How To Set Up A Project Office In India
Project Office (PO) means a location of the business to constitute the interests of a foreign company, executing a project in India but excludes a Liaison Office. A project office in India is prohibited from undertaking or carrying on any activity other than the activity in relation to the execution of the project for which such office is established. Also, the PO may undertake commercial activities related to the particular project.
Project Office is an ideal way for companies to initiate a business presence in India if the motive is to have a presence for a limited period of time. It is essentially a Branch Office (BO) set-up with the limited purpose for executing a specific project. Foreign companies engaged in turnkey construction or installation set up a project office for their operations in India.
Foreign Companies who have been appointed with a contract to execute a project in India, select the mode of execution of the project, through project offices duly registered with the Reserve Bank of India (RBI) and the Registrar of Companies (ROC). The revised Regulations 2016 under FEMA has given all powers of approving applications to AD banks except for a few cases.
Eligibility For Setting Up A Project Office In India
A foreign corporation which has a contract from an Indian company to execute a project is allowed to set-up a project office in India without obtaining prior permissions from the RBI. The RBI grants permission to a foreign entity for setting up a project office in India subject to the following conditions:
- It has a contract from an Indian company to execute a project in India
- The project is directly funded by inward remittance from abroad
- The project is directly funded by a Bilateral International Finance Agency
- The project has been passed by an appropriate authority
- A company or an entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the particular project.
However, if the above conditions are not fulfilled, the foreign entity has to approach the RBI for approval. Setting up of Project Office by foreign NGO/NPO/Foreign Government Bodies/Departments is under the Government Route. Such corporations are required to apply to RBI for the prior permission to establish an office in India.
Exceptions To The Conditions
- RBI has given general permission for opening of Project Office in India if the above conditions are satisfied. However, if any entity resident in Pakistan, Bangladesh, Sri Lanka, Iran, Afghanistan, China, Macau and Hong-Kong desires to open a project office in Jammu & Kashmir, North Eastern States and Andaman and Nicobar islands, approval is granted by RBI in consultation with Government of India. In all other cases, AD Category-I banks are empowered to grant approval.
- Principal business falls in defence/telecom/private security/ information and broadcasting sector. However, no separate reference or approval of the Government of India (GOI) will be required in respect of proposal for opening of a PO relating to the defence sector, if contract for which the PO is opened has been awarded by/entered into with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings.
Procedure To Set Up A Project Office In India
The application to set up a project office in India is submitted by the non-resident entity in Form FNC to a designated Authorised Dealer Category – I bank (an AD Category – I bank identified by the applicant with whom they intend to pursue banking relations).
The AD Category-I bank exercises due diligence in respect of
- The applicant’s background
- Adherence to the eligibility criteria for establishing PO
- Antecedents of the promoter
- Nature and location of activity of the applicant
- Sources of funds
- Compliance with the extant KYC norms
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After verifying these aspects, the bank grants approval to the foreign entity for establishing a project office in India. The AD Category-I banks may frame an appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.
AD Category-I bank grants approval as per the directions and/or guidelines issued by the Reserve Bank in this regard and such approval is valid for a period of 6 months. An applicant who has received a permission for setting up of a PO must inform the designated AD Category I bank as to the date on which the PO has been set-up. The AD Category I bank in reply informs the RBI accordingly.
Regulation 2016 requires applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan, who are desirous of opening BO/PO/LO in India, to register with relevant state police authorities. Adding to it, the AD Bank is required to mark a copy of the approval letter for “people” from these countries to the Ministry of Home Affairs, Internal Security Division-I, GOI, New Delhi for their record or necessary action.
Documents Required to Set up a Project Office in India
- Name and Address of the Foreign Company,
- Reference Number and date of the letter awarding the contract,
- Particulars of the authority awarding the projects/contract,
- The total amount (in Rs.) of contract,
- Address/e-mail address, telephone number/fax number of the Project Office,
- Tenure of Project Office,
- Brief details of the Project undertaken,
- AD branch with whom the account has been opened and the foreign currency in which the account is opened,
- An undertaking to the effect that the Project Office is eligible to avail of the General Permission under Regulation 5.
The office must start working within 6 months from the date of the approval letter. The extension for 6 months may be granted by AD Category-I bank for reasons beyond the control of the person resident outside India. Further extension can only be granted by RBI only. The PO remains valid for the entire tenure of the project (until the project is completed or winded-up).
Proprietary concerns which are well established abroad are not allowed to start a PO in India. A foreign corporation project office is allowed for the acquisition/buying of any property/piece of land for carrying out their activities which are permitted by RBI. Only Non-Interest bearing current accounts must be maintained by a PO in India.
If at the time of initiation of the project office in India, approval from RBI is not obtained then it is necessary to inform about the PO to Registrar of Companies in the prescribed form to inform about the set-up of PO with all important documents within the specified time frame.
Filing Annual Activity Certificate (AAC)
Under Regulation 2016, a specific clause in respect to the filing of AAC by PO is included. The AAC in Form FNC (Annex D) must be submitted to the designated AD Category –I Bank using the following:
- In case of a sole PO, by the PO concerned.
- In case of multiple POs, a combined AAC in respect of all the offices in India by the nodal office of the POs.
This AAC can be gained from a Chartered Accountant showing the project status and certifying that the accounts of the PO is been audited and the activities undertaken are in parallel with the general/specific permission given by the RBI.
Time Limit for Filing AAC
- Where the financial year ends on March 31: Before September 30 of that year,
- Where the financial year ends on some other date: Within 6 months from the end of the financial year.
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