Compliance for Establishment of Project Office in India | FEMA | Companies Act | Detailed Procedure By CS Shaffy Mehta


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.

Eligibility Criteria

A foreign company may open project office/s in India provided it has secured from an Indian company, a contract to execute a project in India, and

  • the project is funded directly by inward remittance from abroad; or
  • the project is funded by a bilateral or multilateral International Financing Agency; or
  • the project has been cleared by an appropriate authority; or
  • 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.

Explanation

RBI has given general permission for opening of Project Office in India if the above conditions are satisfied. However,

  1. If any entity resident in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau desire to open Project office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands require prior approval of Reserve Bank of India and shall be forwarded by the AD Category-I bank who shall process the applications in consultation with the Government of India.
  1. The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting. However, prior approval of Reserve Bank of India shall not be 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 PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings.

Procedure for Applying Project Office in India

  1. The application for establishing Project Office (PO) in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category - I bank (i.e. an AD Category – I bank identified by the applicant with whom they intend to pursue banking relations) along with the prescribed documents mentioned in the Form and the LOC, wherever applicable.
  2. The AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms grant approval to the foreign entity for establishing PO in India.
  3. The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.
  4. An applicant that has received permission for setting up of a PO shall inform the designated AD Category I bank as to the date on which the PO has been set up.
  5. The AD Category I bank in turn shall inform Reserve Bank accordingly. In case an approval granted by the AD bank has either been surrendered by the applicant or has expired without any PO being set up, the AD Category I bank shall inform RBI accordingly.
Note: 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.

Note: A person from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau 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.

Time Limit for Opening a Project Office 

  • The office shall be opened within 6 months from the date of approval letter.
  • 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 may be granted by RBI only
  • It takes generally takes 15 days to register a PO

Opening of bank account by PO

POs in India can open non-interest bearing foreign currency account subject to the following conditions:

  • The PO has been established in India, with the general / specific permission of Reserve Bank of India, having the requisite approval from the concerned Project Sanctioning Authority concerned as per these Regulations.
  • The contract governing the project specifically provides for payment in foreign currency.
  • Each PO can open 2 foreign currency accounts, usually one denominated in USD and other in home currency of the project awardee, provided both are maintained with the same AD Category–I bank
  • The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning Authority and remittances from parent/group company abroad or bilateral / multilateral international financing agency
  • The responsibility of ensuring that only the approved debits and credits are allowed in the foreign currency account shall rest solely with the AD Category–I bank. Further, the accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD Category–I bank
  • The foreign currency accounts have to be closed at the completion of the project.

Annual Activity Certificate by PO

The Annual Activity Certificate (AAC) as at the end of March 31 each year along with the required documents needs to be submitted by the following:

  • In case of a sole PO, 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
PO needs to submit the AAC only to the designated AD Category -I bank

This AAC is to be obtained 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.

Time Limit for Filing AAC

  • Where financial year ends on 31st March: Within 30th September of that year
  • Where financial year ends on some other date: Within 6 months from the end of the financial year

Remittance of profit or surplus

PO is permitted to remit outside India profit of the project net of applicable Indian taxes.

AD Category – I bank can permit intermittent remittances by POs pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the following:

  1. The PO submits an Auditors’ / Chartered Accountants’ Certificate to the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.
  2. An undertaking from the PO 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.

Prohibition against opening a project office or any other place of business in India

No person resident outside India shall without prior approval of the Reserve Bank open in India a project office or any other place of business by whatever name called except as laid down in Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016.
Provided that

  1. A banking company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained necessary approval under the provisions of the Banking Regulation Act, 1949.
  2. An insurance company resident outside India shall not require any approval under these Regulations for establishing any office in India if such company has obtained approval from the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999.
  3. Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government if engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under FEMA 22(R).

Compliance with the Registrar of Companies

Once Project office has been established, the PO is also required to be registered with the Registrar of Companies (“ROC”) in India under the provisions of the Companies Act, 2013, within a period of 30 days of the permission of RBI/AD Bank. The registration application is to be filed in e-form FC-1. The same is to be filed online with the ROC along with the requisite documents.

  1. Certified copy of the charter, statutes, or memorandum and articles of the company or other instrument constituting or defining the constitution of the Company.
  2. List of Directors and Secretary of the foreign Company.
  3. Power of attorney or Board Resolution in favour of the authorized representative(s)
  4. Approval letter of Reserve bank of India
  5. Copy of permission letter of other Authority(s)/Regulator(s), if any is required to be attached
  6. Declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of companies and management in India or abroad.
  7. Details of the places of business which is deemed to be its principal place of business in India.
  8. Particulars of the authorized representatives
  9. Interest of authorized person(s) in other entities
  10. Particulars of subsidiary, holding or associate companies of the foreign company in India
  11. Particulars of related party of the foreign company.
  12. Particular of opening and closing of a place of business in India on earlier occasion or occasions; if any.
  13. Any other information as may be prescribed (particulars about directors and secretary as specified in Rule 3 of Companies (Registration of Foreign Companies) Rules, 2014.

Other Compliance with ROC

  1. If there is any alteration in memorandum, registered office, director, secretary, representative in India or principal place of business in India or if foreign Company ceases to have office in India is required to file a return with Registrar of Companies u/s Section 380(3) in Form FC-2 within 30 days of such alteration.
  1. Every foreign company shall, in every calendar year, Make out a balance sheet and profit and loss account. Copy of balance sheet and P&L account should be filed with ROC along with English translation and list of place of business established by the foreign company in India- Section 381(1) in form FC-3.
  1. Every foreign company shall prepare and file annual return of the company in e-Form FC-4 within 60 days from the close of financial year.

Punishment for Non Compliance with ROC

  1. Punishment for non compliances with provisions in respect of delivery of documents to ROC, return, accounts, prospectus, IDR etc. is with fine which shall not be less then 1,00,000/- but can extend upto Rs. 3,00,000/- and in case of continuous offence additional fine of Rs. 50,000 per day.
  1. Further every officer of foreign company who is in default is punishable with fine plus imprisonment- Section 392

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