Foreign Company Registration In India: Branch Office, Liaison Office And Project Office Under FEMA

Foreign Company Registration in India: Branch Office, Liaison Office and Project Office under FEMA

India is still one of the markets for global businesses Many foreign companies take their step into India by setting up a Branch Office, Liaison Office or Project Office These three structures let a foreign company have a presence in India They can explore the market do a project or do some business activities

This route is popular among companies that want to test the market They can also manage a project or have a representative presence They do not want to set up a full-fledged subsidiary

There is a catch A Branch, Liaison or Project Office is not an entity It is an extension of the foreign parent company This has implications

The Foreign Exchange Management Act, 1999 (FEMA) regulates these offices The Reserve Bank of India (RBI) controls who can set up these offices They also control what activities they can do how they are funded and how they report their position

Why does RBI regulate this closely?

RBI regulates this closely because these offices are extensions of a foreign company, They want to ensure that such offices do not become a route for foreign companies to do fledged business in India

They also want to ensure that these offices do not avoid regulatory and tax obligations Choosing the structure can result in serious FEMA and tax complications

Non-compliance with reporting requirements can lead to RBI flagging the office They can also restrict its bank account operations or direct closure

The regulatory framework is currently in transition RBI released draft regulations in October 2025 They proposed an overhaul of how these offices are categorized and regulated

This article is a guide for foreign companies It explains how Branch, Liaison and Project Offices work under FEMA

Understanding FEMAs Framework for Foreign Establishments in India

What is FEMA Why Does it Apply Here?

The Foreign Exchange Management Act, 1999 (FEMA) is Indias law It governs all transactions involving exchange Setting up a Branch, Liaison or Project Office involves -border elements These include capital being remitted to fund Indian operations

There are also foreign exchange transactions for expenses In the case of Branch Offices there is repatriation of profits All of these fall under FEMAs scope

The Governing Regulatory Framework

The establishment of these offices is governed by the Foreign Exchange Management (Establishment in India of a Branch Office, a Liaison Office, a Project Office or any other Place of Business) Regulations, 2016

RBI issued the Master Direction – Establishment of Branch Office (BO)/Liaison Office (LO)/Project Office (PO) or any other place of business in India by Foreign Entities

RBIs Role and the AD Banks Role

RBI frames the regulations They decide on applications requiring government/RBI approval They maintain the master record of all approved offices

AD Category-I Banks act as the frontline processing point They receive applications in the form They conduct diligence and forward applications to RBI

Why Foreign Companies Choose This Route Over Incorporation

A Branch, Liaison or Project Office is often chosen over setting up a owned subsidiary This is because it avoids the need to incorporate an Indian company

It allows a more direct entry for specific time-bound purposes A Liaison Office is a low-cost way to maintain a market presence

3 Branch Office, Liaison Office and Project Office – Meaning and Distinction

What is a Branch Office (BO)?

A Branch Office is an extension of the foreign parent company It is permitted to carry out specified business activities in India

These activities are the same as or closely related to the activities of the parent company A Branch Office can generate income in India

What is a Liaison Office (LO)?

A Liaison Office acts as a communication channel It is between the foreign parent company and parties in India

It cannot undertake any trading or industrial activity It cannot earn any income in India

What is a Project Office (PO)?

A Project Office is set up for a limited purpose It is for executing a project in India

The foreign company has secured a contract from a company to execute that project It exists for the duration of the project.

 

Quick Comparison Table

Feature	Branch Office	Liaison Office	Project Office
Purpose	Conduct business activity similar to parent	Liaison/representation only	Execute a project
Can earn income in India	Yes	No	Yes (project-related)
Can repatriate profits	Yes, subject to tax compliance	Not applicable (no income)	Yes on project completion
Funding of expenses	Through its own income/remittances	Entirely through inward remittance from HO	Through project funding/contract proceeds
Duration	Ongoing (subject to renewal)	Generally 3 years renewable	Limited to project duration
Eligibility threshold	5-year profit track record, higher net worth	Lower (3-year track record, lower net worth)	Linked to project contract, not financial criteria

 

4 Eligibility Criteria for Setting Up These Offices

Eligibility for Branch Office

A profit-making track record during the preceding five financial years in the home country

A minimum net worth of not than USD 100,000 or its equivalent

Eligibility for Liaison Office

A profit-making track record during the preceding three financial years in the home country

A minimum net worth of not than USD 50,000 or its equivalent

Eligibility, for Project Office

Eligibility is generally linked to the project contract, not thresholds The key requirement is that the foreign company has a contract from an Indian entity to execute a specific project in India and the project is funded as per the conditions

 The project should have remittance, multilateral funding, term loan funding or clearance

Letter of Comfort (LOC) Exception Route

An entity that doesn't meet the track record or net worth criteria can still apply by submitting a Letter of Comfort (LOC) from its parent or group company

 The parent/group company must undertake to provide support to the proposed office and discharge its liabilities in case of default

 The parent/group company itself must satisfy the worth and profit criteria

Example: A new US subsidiary of a 20-year- German engineering group wants to open a Liaison Office in India The subsidiary is 18 months old and doesn't meet the 3-year profit track record The German parent company can issue a Letter of Comfort

Restricted and Specific Approval Categories

Some applicants require RBI approval, including:

 Foreign Non-Government Organisations (NGOs) Non-Profit Organisations (NPOs) and government bodies/departments

 Applicants Incorporated in Pakistan

 Applicants from countries seeking to establish an office in Jammu & Kashmir North-Eastern states or Andaman & Nicobar Islands

 Sectors where 100% foreign direct investment is not permitted

Application Process and Documentation

 Step-by-Step Process

Step 1 Engage a Designated AD Category-I Bank: Every application must be routed through a designated Authorized Dealer Category-I Bank in India

Step 2 Prepare Form FNC: The application is made in Form FNC along with supporting documents

Step 3 AD Bank Due Diligence: The AD Bank conducts diligence on the applicant

Step 4 Forwarding to RBI: The AD Bank forwards the application to RBIs Foreign Exchange Department

Step 5 Allotment of Unique Identification Number (UIN): RBI allots a UIN to the Branch/Liaison Office

Step 6 Issuance of Approval Letter: The AD Category-I Bank issues the approval letter

Step 7 Registration with Registrar of Companies (RoC): The office needs to be registered with the Registrar of Companies

Key Documents Required

 Certificate of Incorporation

 Articles of Association

 Audited statements

 Net worth certificate

 Board Resolution

 Letter from the foreign company to the AD Bank

Important documentation note: Documents from outside India need to be translated into English

Role of the AD Category-I Bank in the Approval Process

The AD Bank verifies eligibility criteria conducts background checks and assesses proposed activities

 The AD Bank facilitates opening of the offices bank account in India

 The AD Bank monitors the offices banking transactions

Funding, Banking and Repatriation

 Liaison Office: Funded through remittances from the head office

 Branch Office: Funded through its income or remittances, from the head office

 Project Office: Funded through project-linked funds

Bank Account Operations

Each office must open a bank account with its designated AD Category-I Bank

Repatriation of Profits (Branch Office)

A Branch Office can repatriate profits to the head office to payment of Indian taxes and submission of documentation

Closure of Project Office and Repatriation of Surplus

On completion of the project the Project Office is closed and surplus funds can be repatriated to the head office

Ongoing FEMA and RBI Compliance Requirements

 Annual Activity Certificate (AAC)

 Registrar of Companies (RoC) Filings

 Renewal of Liaison Office Approval

 Tax Compliance

 Reporting of Adverse Findings

If the AD Bank finds any activity that does not match the offices approved scope during its review of the AAC or banking transactions it must report this to RBIs Central Office Cell away along with relevant documents This can lead to scrutiny or in serious cases action to restrict or close the office

 Common Compliance Issues and FEMA Violations

 Conducting Activities Beyond the Approved Scope

A common issue is when a Liaison Office, meant for representation starts making money or entering into commercial contracts in India This is a violation of the conditions of approval

 Non-Submission or Delayed Submission of Annual Activity Certificates

Failing to submit the AAC on time is a mistake that leads to follow-up from AD Bank and can affect the offices standing with RBI

 Continuing Operations Beyond Project Completion (Project Offices)

Project Offices should be closed once the project is complete Continuing to operate the office without closure or fresh approval is a compliance gap

 Funding Mismatches

For Liaison Offices any income credited to the bank account ( than permitted remittances from the head office) is a red flag

 Failure to Renew Approval

Operating a Liaison Office beyond its approved validity period without applying for renewal is a lapse

 Improper Repatriation

Repatriating funds from a Branch or Project Office without completing tax compliance and AD Bank documentation can lead to complications

 Consequences Summary

Compliance Issue	Typical Consequence
Activities beyond approved scope	AD Bank flags to RBI; directive to cease the activity or restructure the office
Delayed/non-submission of AAC	AD Bank follow-up; account operations may be restricted pending compliance
Project Office continuing post-completion	RBI/AD Bank may direct closure; FEMA contravention possible
Funding/income mismatches in LO account	Account scrutiny; reporting to RBI; possible restriction on remittances
Failure to renew LO approval	Office technically operating without valid approval; compliance gap
Improper/undocumented repatriation	Tax and FEMA documentation issues; AD Bank may withhold further remittances

Penalties and Regulatory Consequences FEMA Contravention and Adjudication

If an office operates outside its permitted scope or fails to comply with reporting requirements it can lead to adjudication proceedings and monetary penalties

 Closure Directives

RBI or AD Bank can direct the closure of a Branch, Liaison or Project Office in case of persistent compliance failure

 Compounding Route

Foreign companies can approach the compounding mechanism to regularize compliance gaps

 Impact on Future India Operations

A compliance history can affect a foreign companys credibility when seeking to establish a full subsidiary or expand its office network in India

 Practical Case Study

 The Case of Veltrix GmbHs Liaison Office in India

Veltrix GmbH, a manufacturer set up a Liaison Office in Pune to explore the Indian market However the office started entering into sale agreements with Indian customers, which is not permitted The AD Bank discovered this during the review and informed Veltrix that it would need to report this to RBIs Central Office Cell unless corrective steps were taken

 The resolution process:

1 Veltrix engaged a CA firm with FEMA advisory expertise

2 The CA firm reviewed all transactions Quantified the extent of commercial activity

3 The CA firm recommended converting the Liaison Office into a Branch Office

4 A fresh application was filed for Branch Office approval

5 The past contravention was addressed through a compounding application

 Lessons Learned

 The choice of office type must match the business plan

 Local teams need training on what a Liaison Office can and cannot do

 Early voluntary disclosure and corrective action lead to a favourable outcome

 Best Practices for Foreign Companies

 Before Applying

 Clearly define the intended business activities in India

 Engage a designated AD Category-I Bank early

 Notarize/apostille all foreign documents

 During the Application Process

 Ensure the net worth certificate and financial statements are prepared by a recognized Certified Public Accountant

 Be transparent with the AD Bank about the intended scope of activities

 After Setting Up

 Register with the Registrar of Companies Obtain PAN promptly

 Set up controls

 Ongoing Operations

 Track the Annual Activity Certificate date

 Periodically reconcile the bank account against the approved scope of activities

 If You Discover a Compliance Gap

 Engage a FEMA advisor immediately

 Consider disclosure and the compounding route

 FEMA Compliance Checklist for Branch / Liaison / Project Offices
 

Compliance Requirement	Due Date	Responsible Person	Risk of non-compliance
Filing of Form FNC application with supporting documents	At the time of initial establishment	Foreign company management with Indian CA/consultant	Delay in approval/establishment
Registration with Registrar of Companies (RoC)	Within period after establishment	Indian company secretary/CA	Penalty under Companies Act; office treated as unregistered
PAN and applicable tax registrations	Promptly after establishment	CA/tax advisor	Difficulty in banking and tax compliance
Annual Activity Certificate (AAC) submission to AD Bank	Every year within the given time after the financial year ends	CA (certification) + office management	AD Bank follow-up; restriction on account operations
Income tax return filing (Branch/Project Office)	As per dates under Income Tax Act	Tax advisor/CA	Interest, penalty and scrutiny risk
Renewal of Liaison Office approval	Before the approval expires (usually 3 years)	Office management, with AD Bank	Office operating without valid approval
Reconciliation of bank account activity vs Approved scope	Ongoing at every quarter