Foreign entities looking to establish a presence in India have three primary options:
a. Branch Office (BO)
b. Liaison Office (LO)
c. Project Office (PO)
Each of these entities must comply with regulations under:
• Reserve Bank of India (RBI) Act
• Foreign Exchange Management Act (FEMA)
• Companies Act, 2013
• Income Tax Act, 1961 (if applicable)
• Other sector-specific laws depending on the nature of operations.
Failure to comply can lead to penalties, operational restrictions, or even revocation of registration. This guide outlines the necessary RBI compliances for BOs, LOs, and POs in India.
A Branch Office (BO) is an extension of a foreign company engaged in permissible commercial activities such as:
• Export/import of goods
• Professional consultancy services
• Research and development
• Technical collaboration with Indian companies
• Representing the parent company in India
However, BOs are restricted from engaging in retail trading or direct manufacturing.
A Liaison Office (LO) acts as a communication channel between the parent company and Indian businesses. It cannot undertake any commercial activity. Permitted activities include:
• Representing the foreign company
• Promoting business interests in India
• Acting as a communication bridge
• Market research and feasibility studies
LOs are not allowed to generate revenue and must maintain all expenses via remittances from their parent company.
A Project Office (PO) is set up for executing specific projects in India. It is temporary and established only when:
• The project is funded by foreign direct investment (FDI).
• The project is executed under a contract with an Indian company.
• It is approved by an Indian authority or involves bilateral/multilateral financing.
POs can only engage in activities related to the project and must close once the project is completed.
• Foreign entities must obtain RBI approval through an Authorized Dealer (AD) Category-I Bank.
• The approved entity must register with the Registrar of Companies (RoC) within 30 days.
• If a BO/LO/PO is not set up within 6 months, the approval lapses. A one-time extension of 6 months can be granted by the AD Bank. Further extensions require RBI approval.
| Entity | Type of Bank Account | Conditions |
|---|---|---|
| LO | One bank account | Requires RBI approval for additional accounts |
| BO | Can open multiple accounts | Operates on self-sustaining revenue |
| PO | Foreign currency account | Only for project-related expenses |
| Compliance Requirement | BO | LO | PO | Due Date |
|---|---|---|---|---|
| Annual Activity Certificate (AAC) | Required | Required | Required | By 30th September |
| Filing with AD Bank | Required | Required | Required | Within 6 months of financial year-end |
| Filing with RBI (if multiple offices exist) | Required | Required | Not applicable | Annual basis |
| Tax Filings (if applicable) | Required | Not applicable | Required | Per tax calendar |
AAC Submission:
o BO/LO: Submitted to AD Bank & Director General of Income Tax (International Taxation) in New Delhi.
o PO: Submitted only to AD Bank.
Verification by AD Bank:
o AD Bank must review the AAC and ensure compliance with RBI approval conditions.
o Any adverse findings must be reported to RBI’s General Manager.
| Event | Approval Required | Remarks |
|---|---|---|
| Shifting to another city | Yes | Requires prior approval from AD Bank |
| Shifting within the same city | No | Only intimation to AD Bank needed |
| Establishing more than 4 offices | Yes | Justification required |
| Remittance of profit outside India | Yes | Needs audited financials and CA certificate |
Profit Remittance for BO/PO:
o Audited Balance Sheet & Profit & Loss Account.
o CA Certificate ensuring the remittance includes only profits from permitted activities.
o Tax payment proof before remitting funds abroad.
Entities wishing to close operations must:
a. Obtain RBI & AD Bank approval.
b. Settle outstanding liabilities.
c. Submit No Objection Certificate (NOC) from tax authorities.
d. Remit remaining funds abroad (if applicable).
e. File closure documents with the MCA & RBI.
• Avoidance of penalties & fines: Non-compliance can lead to monetary penalties & restrictions on operations.
• Smooth remittances & financial transactions: Proper compliance ensures hassle-free repatriation of profits.
• Enhanced credibility: Regulatory compliance improves business reputation & credibility in India.
At ReturnFilings.Com, we specialize in: ✔ Advisory on RBI approvals & registration processes
✔ Seamless filings of AAC, tax, and regulatory forms
✔ Monitoring compliance deadlines
✔ Handling RBI & MCA communication
Our experts ensure that your foreign entity operates smoothly, legally, and efficiently in India.
By adhering to the above compliance requirements, avoid penalties, and maintain good legal standing. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to ensure all statutory obligations are met on time.
