A foreign corporation, which has secured a contract from an Indian company to execute a project in India, without obtaining prior permission from RBI, is allowed to establish a Project Office in India.
RBI has now granted general permission to foreign entities to establish Project Offices subject to conditions specified below:
- The project is funded directly by inward remittance from abroad; or
- The project is funded by 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
If the above conditions are not met, the foreign entity has to approach RBI to obtain approval. The activities of the offices should remain limited to the purview of the project and must close after the project is completed.
The project office is treated as an extension of the foreign corporation in India and is taxed at the rate applicable to foreign corporations. Under the general permission granted by the RBI, Project Offices may remit outside India the surplus of the project on its completion.
Note: Partnership / Proprietary concerns set up abroad are not allowed to establish Branch /Liaison/Project Offices in India.
To set up business operations in India, a foreign company has following options:
- As an Indian Company ('IC') i.e. as incorporated entity under the Indian Companies Act.
- As a Foreign Company ('FC') i.e. as an unincorporated entity
As an Indian Company ('IC') i.e. as incorporated entity under the Indian Company Act
a) Through Joint Venture (JV) with some Indian partner
In JV there will be a joint ownership in the company by the JV partners. This option is chosen where the foreign company wishes to take local experiences of the Indian partner, as a capital sharing, where the size of capital involvement is large, or there may be a case that FDI policy ('Foreign Direct Investment') of India does not allow 100% foreign equity in the chosen sector.
b) Wholly Owned Subsidiary (WOS)
WOS is chosen when foreign company does not want any outside person interference in the company ownership, policies and decisions. Also this format can be chosen when 100% FDI is allowed as per the Govt FDI policy.
Opening of Foreign Currency Account
AD Category - I banks can open non-interest bearing Foreign Currency Account for Project Offices inIndia subject to the following:
a. The Project Office is established in India, with the general / specific permission of RBI, having the
requisite approval from the concerned project sanctioning authority.
b. The contract, under which the project has been sanctioned, specifically provides for payment in
c. A Project Office can open two Foreign Currency Accounts, usually one denominated in USD and
other in home currency. Both the accounts should be maintained with the same AD category-I bank.
d. The permissible debits to the account shall be towards payment of project related expenditure. The
permissible credits in the account shall be foreign currency receipts from the Project Sanctioning
Authority, and remittances from parent/group Company abroad or bilateral/ multilateral
international financing agency.
e. It shall be sole responsibility of concerned AD category -I bank branch (with whom account is
maintained) that only the approved debits and credits are routing into the Foreign Currency
Account. Further, the accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor
of the respective AD banks.
f. The Foreign Currency accounts have to be closed at the completion of the Project.
Intermittent Remittances by Project Offices in India
a. AD Category - I bank can permit intermittent remittances by Project Offices, pending winding up/completion of the project, if they are satisfied with the bonafides of the transaction. The bank shall
allow the remittance subject to following conditions:
- The PO submits an Auditors' / Chartered Accountants' Certificate to the effect that sufficient provisions is made to meet the liabilities accrued in India including Income Tax, etc.
- PO will give an undertaking 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.
b. Inter-Project transfer of funds requires prior permission of the Regional Office concerned of RBI under whose jurisdiction the Project Office is situated.