A. P. (DIR Series) Circular No. 23 December 30, 2009
To
All Authorised Dealers Category - I Banks
Madam / Sir,
Establishment of Branch Office (BO)/Liaison Office (LO) in India by Foreign Entities - Eligibility Criteria and Procedural Guidelines
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to Notification No. FEMA 22/2000-RB dated May 3, 2000viz. Foreign Exchange Management (Establishment in India of Branch or Office or other place of business) Regulations, 2000, as amended from time to time, in terms of which a person resident outside India requires prior approval of the Reserve Bank for establishing Branch Office (BO) / Liaison Office (LO) in India.
2. Under the current regulations, the applications from foreign companies (a body corporate incorporated outside India, and includes a firm or other association of individuals) (foreign entities) for establishing BO / LOs in India are considered by the Reserve Bank under two routes:
• Reserve Bank Route — Principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route.
• Government Route — Principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and Non - Government Organisations / Non - Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Government of India, Ministry of Finance.
3. With the objective of achieving greater transparency, it has been decided to place the eligibility criteria and the procedural guidelines for establishment of BO and LO in India, in the public domain. Accordingly, the broad criteria regarding eligibility for opening of BO / LOs, documentation, etc., are given in Annex A and the scope of activities permitted and other procedural guidelines regarding functioning of the BO / LO in India are given in Annex B.
4. The application for establishing BO / LO in India may be forwarded by the foreign entity in Form FNC (Annex C) through 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) to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400 001, along with the prescribed documents. The designated AD Category - I bank should exercise due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensure compliance with the KYC norms before forwarding the application together with their comments/ recommendations to the Reserve Bank.
5. Applications from foreign banks and insurance companies will continue to be directly received and examined by the Department of Banking Operations and Development (DBOD), Reserve Bank, Central Office and the Insurance Regulatory and Development Authority (IRDA), respectively, as hitherto. Approval of the Reserve Bank is not required to establish a branch/unit in Special Economic Zones for undertaking manufacturing and service activities, subject to compliance with the conditions specified in Notification No. FEMA 102/2003-RBdated October 3, 2003 read with A.P. (DIR Series) Circular No.58dated January 16, 2004.
6. In order to provide a uniform framework, a Unique Identification Number (UIN) would be allotted to both, the existing as well as the new BOs / LOs. The UIN will have to be quoted in all references to the Reserve Bank by the BO/LO and the designated AD Category – I bank
7. The Reserve Bank or the Government of India, as the case may be, reserves the right to reject an application for non-fulfillment of any other condition/s not specifically referred to in the Annexes, fulfillment of which, in the opinion of the Reserve Bank / the Government of India, is necessary for grant of such permission or in the public interest. The Reserve Bank or the Government of India, as the case may be, also reserves the right to verify / examine the activities of the BO / LO of the foreign entities established in India and to withdraw the permission already granted, after due notice, if the circumstances so warrant or due to changes in the policy.
8. The BOs / LOs shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the Annual Activity Certificate.
9. AD Category - I banks may bring the contents of this circular to the notice of their constituents/customers concerned.
10. Necessary amendments to the Foreign Exchange Management (Remittance of Assets) Regulations, 2000 notified vide Notification No.FEMA.13/2000-RB dated May 3, 2000 and the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000 notified vide Notification No.FEMA.22/2000-RB dated May 3, 2000are being issued separately.
11. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(D. Mishra)
Chief General Manager
Annex A
[Annex to A. P. (DIR Series) Circular No.23 dated December 30, 2009]
Eligibility Criteria for Establishment of Branch / Liaison Office in India
(i) Eligibility Criteria
An application from a foreign entity to establish Branch / Liaison Office in India is considered on the basis of two criteria viz: basic and additional:
Basic criteria
• Reserve Bank Route — Principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route.
• Government Route — Principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.
Additional criteria
• Track Record
o For Branch Office — a profit making track record during the immediately preceding five financial years in the home country.
o For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.
• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a
