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A Project Office (“PO”) refers to a place of business that established in India to represent the interests of a foreign company executing a project. Such offices are prohibited from carrying on any activity other than those which relates to the execution of the project for which such office is established.
A foreign company can establish a project office in India either on a temporary basis or on permanent basis, provided that the foreign company has been assigned a project from the government or private sector to be executed by them in India. Registration process of Project Office with RBI & ROC must be completed before it starts operating. There are certain conditions which require to be fulfilled before an application is moved for Project Office Registration.
Eligibility
Reserve Bank of India (“RBI”) has given general permission to foreign companies to establish POs in India, provided they have secured a contract from an Indian company to execute a project in India, and
- the project is financed by inward remittance directly from abroad; or
- the project is financed by a bilateral or multilateral International Financing Agency; or
- the project has been absolved by an appropriate authority; or
- a company or entity in India which is awarding the contract has been granted Term Loan by a PFI or a Bank in India for the project.
However, if the above criteria’s are not fulfilled, the foreign entity has to approach the RBI Central Office, for take approval.
Setting up of PO by foreign not-for-profit organization (“NGO” or “NPO”) / foreign government bodies / departments is comes under the government route. Such entities are required to get prior permission from RBI to establish an office in India. Without obtaining prior permission of RBI, no person being a citizen of / registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau can establish a PO in India.
Time limit for opening PO
- The office shall be opened within 6 months from the date of approval letter.
- AD Category-I bank may give extension for 6 months for reasons beyond the control of the person residing outside India.
- Further extension if any, may be granted by RBI only.
Validity of PO
PO remains valid for the entire term of the project till the project is achieved or wound up.
Important points to be considered
- Proprietary concerns which are established in abroad are not allowed to start a project office in India.
- A foreign entity’s project office is allowed for the possession of any property for carrying out activities which are permitted by RBI or for their own use.
- Only non-interest bearing current accounts can be sustained by a project office in India.
- If at the time of setting up of project office in India, approval from RBI is not obtained then it is necessary to inform about the project office to Registrar of Companies in the prescribed form to inform about the setup of project office with all important documents within the time specified.
FAQs
A project office (“PO”) refers to a site of work established in India to represent the interests of a foreign company implementing a project. Such offices are banned from carrying on any activity other than those which relates to the implementation of the project for which such office is established. A foreign company can establish a project office in India either temporarily or permanently, provided that the foreign company has been allocated a project from the government or private sector to be implemented in India. However, the registration process of the project office with RBI & ROC must be completed before operating.
Reserve Bank of India (“RBI”) has given general authorization to foreign companies to start POs in India, provided they have secured a contract from an Indian company to implement a project in India, and
- The project is funded by inward remittance directly from abroad; or
- The project is financed by a bilateral or multilateral international financing agency; or
- An appropriate authority has absolved the project; or
- A PFI or a bank has granted a company or entity in India awarding the contract term loan in India for the project.
The time limit for opening a PO is:
- The office shall be opened within six months from the date of the approval letter.
- AD category-1 bank may give an extension for six months for reasons beyond the person’s control residing outside India.
- A further extension, if any, may be granted by RBI only.
- It generally takes 15 days to register a PO.
The documents required at the time of winding up of a project office are as follows:
- RBI/ AD’s bank approval for establishing PO
- Auditor’s certificate for:
- calculation of remittable amount & of disposable assets
- confirmation of all liabilities in India have been fully met
- proof that no income accruing outside India has remained un-repatriated to India.
- Confirmation for no legal proceedings are pending in any court in India
- Report from ROC regarding compliance with provisions for closing of PO.
- Any other document prescribed by RBI/AD bank while granting approval
AD category-1 banks can open non-interest bearing foreign currency account for project offices in India subject to the following:
- The project office has been established in India, with the general/ specific permission of Reserve Bank, having the necessary acceptance from the concerned project accredited authority.
- The contract under which the project has been explicitly sanctioned provides for payment in foreign currency.
- Each project office can unlock two foreign currency accounts, usually denominated in USD and in-home currency, provided both are continued with the same AD category-1 bank.
- The permissible debits to the account shall be payment of project-related expenditure, and credits shall be of foreign currency receipts from the project sanctioning authority and remittances from parent/ group company abroad or bilateral/ multilateral international financing agency.
- The authority of securing that only the accepted debits and credits are permitted in the foreign currency account shall rest wholly with the branch concerned of the AD. Further, the funds shall be subject to 100 per cent scrutiny by the concurrent auditor of the respective AD banks.
- The foreign currency accounts have to be shut after the project.
The procedure for the registration of a project office in India is as follows:
- Legalization of documents
- Filing of application with RBI through AD bank.
- Verification of KYC from the banker of parent company
- Approval of RBI for project office registration in India
- Registration of project office of a foreign company with the ROC
- Other registration and licenses
Important points which are to be considered while establishing a PO in India are as follows:
- Exclusive concerns which are established abroad are not permitted to start a project office in India.
- A foreign entity’s project office can possess any property for carrying out activities permitted by RBI or for their use.
- A project office in India can sustain only non-interest bearing current accounts.
- Suppose at the time of setting up the project office in India, approval from RBI is not obtained. In that case, it is necessary to inform about the project office to the registrar of companies in the prescribed form to inform them about the setup of the project office with all essential documents within the time specified.
The two investment entry routes for PO registration in India are:
- Reserve bank route
The main business of a foreign company falls under the criteria where 100 per cent foreign direct investment (FDI) is permitted.
- Government route
The main business of a foreign organization falls under the basis where 100 per cent foreign direct investment is not allowed. The RBI reviews applications from companies that come under the category of foreign non-government organizations/ non-profit organizations/ government bodies/departments and the ministry of finance, the government of India.
