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FREQUENTLY ASKED QUESTIONS

1. What are the forms in which business can be conducted by a foreign


company in India?
Ans.
"Entry Strategies for foreign investors" is available under the "Policy &
Procedures" menu of the website by clicking "Secretariat for Industrial Assistance" of
DIPP Website (http://dipp.nic.in ).
Foreign companies can make investments or operate their business in a number of
ways as given below: Liaison/representative
Project

Office1

Branch

Office1

100%

office1

Wholly owned subsidiary2

Joint venture company2

Financial/Technical/Techno-financial approval is given by


1. Under Automatic route through RBI
2. Government/FIPB/RBI automatic approval is governed by Press Note No. 2 of 2000
subject to sectoral caps as given in Annex IV.
Any company set up with FDI has to be incorporated under the Indian Companies Act
with the Registrar of Companies and all Indian operations would be conducted through
this company.
2.

Is foreign company treated as domestic company?

Ans. Yes, a foreign company incorporated under the Companies Act is treated at par
with any domestic Indian company within the scope of approval and subject to all Indian
laws.

3.

How does a foreign company invest in India?

Ans. Either through:a. Automatic Approval - by the country's Central Bank, the Reserve Bank of India (RBI),
Mumbai, or
b. Through the Foreign Investment Promotion Board (FIPB)
i. Automatic Approval through Reserve Bank of India is available for all
items/activities except a few as given in the Press Note No.2(2000 series) dated
11.2.2000. The sector specific guidelines in this regard are given in Annexure IV of the
Manual on Industrial Policy & Procedures in India.
No prior approval required. The company is only required to report to RBI
days of receipt of foreign equity/allotment of shares.

within 30

ii) FIPB approval is required for all other proposals not eligible for Automatic
Approval.
Applications to be submitted in Form IL-FC or on plain paper with full details to the
Secretariat for Industrial Assistance (SIA) for the cases involving NRI/OCB investment
and 100% EOU. For remaining cases, the applications may be submitted to Department
of Economic Affairs, Ministry of Finance. The proposals are considered by the
reconstituted FIPB in the Department of Economic Affairs. IL-FC Form is available at
Website in a downloadable format on the DIPP Website (http://dipp.nic.in).
4. From where one can get NIC Codes 1987 for products/services, to be filled in
IL-FC Form?
Ans. Investors are required to give the description of activities as per the National
Industrial Classification of all Economic Activities (NIC), 1987 , while submitting
applications to the RBI/SIA.
Copies of the NIC, 1987 published by the Ministry of Statistics & Programme
Implementation , Central Statistical Organization, can be obtained on payment from the
Controller of Publications, 1 Civil Lines, Delhi 110054 or from any authorised agent.
However, NIC Codes (1987) are also available on the website (http://dipp.nic.in ) .

5.

What is the FIPB?

Ans.
FIPB is a competent body to consider and recommend Foreign Direct
Investment (FDI), which do not come under the automatic route. The FIPB has been
reconstituted as under :
1) Secretary, Department of Economic Affairs

Chairman

2) Secretary, Department of Industrial Policy & Promotion


3) Secretary, Department of Commerce
4) Secretary (Economic Relations), Ministry of External Affairs

Member
Member
Member

The Board would be able to co-opt Secretaries to the Government of India and other top
officials of financial institutions , banks and professional experts of industry and
commerce, as and when necessary.

6. What are the factors considered by the FIPB while examining proposals?
Ans.
To impart greater transparency to the approval process, guidelines have been
issued which govern the consideration of FDI proposals by the FIPB. These are given at
Annexure III of the Manual on Foreign Direct Investment in India - Policy & Procedures.

7. Who is the Officer concerned in your Department for FIPB related matters?
Ans. Director (Foreign Collaboration/Foreign Direct Investment Policy) Mr. Deepak
Narain (Tel:91-11-23063345, Fax 91-11-23062626 e-mail:narain.d@nic.in ) may be
contacted for FDI policy matters. At Joint Secretary level, work is being looked after by
Shri Gopal Krishna(Tel : 91-11-23062983, Fax: 91-11-23061034, Email :
g.krishna@nic.in ).
8. Please let us know the status of the application made to FIPB?
Ans. The status of the FIPB application can be seen on the website of Department of
Economic Affairs (http://finmin.nic.in). However, status for the applications involving
NRI/OCB investment and 100% EOU is available at "SIA Application status" link on the
opening page of the DIPP website (http://dipp.nic.in) wherein following three categories
are given.
a) Daily Status of Applications for NRI / OCB investment and 100% EOU for the week.

b) Weekly Status of Applications for NRI/OCB Investmebt and 100% EOU for the week
ending
c) Date of posting of approval letters of applications for NRI/OCB investment and 100%
EOU
The cases that are listed but do not figure in the approved / rejected categories, fall
under the deferred category viz. cases which are still under consideration. It may be
possible that applications in such cases, need additional clarification from other
Ministries or attracts on policy angle because of which it may take some more time. The
link for the status of FIPB applications has also been provided at the front page of DIPP
website (http://dipp.nic.in).

9. Which are the sectors, which attracts limit on foreign ownership?


Ans:

The following activities attract equity cap for FDI:

S. No.

Sector

FDI cap (in


%)

Activities

1.

Telecom

49

basic, cellular, value-added services, global


mobile personal communications by satellite

74
internet service providers with gateways, radio
paging and end-to-end bandwidth

2.

3.

Coal & Lignite

Mining

49

public sector undertakings

50

other than public sector undertakings

74

for exploration & mining of coal or lignite for


captive consumption

74

exploration and mining of diamonds and precious


stones

4.

Private Sector Banking

49

private banking sector

5.

Insurance

26

insurance sector (subject to obtaining license


from IRDA)

6.

Domestic Airlines

40

no direct or indirect equity participation by foreign


airlines

7.

Petroleum

60

in unincorporated joint venture

(Other than refining)

51

in incorporated joint venture

51

petroleum products and pipelines sector

74

in infrastructure related marketing and marketing


of petroleum products

26

for public sector undertakings

investment through such vehicle is treated as


resident equity

Refining

8.

Investing companies in
Infrastructure/Service
sectors

49

9.

Atomic minerals

74

a. mining and mineral separation;


b. value addition;

c. integrated activities.

10.

Defence
sector

11.

Broadcasting

industry

26

for arms and ammunition and allied items of


defence equipment, defence aircraft and warships

Setting up hardware
facilities,
such
as
uplinking, HUB, etc.

49

49
Cable network

Private companies incorporated in India with


permissible FII/NRI/OCB/PIO equity within the
limits (as in the case of telecom sector FDI limit
up to 49% inclusive of both FDI and portfolio
investment) to set up up linking hub (teleports) for
leasing or hiring out their facilities to broadcasters
Footnote: As regards satellite broadcasting, all
T.V. Channels irrespective of the ownership or
management control to uplink from India provided
they undertake to comply with the broadcast
(programme and advertising) code
Foreign investment allowed up to 49% (inclusive
of both FDI and portfolio investment) of paid up
share capital. Companies with minimum 51% of
paid up share capital held by Indian citizens are
eligible under the Cable Television Network Rules
(1994) to provide cable TV services.

20
Direct-to-Home

Terrestrial
Broadcasting FM

20 (portfolio
investment)

Companies with a maximum of foreign equity


including FDI/NRI/OCB/FII of 49% would be
eligible to obtain DTH License. Within the foreign
equity, the FDI component not to exceed 20%.
The licensee shall be a company registered in
India under the Companies Act. All share holding
should be held by Indians except for the limited
portfolio investment by FII/NRI/PIO/OCB subject
to such ceiling as may be decided from time to
time. Company shall have no direct investment by
foreign entities, NRIs and OCBs. As of now, the
foreign investment is permissible to the extent of
20% portfolio investment. No private operator is
allowed in terrestrial TV transmission

12

Small Scale Industries


(SSI) sector

24

if FDI in an SSI unit exceeds 24% of the paid up


capital, the company loses its SSI status. Further,
if the item/s of manufacture is/are reserved for
SSI sector, the company has to obtain an
industrial license and undertake a minimum
export obligation of 50% of annual production on
such products

13.

Satellites

74%

Establishment and operation of Satellites

14.

Tea Sector

100%*

FDI permitted in Tea sector, including tea


plantations requiring prior Government approval
* subject to compulsory divestment of 26% equity
of the company in favour of an Indian
partner/Indian public within a period of five years.

15.

Print Media

74%**

In Indian entities publishing scientific/technical


and
speciality
magazines/periodical/journals

26%**

In Indian entities publishing newspapers and


periodicals
** subject to guidelines notified by Ministry of
Information & Broadcasting from time to time

10. What is the Government Policy for Telecom Sector?


Ans.
For major sector specific guidelines including Telecom Sector, please refer to
Annexure IV at the Manual on FDI in India - Policy & Procedures in India of the
website.

11. What is the investment policy for trading companies?


Ans.
Trading is permitted under automatic route with FDI up to 51% provided it is
primarily export activities, and the undertaking is an export house/trading house/super
trading house/star trading house. However, under the FIPB route :
i. 100% FDI is permitted in case of trading companies for the following activities:
exports,
bulk
cash

imports with ex-port/ex-bonded warehouse sales,


and carry wholesale trading,

other

import of goods or services provided at least 75% is for procurement and sale of
goods and services among the companies of the same group and not for third party use
or onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted, subject to provisions of EXIM
Policy:
a. Companies for providing after sales services ( that is not trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for such
trading companies who wish to market manufactured products on behalf of their joint
ventures in which they have equity participation in India.
c. Trading of hi-tech items/items requiring specialised after sales service
d. Trading of items for social sector
e. Trading of high-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on
technology provided and laid down quality specifications, a company can market that
item under its brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture
provided such test marketing facility will be for a period of two years , and investment in
setting up manufacturing facilities commences simultaneously with test marketing.
i. FDI upto 100% permitted for e-commerce activities subject to the condition that such
companies would divest 26% of their equity in favour of the Indian public in 5 years, if
these companies are listed in other parts of the world. Such companies would engage
only in business to business (B2B) e-commerce and not in retail trading.

12. Whether wholesale trading activity is covered on the automatic route?


Ans:

No, prior approval of FIPB is required.

13. Whether FIPB approval is required for 100% EOUs involving FDI from foreign
companies?
Ans.

Only where the activity proposed does not fall on the automatic route.

14. How are investments in 100% Export Oriented Units (EOUs) allowed?
8

Ans. There are four schemes for such units. They are the 100% EOUs, Electronics
Hardware Technology Parks (EHTPs) , Software Technology Parks (STPs) and Special
Economic Zones (SEZ) . FDI/NRI/OCB investment up to 100% in these units is eligible
for automatic route subject to fulfilling parameters prescribed in Press Note No.2 (2000
series) dated 11.2.2000. This Press Note is available on the website http://dipp.nic.in
15. Is a 100% foreign owned subsidiary allowed? Whether FIPB approval is
required?
Ans. Yes, except in sectors that attract equity cap. The criteria for allowing such
investments have been detailed in the guidelines given at Annexure IV of the Manual on
Industrial Policy & Procedures in India.
FIPB approval is required if the activity does not fall on the automatic route.
16. Is investment by Non-Resident Indians(NRIs) permitted?
Ans.
The Government attaches importance to investments by NRIs and Overseas
Corporate Bodies(OCBs) i.e. corporate bodies in which NRIs hold at least 60% of
equity. Government has provided a liberalised policy framework for approval of NRI
investments through both the Automatic and the Government route. NRI/OCBs are
permitted to invest upto 100% equity in the Real Estate and Civil Aviation Sectors.
Automatic Approval is given by the RBI to all NRI/OCB proposals with their investment
upto 100% for all items/activities except a few exceptions mentioned in Press Note 2
(2000 series) read with sector specific guidelines. Government approval is given for all
proposals not qualifying for Automatic Approval.
17. How is FDI permitted in the Small Scale Sector?
Ans. Equity participation in the Small Scale Sector up to 24% by any other Industrial
undertaking is allowed. For equity participation in excess of this or if a non-SSI unit
whishes to manufacture a reserved item, it would be required to obtain industrial licence
and undertake a minimum export obligation of 50% of production.

18. Can profits, dividends, royalty, knowhow payments be repatriated from India?
Ans. All profits, dividends, royalty, knowhow payments that have been approved by
the Government/RBI can be repatriated. Some sectors like NRI Investment in real
estates may attract a lock-in period.

19. Whether FDI is permitted in "Online Lottery Business"?


Ans:
The lottery business, including "Online Lottery Business" is not opened to
foreign direct investment.
20. What is the procedure of issuing shares to foreign collaborator?
Ans:
The issue of shares to the foreign collaborator is governed by the guidelines
issued by RBI / SEBI and Companies Act.
21. While calculating ceiling on foreign holdings, are preference shares included?
Ans:
Yes, if it is convertible into equity shares. Non-convertible redeemable
preference shares are not included for calculating FDI limit.
22. Is FIPB approval required for the swap of shares?
Ans:

Yes, FIPB approval is required.

23. Whether issue of preference shares can be made on the automatic route?
Ans:

Yes, subject to the activity concerned falling under the automatic route.

24. What are the formalities a joint venture company has to do to increase the foreign
equity holding?
Ans: The following formalities are required for the joint venture that want to increase
in their foreign equity holding by acquisition of shares or by any other means.
a) If only the quantum of foreign equity increased without change in percentage then
Press Note no. 7 (1999 series) may be followed.
b) For increase in percentage of foreign equity by way of expansion of capital base,
automatic route or FIPB / Government route would apply depending upon the nature of
proposal in terms of Press Note No. 2 (2000 series)
c) Cases involving increase in percentage in foreign equity by way of acquiring existing
shares in an Indian company would necessarily require prior approval of
FIPB/Government.
d) In cases involving inclusion of an additional foreign collaborator, guidelines laid down
in Press Note No. 18 (1998 series) would have to be satisfied.
25. What is the policy of conversion of non-repatriable shares into repatriable
shares?

10

Ans.
FIPB approval is required. Where original investment was made in foreign
exchange, the change is allowed without any conditions; if not, the sale proceed will
have to be repatriated to India by opening an NRO account.
26. Is there any time limit within which Indian company have to make their Euro issues
or ADRs/GDRs after having received the approval from FIPB?
Ans

There is no time limit as per extant guidelines.

27. In a public limited company having less than 100% foreign equity participation under
the automatic route, whether it can be increased to 100% equity participation under the
automatic route?
Ans. As long as the activity is covered on the automatic route and there is no sectoral
cap and no acquisition of existing shares is involved.
28. Is it possible that a foreign company provide a non interest bearing or interest
bearing loan to an Indian company?
Ans:

Yes, subject to conformity with the ECB Guidelines of Ministry of Finance .

29. Whether FIPB approval is required for consultancy services, research and
development, software development etc.?
Ans:
The above activities fall under automatic route and, therefore, do not require
FIPB approval.

30. How are foreign technology agreements approved?


Ans.

Approval is granted by two routes

a. Automatic approval by RBI;

11

i) Available for any proposal with lumpsum payment not exceeding US$ 2 million, and
royalty of upto 5% on domestic sales and 8% on exports.This is applicable to technical
collaborations with technology transfer. There is no limit on duration of royalty payment
by a WOS to its offshore parents.
ii) Payment of royalty up to 2% of exports and 1% for domestic sales on use of trade
marks and brand name of the foreign collaborator without technology transfer
b. Government approval in all other cases.
31. Whether royalties for technology transfer and other royalty can be paid for
same product on use of trademarks and brand name?
Ans.

No, both royalties cannot be paid together on the same product.

i) Cases involving transfer of technology will be eligible for royalty payment at the
prescribed rate on the automatic route.
ii) Cases not involving any transfer of technology and only involving the use of brand
names and trademarks will be eligible to payment of trademarks or brand name royalty
at the prescribed rate on the automatic route.

32. Is it possible to use foreign brand names/trade marks in India and is lump
sum fee permissible under royalty payment for use of brand name and
trademarks?
Ans.
Yes, it is possible to use foreign brand names/trade marks in India. However,
lump sum fee is not permissible, only running royalty payment is permissible as per
prescribed rate.
33. What is the mechanism for publicizing the changes in the FDI Policies?
Ans.
Changes in FDI policies are brought out in the form of Press Notes by
Department of Industrial Policy & Promotion (DIPP) . Soon after releasing the Press
Notes to the media, it is also loaded on the Departmental website (http://dipp.nic.in).
34. What proposals require an Industrial Licence(IL) and how is it obtained?
Ans.
In the New Industrial Policy, all industrial undertakings are exempt from
licencing except for those products given in Annexure I and II and those reserved for the
Small Scale Sector. The project should not be located within 25 kilometres of a city with
a population of more than one million (Annexure v).

12

The Government has substantially liberalised the procedures for obtaining an Industrial
Licence. An IL is approved by the Government.
The application in form IL-FC should be filed with the SIA. Approvals normally granted
within 6-8 weeks.
35. What is the procedure for a delicensed sector?
Ans.
An Industrial undertaking exempted from licencing needs only to file
information in the Industrial Entrepreneurs Memorandum (IEM) with the SIA , which will
issue an acknowledgement. No further approvals are required.
36. Where can one get the information on Indian Standards for any product?
Ans.
Please refer to the
(http://delhi.vsnl.net.in/bis.org)

website

of

Bureau

of

Indian

Standards

37. How to contact the Nodal Officers of the Department of Industrial Policy &
Promotion who are responsible for monitoring the approved Projects of a
particular state?
Ans: Please visit the website of the Department of Industrial Policy & Promotion at
http://dipp.nic.in by clicking FIIA.

Q.38. Which are the sectors where FDI is not allowed in India,
both under the Automatic Route as well as under the Government
Route?
Ans. FDI is prohibited under the Government Route as well as the
Automatic Route in the following sectors:
i) Atomic Energy
ii) Lottery Business
iii) Gambling and Betting
iv) Business of Chit Fund
v) Nidhi Company
vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry,
Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and
13

services related to agro and allied sectors) and Plantations activities (other than Tea Plantations)
(c.f. Notification No. FEMA 94/2003-RB dated June 18, 2003).
vii) Housing and Real Estate business (except development of townships, construction of
residential/commercial premises, roads or bridges to the extent specified in Notification No.
FEMA 136/2005-RB dated July 19, 2005).
viii) Trading in Transferable Development Rights (TDRs).
ix) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco
substitutes.
(Please also see the the website of Department of Industrial Policy and Promotion (DIPP),
Ministry of Commerce & Industry, Government of India at www.dipp.gov.in for details
regarding sectors and investment limits therein allowed ,under FDI)
Q39. What is the procedure to be followed after investment is made under the
Automatic Route or with Government approval?
Ans. A two-stage reporting procedure has to be followed :.
On receipt of share application money:
Within 30 days of receipt of share application money/amount of consideration from the nonresident investor, the Indian company is required to report to the Foreign Exchange Department,
Regional Office concerned of the Reserve Bank of India,under whose jurisdiction its Registered
Office is located, the Advance Reporting Form, containing the following details :

Name and address of the foreign investor/s;

Date of receipt of funds and the Rupee equivalent;

Name and address of the authorised dealer through whom the funds have been received;

Details of the Government approval, if any; and

KYC report on the non-resident investor from the overseas bank remitting the amount of
consideration.

The Indian company has to ensure that the shares are issued within 180 days from the date of
inward remittance which otherwise would result in the contravention / violation of the FEMA
regulations. Upon issue of shares to non-resident investors:
Within 30 days from the date of issue of shares, a report in Form FC-GPR- PART A
together with the following documents should be filed with the Foreign Exchange
Department, Regional Office concerned of the Reserve Bank of India.
14

Certificate from the Company Secretary of the company accepting investment from
persons resident outside India certifying that:

The company has complied with the procedure for issue of shares as laid down
under the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB
dated 3rd May 2000, as amended from time to time.

The investment is within the sectoral cap / statutory ceiling permissible under the
Automatic Route of the Reserve Bank and it fulfills all the conditions laid down for
investments under the Automatic Route,
OR
Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated
-------------------- (enclosing the FIPB approval copy)
Certificate from Statutory Auditors/ SEBI registered Merchant Banker / Chartered
Accountant indicating the manner of arriving at the price of the shares issued to the
persons resident outside India.

II - Foreign Technical Collaboration


1. What are the payment parameters for foreign technology transfer under the
Automatic Route of Reserve Bank of India? How should royalty be calculated?
Payment for foreign technology collaboration by Indian companies are allowed under the
automatic route subject to the following limits:
Lump sum payments not exceeding US$ 2 million.
Royalty payable being limited to 5 per cent for domestic sales and 8 per cent for
exports, without any restriction on the duration of the royalty payments.
The royalty limits are net of taxes and are calculated according to standard conditions.
The royalty will be calculated on the basis of the net ex-factory sale price of the product,
exclusive of excise duties, minus the cost of the standard bought-out components and the
landed cost of imported components, irrespective of the source of procurement, including
ocean freight, insurance, custom duties, etc.
RBI has delegated the powers to ADs to make payment of royalty under such
agreements. The requirement of registration of the agreement with the Regional
Office of Reserve Bank of India has been done away with.

15

2. What should be done, if Automatic Route of Reserve Bank of India for technology
transfer is not available?
Proposals, which do not satisfy the parameters prescribed for automatic route of RBI,
require clearance from Department of Industrial Policy and Promotion, Ministry of
Commerce and Industry, Government of India.

PROCEDURE FOR OPENING BRANCH/PROJECT/LIAISON OFFICE


1. How can foreign companies open Liaison/Project/Branch office in India?
Ans: Foreign company can set up Liaison/Branch Offices in India after obtaining approval
from Reserve Bank of India. Reserve Bank of India has given general permission to foreign
companies to establish Project Offices in India subject to certain conditions.
2. What is the procedure to be followed for obtaining Reserve Bank's approval for
opening Liaison Office/Representative Office?
Ans: A Liaison office can carry on only liaison activities, i.e. it can act as a channel of
communication between Head Office abroad and parties in India. It is not allowed to
undertake any business activity in India and cannot earn any income in India. Expenses of
such offices are to be met entirely through inward remittances of foreign exchange from the
Head Office abroad. The role of such offices is, therefore, limited to collecting information
about possible market opportunities and providing information about the company and its
products to the prospective Indian customers.
The companies desirous of opening a liaison office in India may make an application in form
FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign
Exchange Department, Reserve Bank of India, Central Office, Mumbai. This form is
available at www.rbi.org.inPermission to set up such offices is initially granted for a period of
3 years and this may be extended from time to time by the Regional Office in whose
jurisdiction the office is set up. Liaison/Representative offices have to file an Activity
Certificate on annual basis from a Chartered Accountant to the concerned Regional Office
of the Reserve Bank of India , stating that the Liaison Office has undertaken only those
activities permitted by Reserve Bank of India .
3. What is the procedure for setting up Project Office?
Ans: Foreign companies are granted projects in India by Indian entities. General
Permission has been granted by Reserve Bank of India vide Notification No. FEMA
95/2003-RB dated July 2, 2003 to foreign companies to open Project Office/s in India
16

provided they have secured from an Indian company, a contract to execute a project in
India, and
i) the project is funded directly by inward remittance from abroad; or
ii) the project is funded by a bilateral or multilateral International Financing Agency; or
iii) the project has been cleared by an appropriate authority; or
iv) 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.
However, if the above criteria are not met, or if the parent entity is established in Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded
to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for
approval.
4. What is the procedure for setting up Branch office?
Ans: Reserve Bank permits companies engaged in manufacturing and trading activities
abroad to set up Branch Offices in India for the following purposes:
i) To represent the parent company/other foreign companies in various matters in India e.g.
acting as buying/selling agents in India
ii) To conduct research work in the area in which the parent company is engaged
iii) To undertake export and import activities and trading on wholesale basis
iv) To promote possible technical and financial collaborations between the Indian companies
and overseas companies.
v) Rendering professional or consultancy services
vi) Rendering services in Information technology and development of software in India
vii) Rendering technical support to the products supplied by the parent/Group companies.
A branch office is not allowed to carry out manufacturing, processing activities
directly/indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of
any nature in India. Branch Offices have to submit Activity Certificate from a Chartered
Accountant on an annual basis to the Central Office of FED. For annual remittance of profit
Branch Office may submit required documents to an authorised dealer.
Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve
Bank of India considers the track record of the Applicant Company, existing trade relations
with India, the activity of the company proposing to set up office in India as well as the
financial position of the company while scrutinising the application.

VI. Branch/ Project/ Liaison Office of a foreign company in India


17

Q.1. How can foreign companies open Liaison /Branch office in India?
Ans.
A. With effect from February 1, 2010, foreign companies/entities desirous of setting up of
Liaison Office / Branch Office (LO/BO) are required to submit their application in Form FNC
along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange
Department, Reserve Bank of India, Central Office, Mumbai through an Authorised Dealer bank.
This form is available at www.rbi.org.in
B. The applications from such entities in Form FNC will be considered by the Reserve Bank
under two routes:
Reserve Bank Route - Where principal business of the foreign entity falls under sectors where
100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
Government Route - Where principal business of the foreign entity falls under the sectors
where 100 per cent FDI is not permissible under the automatic route. Applications from entities
falling under this category and those from Non - Government Organisations / Non - Profit
Organisations / Government Bodies / Departments are considered by the Reserve Bank in
consultation with the Ministry of Finance, Government of India.
C. The following additional criteria are also considered by the Reserve Bank while sanctioning
Liaison/Branch Offices of foreign entities:
Track Record

For Branch Office a profit making track record during the immediately preceding five
financial years in the home country.

For Liaison Office a profit making track record during the immediately preceding
three financial years in the home country.

Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest
Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any
Registered Accounts Practitioner by whatever name].

For Branch Office not less than USD 100,000 or its equivalent.

For Liaison Office not less than USD 50,000 or its equivalent.

D. Permission to set up such offices is initially granted for a period of 3 years and this may be
extended from time to time by the Authorised Dealer in whose jurisdiction the office is set up.
The Branch / Liaison offices established with the Reserve Bank's approval will be allotted a
Unique Identification Number (UIN) ( www.rbi.org.in/scripts/Fema.aspx ). The BOs / LOs shall
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also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up
the offices in India.
E. Liaison/Branch offices have to file an Annual Activity Certificate (AACs) from the Auditors,
as at end of March 31, along with the audited Balance Sheet on or before September 30 of that
year, stating that the Liaison Office has undertaken only those activities permitted by Reserve
Bank of India. In case the annual accounts of the LO/ BO are finalized with reference to a date
other than March 31, the AAC along with the audited Balance Sheet may be submitted within six
months from the due date of the Balance Sheet.
Q.2. What are the permitted activities of Liaison Office/ Representative Office?
Ans. A Liaison Office (also known as Representative Office) can undertake only liaison
activities, i.e. it can act as a channel of communication between Head Office abroad and parties
in India. It is not allowed to undertake any business activity in India and cannot earn any income
in India. Expenses of such offices are to be met entirely through inward remittances of foreign
exchange from the Head Office outside India. The role of such offices is, therefore, limited to
collecting information about possible market opportunities and providing information about the
company and its products to the prospective Indian customers. A Liaison Office can undertake
the following activities in India:
i.
ii.
iii.
iv.

Representing in India the parent company / group companies.


ii. Promoting export / import from / to India.
Promoting technical/financial collaborations between parent/group companies
and companies in India.
Acting as a communication channel between the parent company and Indian
companies.

Q.3. Can Foreign Insurance Companies / Banks set up Liaison Office in India?
Ans. Foreign Insurance companies can establish Liaison Offices in India only after obtaining
approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign
banks can establish Liaison Offices in India only after obtaining approval from the Department
of Banking Operations and Development (DBOD), Reserve Bank of India.
Q. 4. What is the procedure for setting up Branch office?
Ans. Permission for setting up branch offices is granted by the Foreign Exchange Department,
Reserve Bank of India, Central Office, Mumbai. Reserve Bank of India considers the track
record of the applicant company, existing trade relations with India, the activity of the company
proposing to set up office in India as well as the financial position of the company while
scrutinising the application. The application in Form FNC should be submitted to the Reserve
Bank through the Authorised Dealer bank.
Q.5. What are the permitted activities of Branch Office?
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Ans. Companies incorporated outside India and engaged in manufacturing or trading activities
are allowed to set up Branch Offices in India with specific approval of the Reserve Bank. Such
Branch Offices are permitted to represent the parent / group companies and undertake the
following activities in India:
i.

Export / Import of goods.1

ii.

Rendering professional or consultancy services.

iii.

Carrying out research work, in areas in which the parent company is engaged.

iv.

Promoting technical or financial collaborations between Indian companies and parent or


overseas group company.

v.

Representing the parent company in India and acting as buying / selling agent in India.

vi.

Rendering services in information technology and development of software in India.

vii.

Rendering technical support to the products supplied by parent/group companies.

viii.

Foreign airline / shipping company.

Normally, the Branch Office should be engaged in the activity in which the parent company is
engaged.
Note:
a. Retail trading activities of any nature is not allowed for a Branch Office in India.
b. A Branch Office is not allowed to carry out manufacturing or processing activities in
India, directly or indirectly.
c. Profits earned by the Branch Offices are freely remittable from India, subject to payment
of applicable taxes.
Q.6. Whether Branch Offices are permitted to remit profit outside India?
Ans. Branch Offices are permitted to remit outside India profit of the branch net of applicable
Indian taxes, on production of the following documents to the satisfaction of the Authorised
Dealer through whom the remittance is effected :
a. A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant
year;
b. A Chartered Accountants certificate certifying -

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i.
the
manner
of
arriving
at
the
remittable
profit
ii. that the entire remittable profit has been earned by undertaking the permitted activities
iii. that the profit does not include any profit on revaluation of the assets of the branch.
Q.7 What are the documents to be submitted to the AD bank at the time of closure of the Liaison/
Branch Office?
Ans. At the time of winding up of Branch/Liaison offices, the company has to approach the
designated AD Category - I bank with the following documents:
a) Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for
establishing the BO / LO.
b) Auditors certificate - i) indicating the manner in which the remittable amount has been
arrived at and supported by a statement of assets and liabilities of the applicant, and indicating
the manner of disposal of assets;
ii) confirming that all liabilities in India including arrears of gratuity and other benefits to
employees, etc., of the Office have been either fully met or adequately provided for; and
iii) confirming that no income accruing from sources outside India (including proceeds of
exports) has remained un-repatriated to India.
c) No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
d) Confirmation from the applicant/parent company that no legal proceedings in any Court in
India are pending and there is no legal impediment to the remittance.
e) A report from the Registrar of Companies regarding compliance with the provisions of the
Companies Act, 1956, in case of winding up of the Office in India.
f) Any other document/s, specified by the Reserve Bank while granting approval.
Q.8. What is the procedure for setting up Project Office?
Ans. The Reserve Bank has granted general permission to foreign companies to establish Project
Offices in India, provided they have secured a contract from an Indian company to execute a
project in India, and
i.

the project is funded directly by inward remittance from abroad; or

ii.

the project is funded by a bilateral or multilateral International Financing Agency; or

iii.

the project has been cleared by an appropriate authority; or

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iv.

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.

However, if the above criteria are not met or if the parent entity is established in Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to the
Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai for approval.
Q.9. What are the bank accounts permitted to a Project Office?
Ans. AD Category I banks can open non-interest bearing Foreign Currency Account for Project
Offices in India subject to the following:
i.

The Project Office has been established in India, with the general / specific permission of
Reserve Bank, having the requisite approval from the concerned Project Sanctioning
Authority concerned.

ii.

The contract, under which the project has been sanctioned, specifically provides for
payment in foreign currency.

iii.

Each Project Office can open two Foreign Currency Accounts, usually one denominated
in USD and other in home currency, provided both are maintained with the same AD
categoryI bank.

iv.

The permissible debits to the account shall be payment of project related expenditure and
credits shall be foreign currency receipts from the Project Sanctioning Authority, and
remittances from parent/ group company abroad or bilateral / multilateral international
financing agency.

v.

The responsibility of ensuring that only the approved debits and credits are allowed in the
Foreign Currency Account shall rest solely with the branch concerned of the AD. Further,
the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the
respective AD banks.

vi.

The Foreign Currency accounts have to be closed at the completion of the Project.

Q.10. What are the general conditions applicable to Liaison / Branch / Project Office of foreign
entities in India?
Ans. The general conditions applicable to Liaison/Branch/Project Office of foreign entities in
India are as under;
(i) Without prior permission of the Reserve Bank, no person being a citizen of Pakistan,
Bangladesh, Sri Lanka, Afghanistan, Iran or China can establish in India, a Branch or a Liaison
Office or a Project Office or any other place of business.
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(ii) Partnership / Proprietary concerns set up abroad are not allowed to establish Branch
/Liaison/Project Offices in India.
(iii) Entities from Nepal are allowed to establish only Liaison Offices in India.
(iv) Branch/Project Offices of a foreign entity, excluding a Liaison Office are permitted to
acquire property for their own use and to carry out permitted/incidental activities but not for
leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka,
Afghanistan, Iran, Bhutan or China are not allowed to acquire immovable property in India even
for a Branch Office. These entities are allowed to lease such property for a period not exceeding
five years.
(v) Branch / Liaison / Project Offices are allowed to open non-interest bearing INR current
accounts in India.
(vi) Transfer of assets of Liaison / Branch Office to subsidiaries or other LO / BO or any other
entity is permitted only with the specific approval of the Central Office of the Foreign Exchange
Department, Reserve Bank of India.
(viii) Authorised Dealers can allow term deposit account for a period not exceeding 6 months in
favor of a branch/office of a person resident outside India provided the bank is satisfied that the
term deposit is out of temporary surplus funds and the branch / office furnishes an undertaking
that the maturity proceeds of the term deposit will be utilised for their business in India within 3
months of maturity. However, such facility may not be extended to shipping/airline companies.
(ix) Permission to establish offices, in India by foreign Non-Government Organisations/NonProfit Organisations/Foreign Government Bodies/Departments, by whatever name called, are
under the Government Route as specified in A. P. (DIR Series) Circular No. 23 dated December
30, 2009. Such entities are required to apply to the Reserve Bank for prior permission to
establish an office in India, whether Project Office or otherwise.

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