Liaison / Branch / Project Office in India

A Liaison Office (LO) can only undertake representative activities — promoting the parent company's business and facilitating communication — and cannot generate any income in India per Regulation 5 of the 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 (FEMA Notification No. 22(R)). A Branch Office (BO) is permitted to carry out specific revenue-generating activities listed in Schedule I of the same Regulations, including export/import, professional services, and R&D — but cannot carry out manufacturing or retail trading. A Project Office (PO) is set up for a specific project in India (typically an infrastructure or defence contract) and is automatically wound up upon project completion. All three require RBI approval (for entities from Pakistan, Bangladesh, Sri Lanka, etc.) or AD Bank approval (for others) under Regulation 4 of FEMA Notification No. 22(R).

A Branch Office that carries out revenue-generating activities constitutes a Permanent Establishment (PE) of the foreign company in India under Article 5 of the applicable Double Taxation Avoidance Agreement (DTAA), making the income attributable to the BO taxable in India at the foreign company rate of 40% (plus surcharge and health and education cess) under Section 44DA of the Income Tax Act 1961 for AY 2026-27. A Liaison Office, since it earns no income, generally does not constitute a PE under the DTAA's preparatory and auxiliary exclusion in Article 5(4); however, if the LO habitually exercises authority to conclude contracts for the parent, it may be treated as a Dependent Agent PE under Article 5(5) or 5(6) of most Indian DTAAs. Repatriation of after-tax profits by a BO does not attract any additional branch profit tax in India, unlike many other jurisdictions, as India does not levy a branch profits tax.

Every LO and BO must file an Annual Activity Certificate (AAC) with their Authorised Dealer (AD) Bank by September 30 each year, certifying that the office's activities are within the permitted scope under FEMA Notification No. 22(R); the AAC must be certified by a Chartered Accountant. Foreign companies with LOs or BOs must also file Form FC-1 (within 30 days of establishment) and annual balance sheet and audited accounts of the Indian office with the Registrar of Companies under Sections 380 and 381 of the Companies Act 2013 within 60 days of the close of the financial year. A BO is additionally required to obtain a PAN under Section 139A of the Income Tax Act 1961 and file an income tax return if it has taxable income. Non-compliance with RBI and MCA annual filings attracts compounding under Section 15 of FEMA 1999 and penalties under Section 447 of the Companies Act 2013.

An application in Form FNC is submitted to the Reserve Bank of India (through the applicant's AD Category-I Bank) under Regulation 4 of FEMA Notification No. 22(R); the RBI processes applications through its Foreign Exchange Department. For entities from FATF non-compliant or sanctioned countries (Pakistan, Bangladesh, etc.), approval comes directly from the RBI; for entities from other countries, AD Banks have the power to grant approval based on RBI guidelines but must report to RBI in Form OBR within 5 working days. The RBI typically processes LO applications within 4-6 weeks and BO/PO applications within 8-12 weeks depending on the industry sector — defence, telecom, and pharmaceutical sectors face additional scrutiny. The initial approval is valid for 3 years (LO) or 3 years for BO (extendable) and must be renewed before expiry by applying to the AD Bank in Form FNC with an updated AAC and net worth certificate.

Winding up an LO or BO requires an application to the AD Bank supported by: the original RBI/AD Bank approval letter, income tax clearance certificate (or a CA certificate of no pending tax liability) for all years of operation, audited accounts for the entire period of operations, AAC for the last year, and a remittance statement showing all inward and outward remittances during the LO/BO's existence — all per RBI Master Direction on Establishment of LO/BO/PO in India (RBI/FED/2016-17/56). The AD Bank forwards the closure application to the RBI, which issues a 'No Objection' for repatriation of balances. Separately, the MCA filings must be completed and the foreign company's registration under Section 380 of the Companies Act 2013 must be formally closed by filing Form FC-4 (notice of cessation of place of business) with the Registrar of Companies within 30 days of closure. The entire closure process typically takes 6-12 months.