Saturday, January 29, 2011

Establishment of Branch / Liaison Office in India---Regulatory requirements

As On DEC 2010
A  Eligibility Criteria for Establishment of Branch / Liaison Office in India

(i) Eligibility Criteria

An application from a foreign entity to establish Branch / Liaison Office in India is considered on the basis of two criteria viz: basic and additional:

Basic criteria
  • Reserve Bank Route — 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 — 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 are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.
Additional criteria
  • 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.
Applicants that do not satisfy the eligibility criteria and are subsidiaries of other companies may submit a Letter of Comfort from their parent company as per  B subject to the condition that the parent company satisfies the eligibility criteria as prescribed.
B
How to Apply for Liaison office?
Following forms have to be submitted to Reserve Bank Of India.
  1. Form FNC 1 – 3 Copies . _--Duly  signed by authorised signatory of foreign entity in home country
  2. Letter from the Principal officer of the Parent Company to RBI  as per annxure D
3.    The latest audited Balance Sheet of the Parent Company. [If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]
  1. Letter of Authority from the Parent Company in favour of local representative.
  2. Two copies of the English version of the Memorandum and Articles of Association (Charter Documents) of the Parent Company attested by Indian Embassy/Notary Public in the country of registration.
  3. KYC of parent Company, Bankers' Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank
  4. Board resolutions  . wherever requred
  5.   Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration

  6. A decalrtiion that The BOs / LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the Annual Activity Certificate

C

Scope of activities permitted and other procedural guidelines regarding functioning of a Branch Office / Liaison Office in India

(i) Permitted activities

Permitted activities for a Branch / Liaison Office in India would be as under:


Liaison Office
  • Representing the parent company / group companies in India.    
  • 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.
(ii) Applications for additional offices or undertaking additional activities.
  1. Requests for establishing additional BO / LOs may be submitted to the Reserve Bank in the same manner, as indicated in Annex A.
  2. Fresh FNC form, duly signed by the authorized signatory of the foreign entity in the home country should be submitted. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.
  3. If the number of Offices exceeds 4 (i.e. one BO / LO in each zone viz; East, West, North and South), the applicant has to justify the need for additional office/s.
  4. The applicant may identify one of its Offices in India as the Nodal Office, which will coordinate the activities of all of its Offices in India.
  5. Requests for undertaking activities in addition to what has been permitted initially by the Reserve Bank may be submitted through the designated AD Category -I bank to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai, justifying the need with comments of the designated AD Category - I bank.
(iii) Extension of validity of the approval of Liaison Offices
  • Requests on letter head of LO for extension of time for continuance of LOs [other than those from entities in the Insurance sector, banks, NBFCs and Construction and Development sectors (excluding infrastructure development companies)] may be submitted to the AD Category - I bank concerned under whose jurisdiction the LO / Nodal Office is located before the expiry of the validity of the approval.
  • Applications from foreign banks and insurance companies will continue to be directly received and examined by the Department of Banking Operations and Development, Reserve Bank and Insurance Regulatory and Development Authority (IRDA) respectively, as hitherto.
  • No extension would be considered for LOs of entities which are NBFCs and those engaged in Construction and Development sectors (excluding infrastructure development companies). Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV) /Wholly Owned Designated AD Category-I bank should ensure submission of all the above mentioned documents by the BO / LO before considering the request for closure of the BO / LO and subsequent remittance, if any, to the Head Office.
Designated Authorised Dealers may allow remittance of winding up proceeds in respect of Offices of banks and insurance companies, after obtaining copies of closure permission from the sectoral regulators along with the documents mentioned above. 

D   Restriction on Liaison office 
  1. No commercial operations  can be carried out by a liaison office in India.
  2. It can neither borrow, nor lend money
  3. It can not open any other bank account but a special account   that only allows inflows from abroad.
  4. Office expense must be met from inward remittance in special account opened by liaison office.
  5. It must file regular returns to the RBI. Such returns must
    include Audited Annual accounts and an activity report for the year.

Annex D
[Annex to A. P. (DIR Series) Circular No. 23 dated December 30, 2009]
Format of the Comfort Letter
The Chief General Manager-in-Charge,
Reserve Bank of India,
Foreign Exchange Department,
Foreign Investment Division,
Central Office, Fort,
Mumbai- 400001.

Dear Sir,

Sub: Application for establishment of Branch / Liaison Office in India by our subsidiary / group company, M/s_________________________

You may kindly refer to the application made by our subsidiary / group company, M/s_____________________________to your office for establishing Branch / Liaison Office in India.

2. In this connection, we, ______________________(the parent company) undertake to provide the necessary financial support for our subsidiary / group company's operations as a Branch / Liaison Office in India. Any liability that may arise due to the functioning of the Branch/Liaison Office in India will be met by us (the parent company), in case of inability on part of the Branch/Liaison Office to do so.

3. We are also enclosing the financial background of our company in the form of our latest Audited Balance Sheet / Account Statement certified by a Certified Public Accountant.
Yours faithfully,
(                            )
Authorised Representative of the parent company
for any clarifications , please contact on tradefinance.teacher@gmail.com
these are indicatives, for exact requirments. please contact your banker (AD)

No comments:

Post a Comment