A foreign company planning to commence business operations in India can do so by opening a Branch office in India/setting up a Project office in India/Liaison office as per FEMA regulations.
Opening a Branch office in India helps the Parent company located in foreign in following ways
- Expansion of Business
- Managing the distribution and marketing of goods and services
- Managing operations in India
- Opportunity to explore new avenues
Following are the activities permitted to be performed by the Branch offices on behalf of Parent company:
- Rendering professional and consultancy services
- Carrying out research and development work for the parent company
- To act as a buying and selling agent for the parent company
- Export and import of goods and services
- Rendering after sale services for the products supplied by the parent company in India
However, activities like manufacturing or processing are not permitted to be performed by the Branch offices.
Foreign company if planning to setup a unit only for the purpose of communication between Indian customers and parent company can set up a Liaison office in India with the specific approval of RBI. Liaison office will act a communication channel between parties in India and head office abroad.
Following are the activities permitted to be performed by the Liaison office in India:
- Representing Parent company in India
- Gathering information about future possible opportunities
- Providing information to the parties in India about their products and services
- Acting as a communication channel between the parties in India and the Parent company
There are certain activities which cannot be performed by the Liaison office in India, for example they cannot undertake any business activity in India, cannot undertake any activity with the motive of earning income in India.
If foreign company has secured an order to execute a project in India, permission will be granted by the Reserve Bank of India to establish a project office in India. Also, there are other conditions which need to be fulfilled for opening of project office in India, for example- the project to be executed in India should be fully funded by the parent company abroad.
Opening of Branch office and Setting up a Project office in India can be done in through Two routes:
- Reserve Bank of India route- If the Foreign Direct Investment allowed under FEMA regulations for the sector in which Parent company is engaged is 100 percent.
- Government Route- If the Foreign Direct Investment allowed under FEMA regulations for the sector in which Parent company is engaged is less than 100 percent.
There are some other factors also which are considered by the Reserve Bank of India before sanctioning project office or Branch office, for example – profit making track record of the Branch or project office
Other conditions which are applicable for Opening of Branch / Project office/ Liaison office in India:
- Entities from Nepal are not allowed to setup any Branch or Project office in India. They can establish only Liaison office in India.
- Person being a citizen of Pakistan, Bangladesh, Afghanistan, Iran or China can establish a project office/ branch office/Project office only with the approval Reserve Bank of India.