Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000

 

FEMA 22/2000-RB, dated 3-5-2000 [GSR 408(E), dated 3-5-2000] - In exercise of the powers con­ferred by sub-section (6) of section 6 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank makes the following regulations to prohibit, restrict and regulate estab­lishment in India of a branch or office or other place of busi­ness by a person resident outside India, namely :—

 

Short title and commencement.

(i)         These Regulations may be called the Foreign Exchange Management (Establishment in India of Branch or Office or other Place  of Business) Regulations, 2000.

(ii)        They shall come into force on 1st day of June, 2000.

 

Definitions.

In these regulations, unless the context otherwise requires—

(a)       ‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);

(b)       ‘foreign company’ means a body corporate incorporated outside India, and includes a firm or other association of indi­viduals;

(c)        ‘Branch’ shall have the meaning assigned to it in sub-section (9) of section 2 of the Companies Act, 1956 (1 of 1956);

(d)       ‘Form’ means a Form annexed to these Regulations;

(e)       ‘Liaison Office’ means a place of business to act as a channel of communication between the principal place of business or head office by whatever name called and entities in India but which does not undertake any commercial/trading/industrial activ­ity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel;

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

(g)       ‘Site Office’ means a sub-office of the Project Office established at the site of a project but does not include a Liaison Office;

1 [(h)    ‘Stand alone basis’ means such branch offices would be isolated and restricted to the Special Economic Zone alone and no business activity/transaction will be allowed out­side the Special Economic Zones in India which includes branches/subsidiaries of its parent office in India;]

2 [(i)]    the words and expressions used but not defined in these Regulations, shall have the same meanings respectively assigned to them in the Act.

 

Prohibition against establishing branch or office in India.

No person resident outside India shall, without prior approval of the Reserve Bank, establish in India a branch or a liaison office 1 [***] or any other place of business by whatever name called:

 

Provided that no approval shall be necessary for a banking company, if such company has obtained necessary approval under the provisions of the Banking Regulations Act, 1949 :

 

2 [Provided further] that no approval shall be necessary from RBI for a company to establish a branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities:

 

Provided further that :

            I.          such units are functioning in those sectors where 100 per cent FDI is permitted,

            II.          such units comply with Part XI of the Companies Act (sections 592 to 602),

            III.         such units function on a stand-alone basis,

IV.        in the event of winding-up of business and for remit­tance of winding-up proceeds, the branch shall approach an Au­thorized Dealer in Foreign Exchange with the documents except (A) listed in Regulation 6(1)(iii) of Notification No. FEMA 13/2000-RB, dated 3rd May, 2000.]

 

Prohibition against establishing a branch or office in India by citizens of certain countries.

No person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China,without prior permission of the Re­serve Bank, shall establish in India, a branch or a liaison office or a project office or any other place of business by whatever name called.

 

Application to Reserve Bank for opening branch or liaison 3 [office].

(i)         A person resident outside India desiring to establish a branch or liaison office in India shall apply to the Reserve Bank, in Form FNC 1.

4  [(ii)   A foreign Company may open a Project Office/s in India provided it has secured from an Indian company, a contract to execute a project in India, and

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

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

            (c)        the project has been cleared by an appropriate authori­ty; or

(d)       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.

(iii)       The Foreign Company shall furnish a report to the concerned Regional Office of Reserve Bank of India under whose jurisdiction the Project Office is set up, giving details as under :

            (a)       Name and address of the foreign company          

(b)       Reference No. and date of letter awarding the contract referred to in clause (ii) of Regulation 5

            (c)        Total amount of contract

            (d)       Address and tenure of Project Office

            (e)       Nature of Project undertaken.]

1 [***]

 

Explanation - For the purpose of this Regulation,

(i)         ‘a bilateral or multilateral International Financing Agency’ means the World Bank or the International Monetary Fund or similar other body;

(ii)        ‘Public Financial Institution’ is a public financial institution as defined in section 4A of the Companies Act, 1956.

 

Activities which may be undertaken by the branch or office in India.

(i)         A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a branch or a liaison office in India may undertake or carry on any activity specified in Schedule I or, as the case may be, in Schedule II, but shall not undertake or carry on other activity unless otherwise specif­ically permitted by the Reserve Bank.

2 [(ii)    Opening of project office under clause (ii) of Regu­lation 5 is permitted in India and such project office shall not undertake or carry on any other activity other than the activity relating and incidental to execution of the project.]

 

Remittance of profit or surplus.

A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a branch or Project Office in India may remit outside India the profit of the branch or surplus of the Project on its completion, net of applicable Indian taxes, on production of the following documents, and establishing the net profit or surplus, as the case may be, to the satisfaction of the authorised dealer through whom the remittance is effected.

 

I. For remittance of profit of a branch,—

(a)       certified copy of the audited balance-sheet and profit and loss account for the relevant year;

            (b)       a Chartered Accountant’s certificate certifying,—

            (i)         the manner of arriving at the remittable profit,      

(ii)        that the entire remittable profit has been earned by undertaking the permitted activities, and

            (iii)       that the profit does not include any profit on revaluation of the assets of the branch.

 

II. For remittance of surplus on completion of the Project,—

            (a)       certified copy of the final audited project accounts;         

(b)       a Chartered Accountant’s certificate showing the manner of arriving at the remittable surplus;

(c)        income-tax assessment order or either documentary evidence showing payment of income-tax and other applicable taxes, or a Chartered Accountant’s certificate stating that sufficient funds have been set aside for meeting all Indian tax liabilities; and

(d)       auditor’s certificate stating that no statutory liabil­ities in respect of the Project are outstanding.

SCHEDULE I

[See Regulation 6(i)]

Permitted activities for a branch in India of a person
resident outside India

(i)         Export/Import of goods        

(ii)        Rendering professional or consultancy services. 

(iii)       Carrying out research work, 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.

 

SCHEDULE II

[See  Regulation 6(i)]

Permitted activities for a Liaison office in India of a
person resident outside India

 

(i)         Representing in India the parent company/group compa­nies.

(ii)        Promoting export import from/to India.

(iii)       Promoting technical/financial collaborations be­tween parent/group companies and companies in India.

(iv)       Acting as a communication channel between the parent company and Indian companies.

 

 

 

 [K1]Inserted by the FEM (Establishment in India of Branch or Office or other Place of Business) (Second Amendment) Regula­tions, 2003, w.e.f. 3-10-2003.

 [K2]. Renumbered by the FEM (Establishment in India of Branch or Office or other Place of Business) (Second Amendment) Regula­tions, 2003, w.e.f. 3-10-2003.

 [K3]Words “or a project office” omitted by the FEM (Establishment in India of Branch or Office or other Place of Business) (Amendment) Regulations, 2003, w.e.f. 2-7-2003.

 [K4]Inserted by the FEM (Establishment in India of Branch or Office or other Place of Business) (Second Amendment) Regula­tions, 2003, w.e.f. 3-10-2003.

 [K5]Substituted for “or project office, etc.” by the FEM (Establishment in India of Branch or Office or other Place of Business) (Amendment) Regulations, 2003, w.e.f. 2-7-2003.

 [K6]Sub-regulations (ii) and (iii) substituted for sub-regulation (ii) by the FEM (Establishment in India of Branch or Office or other Place of Business) (Amendment) Regulations, 2003, w.e.f. 2-7-2003. Prior to substitution, sub-regulation (ii) read as under :

“(ii)  Where a person resident outside India has secured from an Indian company a contract to execute a project in India, and

  (a)  the project is funded directly by inward remittance from abroad;

   or

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

   or

  (c)  the project has been cleared by an appropriate author­ity;

   or

  (d)  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,

            such person shall apply to the Reserve Bank in Form FNC 1 for permission to establish a Project or Site Office in India;”

 

 [K7]Omitted by the FEM (Establishment in India of Branch or Office or other Place of Business) (Amendment) Regulations, 2003, w.e.f. 2-7-2003. Prior to omission, sub-regulation (iii) read as under :

        “(iii) The Reserve Bank may grant permission subject to such terms and conditions as may be considered necessary.”

 

 [K8]Substituted Omitted by the FEM (Establishment in India of Branch or Office or other Place of Business) (Amendment) Regulations, 2003, w.e.f. 2-7-2003. Prior to substitution, sub-regulation (ii) read as under :

            “(ii)      A person resident outside India permitted by the Reserve Bank under Regulation 5, to establish a Project or Site Office in India shall not undertake or carry on any activity other than the activity relating and incidental to execution of the project.”