draft Regulations simplify this process, allowing additional offices to be opened by intimation to the designated AD bank, except in cases where prior government approval is required under the Draft Regulations.
- Closure of branch or office: Under the 2016 Regulations, there was no mechanism for automatic closure of a branch, liaison or project office, and the circumstances under which the RBI could order closure were not explicitly defined. The Draft Regulations introduce an automatic closure mechanism—non-filing of the Annual Activity Certificates (e., annual compliance certificate given by a Chartered Accountant) for 3 consecutive years triggers a closure notice from the designated AD bank, and failure to respond within 30 days results in closure. Additionally, the RBI, in consultation with the government, may direct closure for violations of foreign exchange laws or threats to public interest, sovereignty, integrity, or security. A formal, time-bound appeal mechanism has also been introduced, to allow entities to challenge such closures.
Implications and Way Forward
The Draft Regulations mark a welcome shift towards a more streamlined, principle-based regime for foreign entities establishing a presence in India. By delegating greater discretion to AD banks and removing prescriptive financial thresholds, the RBI aims to balance regulatory oversight with operational flexibility. The introduction of an automatic closure mechanism and a defined appeal process enhances compliance accountability and procedural transparency. Overall, the proposed framework strengthens ease of doing business while preserving regulatory discipline and clarity for overseas investors.
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