Reserve Bank of India has brought new guidelines to establish Project Office in India for Foreign Companies through Notification No. FEMA 22(R)/ 2016-RB latest amended by Notification No. FEMA 22(R)(2)/2019-RB dated January 21, 2019, which will affect Project Office for foreign companies in India.

A Foreign Corporation is allowed to establish a Project office in India by the Reserve Bank of India through general permission provided a written agreement for the project has been signed with Indian Government or a private party.

WHAT IS PROJECT OFFICE?

‘Project Office’ means a place of business in India to represent the interests of the foreign company executing a project in India but excludes a Liaison Office.

Further RBI has delegated its powers of approval of Project Office to Authorised Dealer Category-I bank subject to the provisions of Regulation 5, grant approval as per the directions and/or guidelines issued by the Reserve Bank in this regard.

General Permissions to establish Project office in India –

A foreign company may open Project Office in India provided it has secured from an Indian company, a contract to execute a project in India, and –

1. Necessary regulatory clearance has been given to Project;

2. The project has been cleared by an appropriate authority;

3. The project is funded directly by inward remittance from abroad;

4. The project is funded by a bilateral or multilateral International Financing Agency (it means by the World Bank or the International Monetary Fund or similar other body.);

5. 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.

A person from any country other than Pakistan who has been awarded a contract for a project by a Government authority/ Public Sector Undertaking may open a bank account with an Authorised Dealer Category-I bank without any prior approval from the Reserve Bank.

STEPS FOR PROJECT OFFICE REGISTRATION BY FOREIGN COMPANY

1. Registration with RBI – RBI has delegated its powers of approval of Project Office to Authorised Dealer Category-I bank subject to the provisions of Regulation 5, grant approval as per the directions and/or guidelines issued by the Reserve Bank in this regard.

Application is to be made with Category -1 Authorised Dealer Bank with complete set of documents along with

• Form FNC

• Copy of Project Agreement

• Undertaking that project is funded directly by inward remittance from abroad or by a bilateral or multilateral International Financing Agency i.e. World Bank or the International Monetary Fund or similar other body.

• Copy of other documents

Approval of the Reserve Bank in certain cases for the establishment project office or any other place of business in India –

Any application from a person resident outside for the opening of a branch office or a liaison office or a project office or any other place of business in India shall require prior approval of The Reserve Bank in the following cases where –

• the applicant is a citizen of or is registered/incorporated in Pakistan;

• the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a liaison, branch or project office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;

• the principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting:

Provided that approval of the Reserve Bank of India is not required in cases where Government approval or license/permission by the concerned Ministry/ Regulator has already been granted. Further, in the case of proposal for opening a project office relating to the defence sector, no separate reference or approval of the Government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings.

• The applicant is a Non-Government Organisation, Non-Profit Organisation, or Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under the Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under this regulation. (Inserted amended vide Notification No. FEMA 22(R)(1)/2018-RB dated August 31, 2018. Prior to amendment, it read as “The applicant is a Non-Government Organisation, Non-Profit Organisation, Body/ Agency/ Department of a foreign government”)

Such applications shall be forwarded to the Reserve Bank, Foreign Exchange Department, by the Authorised Dealer Category-I bank and be considered in consultation with the Government of India.

2. Registration with ROC –.

1. The following Document Attestation / apostille is required for registration with ROC

• FNC Form duly signed by AR

• Certificate of Incorporation & MOA

• Proof of Registered Office

• Audited Financial of past 5 Years

• Board Resolution to Open a Project Office

• Note on Location / Proposed Activity

• NOC from the owner of the premises.

• KYC of the Authorised Signatory

2. For having registration with ROC application to be made in form FC-1 to ROC with all requisite documents, information and undertaking.

Steps for Registration –

1. All the documents and forms are to be signed by proposed directors or shareholders

2. Apply for Digital Signature Certificate for all directors.

3. Apply to ROC
4. Bank account opening
5. FDI Reporting

3. Registration with State Police Authorities

A person from

• Bangladesh,

• Sri Lanka,

• Afghanistan,

• Iran,

• China,

• Hong Kong or

• Macau

For opening a Project Office or any other place of business in India shall have to register with the concerned State Police Authorities. Copy of approval letter for ‘persons’ from these countries shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi.

TAX LIABILITY FOR PROJECT OFFICE UNDER THE INCOME TAX LAW

Foreign Companies having Permanent Establishment (“PE”) in India or Project office in India are taxable at the higher basic rate of 40% further increased by Surcharge (as applicable) and Health and Education Cess.

S. No.	Particulars	Effective Tax Rate
1.	If Total Income upto INR 10 Million	41.60%
2.	If Total Income is more than INR 10 Million but upto 100 Million	42.43%
3.	If Total Income is more than 100 Million	43.68%

COMPLIANCE FOR PROJECT OFFICE

1. COMPLIANCE UNDER THE CORPORATE LAW

• File financial statements within a period of six months from the end of the financial year eForm FC-3: –

• • Copy of latest consolidated financial statement of parent company (Mandatory).

  • Copy of balance sheet and profit and loss account duly authenticated under section 381(1) (Mandatory)

  • In case the document is in any other language other than English certified translation in English language is mandatory.

• File annual return of the company in eForm FC-4 within 60 days from the close of financial year: –

  • Details of Promoters, Directors and Key managerial personnel and changes therein since close of previous financial year. (Mandatory)

  • Details of directors and key managerial personnel and their remuneration. (Mandatory)

  • Details of the meeting of the members or class thereof, board and its various committees along with attendance details. (Mandatory)

  • Particulars of members and debenture holders along with changes therein since the close of previous financial year. (Mandatory)

  • Particulars of Holding, subsidiary and associate companies and firms. (Mandatory in case number of entities prescribed at serial no 6 is more than seven)

 

 

2. COMPLIANCE UNDER RBI & FEMA

The branch office/liaison office may submit the Annual Activity Certificate as at the end of March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year. In case the annual accounts of the office are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheets to the Authorised Dealer Category-bank.

AAC from a Chartered Accountant showing the project status and certifying that the accounts of the project office have been audited and the activities undertaken are in conformity with the general/ specific permission given by the Reserve Bank may be submitted by the project office to the designated Authorised Dealer Category-I bank.

3. COMPLIANCE UNDER INCOME TAX LAW

The branch office/liaison office may submit the Annual Activity Certificate as at the end of March 31 along with the audited financial statements including receipt and payment account on or before September 30 of that year. In case the annual accounts of the office are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheets the Director General of Income Tax (International Taxation).

AAC from a Chartered Accountant showing the project status and certifying that the accounts of the project office have been audited and the activities undertaken are in conformity with the general/ specific permission given by the Reserve Bank may be submitted by the project office to the designated Authorised Dealer Category-I bank.

REMITTANCE OF PROFIT OR SURPLUS

Authorised Dealer Category – I bank may permit intermittent remittances by project offices pending winding up / completion of the project subject to submission of the following:

1. certified copy of the final audited project accounts;

2. the statutory auditor’s certificate showing the manner of arriving at the remittable surplus and confirming that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.; and

3. An undertaking from the project office that the remittance will not, in any way, affect the completion of the project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.

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