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Project Office

Foreign entities planning to setting up project office in India requires prior approval from RBI, provided they have secured a contract from an Indian company to execute a project in India It cannot undertake any additional activity except the activities relating or incidental to the execution of the project. The Contract governing the project requires payment in Foreign Currency. Funding of project office are to be directly met by the Head Office through inward remittances received in Convertible Foreign Exchange. Like Project Office, it is also an extension of the existing foreign company in India therefore it is directly funded by Head Office. Profits earned by the Project Offices are freely remittable from India, subject to payment of applicable taxes. The validity of license is for the tenure of the project.

Details About Project Office

The set up and regulation of Project Office are governed by Foreign Exchange Management Act, 1999 and guidelines issued by Reserve Bank of India time to time. Project Office are generally set up by foreign entities to execute a awarded project by the Indian Companies. RBI allow foreign entities to establish project offices in India, provided they have secured a contract from an Indian company to execute a project in India, and General Conditions for setting up project office in India for a person resident outside India are given below: • 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. The applications for establishment of Project Office in a sector in which 100% FDI is allowed are routed through designated AD Category I Bank. The application are submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form as per the guidelines issued by the Reserve Bank of India. PO can approach AD Category I Bank in India to open a Non Interest Bearing Foreign Currency Account for its operations in India. The permissible credits in bank account shall be foreign currency receipts from the Project Sanctioning Authority, remittances received from abroad or bilateral/multilateral international financing agency etc. While the permissible debits are the local expenses of the project and remittance of profit/winding up proceeds.

Features

  • Permissible Activities

    Project Office is just an extension of the foreign companies in India and cannot undertake any additional activity in India except the activities relating or incidental to the execution of the project.

  • Expenses of Liaison office

    Liaison office are only a representative of foreign parent company, therefore all its project related expenses are met by the Head Office through inward remittances received in Convertible Foreign Exchange.

  • Application for set up

    The application are submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form.

  • Validity of license

    The validity of license is for the tenure of the project. Such validity period expires after the completion of the project.

  • Bank Account

    Project Office may open Non-Interest Bearing Foreign Currency account with designated AD Category I Bank in India to execute its operation India. Each PO can open two foreign currency accounts, for one denominated in USD and other in home currency of the project awardee. The Contract governing the project requires payment in Foreign Currency.

  • Permissible debits and credits in bank

    The permissible credits in bank account shall be foreign currency receipts from the Project Sanctioning Authority, remittances received from abroad or bilateral/multilateral international financing agency etc. While the permissible debits are the local expenses of the project and remittance of profit/winding up proceeds.

  • Remittance of Profit

    Profits earned by the Project Offices are freely remittable from India, subject to payment of applicable taxes. (Income Tax, Service Tax, TDS, Vat, Local Taxes as applicable)

  • Extension of Fund and Non Fund

    AD Category I Bank may extend Fund/Non Fund facilities to Project Office on the basis of Board approved policy, business prudence and compliance to extant rules/regulations stipulated by DBR, RBI.

  • Annual Activity Certificate

    Unlike LO/BO, Project office are required to submit Annual Activity Certificate (AAC) as at the end of March 31 each year along with the prescribed documents to the designated AD Category -I bank only.

  • Closure of Project office

    Requests for closure of Project office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

Pros & Cons

Pros

  • Project Office can freely open two Non-Interest Bearing Foreign Currency account with designated AD Category I Bank in India to execute its operation India.
  • Project Office can undertake all types of profit making activity and earn income in India but only from the project allotted to foreign entity by business entities in India.
  • Profits earned by the Project Offices are freely remittable from India, subject to payment of applicable taxes.
  • AD Category I Bank may consider extend of Fund/Non Fund facilities to Project Office on the basis of Board approved policy, business prudence and compliance to extant rules/regulations stipulated by DBR, RBI.
  • Annual Compliances and registration involved in Project Office is slighter lessor as compared to other forms of entities.

Cons

  • Project Office are liable to pay taxes in India as per the normal provisions applicable to foreign companies shall apply.
  • Tax Audit applicable in case of Project office if the turnover of the entity exceeds INR 10 million and INR 1.5 million for company dealing in services.
  • Project Office in India is subject to Transfer Pricing Regulations.
  • Annual Compliances and registration involved in Project Office is slighter higher as compared to other forms of entities.
  • PO must file regular returns which include Audited Annual Accounts and an Annual Activity Certificate by a Chartered Accountant to the RBI.
  • The Validity period of license is restricted to the tenure of the project. Automatically lapses after completion of the project.

Applicable Taxes & Compliances

Income Tax is a direct tax levied by Central Government on income of the assesse as per the normal provisions framed in Income Tax Act, 1961. Project Office are meant to do income generating activity in India only from the project. Project Office is liable to pay tax on income as per the normal provisions applicable to foreign entities shall apply.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. As Liaison office are not engaged in any commercial activity in India, hence generally no service tax liability arises on output services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level tax, which is payable on sale of goods in India. It is a type of consumption tax which is imposed on the value of goods on each stage of its production and at final sale, however input credit of VAT paid on purchase of goods is also allowed subject to certain conditions. The rate of Vat/Sales tax varies from state to state. As Liaison office are not engaged in any commercial activity in India, hence no liability of sales tax/VAT arises.
Liaison office are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns, statutory audit etc. as may be applicable.

FAQ

  • Who can register a Project Office?

    An individual seeking interest to start their business operations in India can open a Project Office by approaching AD Category –I Bank along with the application and requisite documents provided they have secured a contract from an Indian company to execute a project in India.

  • What are the procedure for opening a Project Office in India?

    An application to be submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable). Before approval a Unique Identification Number (UIN) is allotted by the Reserve Bank of India to the Project office.

  • How long office of the Liaison office is valid?

    The validity of an LO is for three years ( two years for Non-Banking Finance Companies (NBFCs) and entities engaged in construction and development sectors) and may be renewed after every 3 years by AD Category I Bank with the prior approval from RBI.

  • Who all need to submit Annual Activity Certificate?

    Project office are required to submit Annual Activity Certificate (AAC) as at the end of March 31 each year along with the prescribed documents to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi.

  • What are the procedure criteria to be met for setting up additional office?

    Request for opening an additional office to be submitted before the AD Category I Bank in a fresh Form FNC-I there is no need to resubmit the documents mentioned in the form. However, an applicant is allowed to open only 4 PO Office in each Zone otherwise prior approval from the RBI is required.

  • What are the various forms of business structures available for doing business in India?

    Foreign Individuals seeking interest to start their operations in India can open a Foreign Representations in the form of Liaison Office, Branch Office and Project Office in India. Further, an incorporated entity can also be formed such as Wholly Owned Subsidiary, Joint Venture and Limited Liability Partnership etc.

  • What are the Conditions for establishing a Project Office in India?

    General Conditions for setting up project office in India for a person resident outside India are given below: • 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.

  • What are the Conditions in which approval of RBI is required?

    Application who is a citizen of or is registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau required prior approval from RBI. Applications relating to Jammu and Kashmir, North East Region and Andaman and Nicobar Islands are routed through Reserve Bank of India. Where the principal business of the applicant falls in the sectors namely, Defense, Telecom, Private Security and Information and Broadcasting are also to be considered by Reserve Bank of India. An Applicant is an NGO/ Non- Profit Organisation, Body/Agency/Department of a foreign government.

  • What do you mean by issuance of UIN?

    UIN is a unique identification number allotted by Reserve Bank of India, before issuance of approval letter by AD Category I Bank to each liaison office.

  • Is there any additional Compliances also applicable on Project Office?

    Project office are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.

  • What is the procedure for closing a Liaison Office?

    Requests for closure of Project office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

  • 3 copies of Form FNC-1
  • Attested and Notarised english version of the Certificate of Incorporation or Memorandum & Article of Association in the country of registration.
  • Last 3 years details of export/ Import from/to India (On letter head, signed with stamp, five copies)
  • Last 3 years latest Audited Balance-sheet and Board Resolution of the applicant entity.
  • Power of Attorney in favour of signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC.
  • Declaration of the directors
  • Details of project activities proposed to be undertaken in India.