SET UP OF PROJECT OFFICE FOR FOREIGN COMPANY

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HOW TO SET UP A PROJECT OFFICE IN INDIA

Project Office (PO) is a location of the business to constitute the interests of a foreign company, for execution of a project in India but excludes a Liaison Office. A project office in India is allowed to carry activity in relation to the execution of the project for which such office is established. Also, the PO may undertake commercial activities related to the particular project. Foreign companies engaged in turnkey construction or installation set up a project office for their operations in India.

Foreign Companies who have been appointed with a contract to execute a project in India, select the mode of execution of the project, through project offices duly registered with the Reserve Bank of India (RBI) and the Registrar of Companies (ROC). The revised Regulations 2016 under FEMA has given all powers of approving applications to AD banks except for a few cases.

When Prior Approval of RBI is not required

An international organization contracting with an Indian company to do a project is allowed to set up a project office in India without obtaining prior permission from the RBI. RBI grants permission to an external organization to set up a project office in India subject to the following conditions:

  1. If It has an Indian company contract to do a project in India
  2. If the project is funded directly by internal releases from overseas
  3. If the project is funded directly by the Bilateral International Finance Agency
  4. If the project has been submitted by the relevant authority
  5. If a contracting company or company in India has been awarded a Term Loan by the Public Finance Center or bank in India for a specific project.

However, if the above conditions are not fulfilled, the foreign business must approach RBI for approval. The Setting Up of a Project Office by an NGO / NPO / Foreign Government Offices is under the State Route. Organizations such as these are required to apply to the RBI for prior approval to establish an office in India.

Except in no circumstances

  1. RBI has granted general permission to open a Project Office in India if the above terms have been satisfied. However, if any organization based in Pakistan, Bangladesh, Sri Lanka, Iran, Afghanistan, China, Macau and Hong-Kong wishes to open a project office in Jammu and Kashmir, North America and in the Andaman and Nicobar islands, it is approved by the RBI in consultation with the Government of India. In all other cases, the banks of AD phase-I are empowered to grant approval.
  2. The core business falls into the security / telecom / privacy / information and broadcasting sectors. However, no specific reference or approval by the Government of India (GoI) will be required in connection with an application for the opening of a PO relating to the defense industry, provided that the contract is signed with the Po / Po by which the Department of Defense or Defense Services or Defense Industry Headquarters are contracted.

Procedure To Set Up A Project Office In India

i. The application for establishing PO in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category - I bank (i.e. an AD Category – I bank identified by the applicant with whom they intend to pursue banking relations) along with the prescribed documents mentioned in the Form and the LOC, wherever applicable.

ii The AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms grant approval to the foreign entity for establishing PO in India. The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.

iii. There is a general permission to non-resident companies to establish POs in India, provided they have secured a contract from an Indian company to execute a project in India. Also, the project must have secured the necessary regulatory clearances; and is funded directly by inward remittance from abroad; or the project is funded by a bilateral or multilateral International Financing Agency, or 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.

iv. An applicant that has received a permission for setting up of a PO shall inform the designated AD Category I bank as to the date on which the PO has been set up. The AD Category I bank in turn shall inform Reserve Bank accordingly. In case an approval granted by the AD bank has either been surrendered by the applicant or has expired without any PO being set up, the AD Category I bank shall inform RBI accordingly.

v. The approval granted by the AD Category I bank should include a proviso to the effect that in case the PO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse. In cases where the non-resident entity is not able to open the office within the stipulated time frame due to reasons beyond its control, the AD Category-I bank may consider granting extension of time for a further period of six months for setting up the office. Any further extension of time shall require the prior approval of Reserve Bank of India in this regard.

Documents required to set up a Project Office in India

  • Name and Address of the Foreign Company,
  • Reference Number and date of the letter awarding the contract,
  • Particulars of the authority awarding the projects/contract,
  • The total amount (in Rs.) of contract,
  • Address/e-mail address, telephone number/fax number of the Project Office,
  • Tenure of Project Office,
  • Brief details of the Project undertaken,
  • AD branch with whom the account has been opened and the foreign currency in which the account is opened,
  • An undertaking to the effect that the Project Office is eligible to avail of the General Permission under Regulation 5.

Annual Activity Certificate by Project Office

The Annual Activity Certificate (AAC) as at the end of March 31 each year along with the required documents needs to be submitted by the following:

  1. In case of a sole PO, by the PO concerned;
  2. In case of multiple PO, a combined AAC in respect of all the offices in India.

The PO needs to submit the AAC only to the designated AD Category -I bank.

 

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