A foreign company is permitted to establish a project office in India either on a permanent basis or on a temporary basis. This can be done only if the foreign company has secured a contract from an Indian company to execute a project in India.
But before a project office begins its operations in India, it is mandatory for a project office to get registration done with Reserve Bank of India (RBI) and Registrar of Companies (ROC).
FEMA DEFINES PROJECT OFFICE AS :
‘Project Office’ means a place of business to represent the interests of the foreign company executing a project in India but excludes a Liaison Office.
A project office is a temporary or permanent establishment of a foreign company in India. A foreign company can establish a project office in India only if it has secured a contract from an Indian company to execute a project in India.
Foreign companies can set up a project office in India with the prior permission of RBI, provided they have a secured contract from an Indian company for execution of a project in India, and
- The project is funded by a bilateral or multilateral International Financing Agency; or
- The project is directly funded by way of an inward remittance from a foreign country; 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 in regard to the project; or
- The project has been cleared by an appropriate authority.
In case the above criteria are not met, the foreign entity has to approach the Reserve Bank of India to get the approval.
RBI has simplified the procedures for the establishment of a Project Office in India. However, there are certain conditions that need to be fulfilled to open a Project Office in India. There are certain conditions that need to be complied with such as
- Project Office needs to file an application through an AD Banker to the Reserve Bank of India to get approval for setting up a project office in India.
- After getting a secured approval from Reserve Bank of India, the Project Office has to register itself before the register of companies as a foreign company within 30 days of RBI approval.
- Project Office has to register itself with the office of Director General of Police of the concerned state, within which the registered project office shall be situated.
The permissible debits to the INR account of a Project Office are restricted to meeting the local expenses of the office or expenses relating to winding up or completion of the project. For such intermittent remittances, the project office has to furnish supporting documents to the AD bank justifying that sufficient provisions have been made by the project office to meet the liabilities in India.
Similarly, the permissible credits to the INR account of a Project Office are restricted to funds received from the head office for meeting the day to day office expenses or receipt of funds under any contract. A project office should not receive any amount other than mentioned above without prior approval of RBI.
Foreign companies are permitted to establish a project office in India either on a permanent basis or on a temporary basis in order to execute specific projects. However, such project office cannot carry on any activity other than the activity directly relating to the execution of the project for which it has been established.