To
All
Authorised Dealers Category - I banks
Madam / Sir,
Establishment
of Branch/Liaison Offices in India by foreign entities-
Eligibility Criteria
and Procedural Guidelines
Attention of Authorised Dealer
Category - I (AD Category - I) banks is invited to Notification
No. FEMA 22/2000-RB dated May 3, 2000, as amended from time to time, in terms
of which a person resident outside India requires prior approval of the Reserve
Bank for establishing Branch / Liaison Office in India.
2.
Under the current regulations, the applications from corporates registered outside
India (foreign entities), for establishing Branch / Liaison Offices in India are
considered by the Reserve Bank under two routes :
(i) RBI
Route - Applications from foreign entities which are engaged in sectors where
sectoral cap for foreign direct investment (FDI) under the Automatic Route is
100 per cent.
(ii) Government Route - Applications
from foreign entities which are engaged in sectors where sectoral cap for FDI
under the Automatic Route is less than 100 per cent which are considered by the
Reserve Bank in consultation with the Government of India, Ministry of Finance,
Department of Economic Affairs (DEA).
3. With the objective
of achieving transparency, it has been decided to place the eligibility criteria
and the procedural guidelines for establishment of Branch and Liaison Offices
in India, in public domain. Accordingly, the broad criteria regarding eligibility
for opening of Branch (BO) / Liaison (LO) Offices, documentation, etc. are given
in Annex A and the scope of activities permitted and other
procedural guidelines regarding functioning of Branch and Liaison Offices in India
are given in Annex B.
4.The application
for establishing Branch / Liaison Office in India may be forwarded by the foreign
entity in Form FNC (Annex-C)
through the designated AD Category - I bank (i.e. an AD Category – I bank identified
by the applicant with whom they intend to pursue banking relations) to the Chief
General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department,
Foreign Investment Division, Central Office, Fort, Mumbai-400 001, along with
the required documents. The AD Category - I bank should exercise due diligence
in respect of the applicant’s background, antecedents of the promoter, nature
and location of activity, sources of funds, etc. and also ensure compliance with
KYC norms.
5. Applications from banks and insurance
companies will continue to be directly received and examined by the Department
of Banking Operations and Development (DBOD), Reserve Bank, Central Office and
the Insurance Regulatory and Development Authority (IRDA), respectively, as hitherto.
As such, the guidelines contained in this Circular are not applicable to such
entities and they shall continue to be governed by the terms and conditions stipulated
by the respective approving authority.
6. In order to
provide a uniform framework, a Unique Identification Number (UIN) would be allotted
to both the existing as well as the new Branch / Liaison Office. This UIN will
have to be quoted in all references to the Reserve Bank by the BO/LO and AD Category
– I bank.
7. The Reserve Bank or the Government of India,
as the case may be, has the right to reject an application for non-fulfillment
of any other condition/s not specifically referred to in the Annex hereto; fulfillment
of which in the opinion of the Reserve Bank / Government of India is necessary
for grant of such permission or in public interest. The Reserve Bank or the Government
of India, as the case may be, shall also be competent to verify / examine the
activities of the Branch / Liaison Office of the foreign entities established
in India and to withdraw the permission already granted, after due notice, if
the circumstances so warrant or due to changes in policy.
8.
AD Category - I banks may bring the contents of this circular to the notice of
their constituents/customers concerned.
9. Necessary amendments
to the Foreign Exchange Management (Remittance of Assets) Regulations, 2000 notified
vide Notification
No.FEMA.13/2000-RB dated May 3, 2000 and the Foreign Exchange Management (Establishment
in India of Branch or Office or other Place of Business) Regulations, 2000 notified
vide Notification
No.FEMA.22/2000-RB dated May 3, 2000 are being issued separately.
10.
The directions contained in this circular have been issued under Sections 10(4)
and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without
prejudice to permissions / approvals, if any, required under any other law.
Yours
faithfully,
(Salim Gangadharan)
Chief General Manager-in-
Charge
Annex
A
[Annex to A. P (DIR Series) Circular No. dated May , 2008]
Eligibility
Criteria and Procedural Guidelines for
Establisment 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 — basic and additional:
- Basic criteria
- RBI
Route — Principal business of the foreign entity falls under the sectors where
sectoral cap for foreign direct investment (FDI) under the Automatic Route is
100 per cent.
- Government Route —
Principal business of the foreign entity falls under the sectors where sectoral
cap for foreign direct investment (FDI) under the Automatic Route is less than
100 per cent. Applications from entities falling under this category are
considered by the Reserve Bank in consultation with the Government of India, Ministry
of Finance, (DEA).
- Additional
criteria
- Track
Record:
- For Branch Office — a successful,
profit making track record during the immediately preceding five years in the
home country.
- For Liaison Office — a successful,
profit making track record during the immediately preceding three years in the
home country.
- Net
Worth [total of paid-up capital and free reserves, less intangible
assets as per latest Audited Balance Sheet or Account Statement certified by a
CPA]
- For Branch Office — not less
than USD 100,000 or its equivalent.
- For Liaison
Office — not less than USD 50,000 or its equivalent.
(ii)
Application Form and Documentation
Applications in
Form FNC (Annex-C),
duly completed in all respects and signed by the authorized signatory of the foreign
entity in the home country may be submitted along with Letter of Comfort, wherever
applicable (Annex D), to the designated AD Category - I
bank for onward transmission to the Reserve Bank, to be forwarded along with their
comments and recommendations and the required documents (Item (vii) of Form FNC).
Annex B
[Annex
to A. P (DIR Series) Circular No. dated May , 2008]
Functioning
of a Branch / Liaison Office in India
(i) Permitted activities
Permitted activities for a Branch / Liaison Office in India
would be as under.
Branch Office
Export/import of
goods
Rendering professional or consultancy
services in the area of the parent entity's activity.
Carrying
out research work, in which the parent company is engaged.
Promoting
technical or financial collaborations between Indian companies and parent or overseas
group company.
Representing the parent
company in India and acting as buying/selling agent in India.
Rendering
services in Information Technology and development of software in India.
Rendering
technical support to the products supplied by parent/group companies.
Liaison Offices
Representing
in India, the parent company / group companies.
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 & activities
- Requests
for establishing additional Branch / Liaison Offices may be submitted to the Reserve
Bank in the same manner as indicated in Annex A.
- Fresh
form FNC, duly signed by the authorized signatory of the foreign entity in the
home country should to be submitted. However, the documents mentioned in form
FNC need not be resubmitted, if there are no changes to the documents already
submitted earlier.
- If the number of Offices
exceeds 4 (i.e. one Branch / Liaison Office in each zone viz; East, West, North
and South), the applicant has to justify the need for additional offices.
- 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.
- Requests
for undertaking activities in addition to what has been permitted initially by
the Reserve Bank, may be submitted to the Chief General Manager-in-Charge, Reserve
Bank of India, Foreign Exchange Department, Foreign Investment Division, Central
Office, Mumbai, justifying the need.
(iii)
Extension of Liaison Offices
- Requests
for extension of Liaison Offices (other than those from entities in the Insurance
sector, NBFCs and Construction and Development sectors) may be submitted to the
concerned AD Category - I bank under whose jurisdiction the Liaison Office / Nodal
Office is located before the expiry of the validity of the approval.
- Applications
from insurance companies will continue to be directly received and examined by
the Insurance Regulatory and Development Authority (IRDA), as hitherto.
- No
extension would be considered for LOs of entities who are NBFCs and those engaged
in Construction and Development sectors. Upon expiry of the validity period, these
entities have to either close down or be converted into a full-fledged Joint Venture
(JV) /Wholly Owned Subsidiary (WOS), in conformity of the extant FDI policy.
(iv) Winding up of Branch / Liaison Offices
- Requests
for winding up of Branch / Liaison Office(s) may be submitted to the AD Category
- I bank designated by their Nodal Office.
- The
application for winding up may be submitted along with the following documents:
- A Chartered Accountant's certificate :
- 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;
- 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;
- confirming that no proceeds accruing
from sources outside India has remained un-repatriated to India.
- No-objection / Tax Clearance Certificate from Income-Tax
authority for the remittance or an undertaking from the applicant and a certificate
from the Chartered Accountant as mentioned in AP (DIR Series) Circular No. 56
dated November 26, 2002.
- Confirmation
from the parent entity that no legal proceedings in any Court in India are pending
against the Branch / Liaison Office and there is no legal impediment to the remittance.
Annex
D
[Annex to A. P (DIR Series) Circular No. dated May
, 2008]
Format of the Comfort Letter
To
The
Chief General anager-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.