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    Comparative Analysis of Liaison Office, Branch Office and Project Office

    Published Thu, 15 Oct 2020 | Updated Tue, 16 Mar 2021

    Business entities registered outside India (Foreign Companies) who wish to establish their presence in India for limited activities such as representative office, sourcing, technical and/or marketing support, import and export, etc may open a Branch Office (BO) or Liaison Office (LO) or Project Office (PO) in India subject to compliance of guidelines of Reserve Bank of India.
     
    It is crucial to decide which business structure is more suitable for proposed business activities. Hence we have summarized permitted activities and key differences between Branch Office (BO) or Liaison Office (LO) or Project Office (PO) in the table below:

    Factors Liaison Office Branch Office Project Office
    Meaning

    Liaison Office (also known as a representative office) means a place of business to act as a channel of communication between the principal place of business or Head Office in foreign country and entities in India.
     
    It is prohibited to undertake any commercial /trading/ industrial activity, directly or indirectly in India and maintains itself out of inward remittances received from abroad through normal banking channel.

     

    The Branch Office, on the other hand is allowed to undertake profile making activity to promote the business of Foreign company in India. 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
    Permitted activities
    1. Representing in India the parent company/group companies.
    2. Promoting export import from/to India.
    3. Promoting technical/financial collaborations between parent/group companies and companies in India.
    4. Acting as a communication channel between the parent company and Indian companies
    1. Export/Import of goods
    2. Rendering professional or consultancy services.
    3. Carrying out research work, in which the parent company is engaged.
    4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
    5. Representing the parent company in India and acting as buying/selling agent in India.
    6. Rendering services in Information Technology and development of software in India.
    7. Rendering technical support to the products supplied by parent/group companies.
    8. Foreign airline / shipping company
    Project Office shall not undertake or carry on any activity other than the activity relating and incidental to execution of the project for which it has been set up.
    Eligibility criteria for establishment

    A person resident outside India can establish a Liaison Office in India provided it meets the following criteria:

    1. a profit making track record during the immediately preceding three financial years in the home country; and
    2. Net worth of the foreign company establishing the Liaison Office shall not less be than USD 50,000 or its equivalent.

     
    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 called]
     

    A person resident outside India can establish a Branch Office in India provided it meets the following criteria:

    1. a profit making track record during the immediately preceding five financial years in the home country; and
    2. Net worth of the foreign company establishing the Branch Office shall not be less than USD 100,000 or its equivalent.

     
    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 called]

    A foreign company can establish a Project Office in India only of it has secured a contract from an Indian company to execute a project in India.
    Tenure The validity of Liaison Office is generally 3 years (For NBFCs & Construction and development sector, validity period is 2 years)
     
    AD category-I bank on an application from foreign company may extend the validity of Liaison Office by a further period of three years from the date of expiry of the original approval/ extension granted.
     
    No extension is allowed for entities engaged in construction and development sectors and which are NBFC
     
    The validity of Branch Office is generally 3 years. 
     
    The validity period of the project office is for the tenure of the project.
    Operating Bank Account Required
     
    LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India.
    Required
     
    BO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India.
     
     
    Required
    Acquisition of property Not allowed Allowed and shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.
     
    Allowed and shall be governed by the guidelines issued under Foreign Exchange Management (Acquisition and transfer of immovable property outside India) Regulations.
    Remittance of profit/surplus Not Applicable

    BOs are permitted to remit outside India profit of the branch net of applicable Indian taxes, on production of following documents to the satisfaction of AD Category I Bank:

    1. certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year
    2. Chartered Accountant’s certificate certifying
      1. the manner of arriving at the remittable profit;
      2. that the entire remittable profit has been earned by undertaking the permitted activities; and
      3. that the profit does not include any profit on revaluation of the assets of the branch.

    AD Category – I bank can permit intermittent remittances by POs 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.

             #remittances   #establishment   #eligibility   #permittedactivies   #RBI   #PO   #BO   #LO   #ForeignCompanies   #ProjectOffice   #BranchOffice   #LaisionOffice   #CS   CS   


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