How to Set Up a Branch Office or Liaison Office in India Under FEMA: RBI Approval Process and Compliance

Introduction

Foreign companies looking to establish a business presence in India without incorporating a separate Indian entity have three options under the Foreign Exchange Management Act, 1999 (FEMA): a Branch Office (BO), a Liaison Office (LO), or a Project Office (PO). Each type of office has distinct permitted activities, regulatory requirements, and compliance obligations. The establishment of these offices is governed by 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 22(R)/2016), and the Reserve Bank of India's Master Direction on Establishment of Branch/Liaison/Project Offices in India by Foreign Entities.

This guide provides a step-by-step walkthrough of the application process for each type of office, the permitted activities, the Form FNC filing requirements, annual compliance obligations, and the closure process. For related guidance on foreign investment compliance, see our article on the RBI's proposed FEMA Foreign Investment Rules 2026.

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Types of Offices: BO, LO, and PO Compared

A Branch Office (BO) is an extension of the foreign parent company that can carry on commercial activities in India. It is permitted to engage in export and import of goods, rendering professional or consultancy services, carrying out research work in areas in which the parent company is engaged, promoting technical or financial collaborations between Indian companies and the parent or overseas group company, representing the parent company in India and acting as a buying or selling agent, rendering services in information technology and development of software, rendering technical support for the products supplied by the parent or group companies, and acting as a foreign airline or shipping company.

A Liaison Office (LO) is limited to representational and liaison activities. It serves as a communication channel between the foreign parent company and Indian parties. An LO cannot undertake any commercial, trading, or industrial activity in India, directly or indirectly. Its permitted activities are limited to representing the parent company in India, promoting export and import from and to India, promoting technical and financial collaborations between the parent company and companies in India, and acting as a communication channel between the parent and Indian companies. An LO cannot earn any income in India, accept deposits, hold shares in Indian companies, or acquire immovable property (other than by way of lease for its own use for a period not exceeding five years).

A Project Office (PO) is established for executing a specific project in India, typically in the construction, infrastructure, or engineering sectors. A PO is permitted to carry out only those activities that relate to the specific project for which it was established. Its existence is coterminous with the duration of the project, and it must be closed upon completion of the project.

Step 1: Application Through the Authorised Dealer Bank (Form FNC)

The application for establishing a BO, LO, or PO in India is submitted in Form FNC (Application for Establishment of Branch/Liaison/Project Office in India) to an Authorised Dealer Category-I (AD Category-I) bank. The AD bank acts as the primary regulatory interface between the foreign company and the RBI. The Form FNC requires the applicant to provide details about the foreign parent company (name, country of incorporation, principal business activity, and financial statements for the preceding three years), the proposed office in India (type, location, and proposed activities), the source of funding for the Indian operations, and the details of the principal officer proposed to head the Indian office.

For Branch Offices and Liaison Offices, the AD Category-I bank examines the application and, if it is in order, forwards a copy of the Form FNC along with the details of the proposed approval to the RBI's Delhi office for allotment of a Unique Identification Number (UIN). The AD bank may grant approval subject to the guidelines and directions issued by the RBI. For Project Offices, the AD bank can grant approval under the general permission route if the project has been secured from an Indian company through a tender or contract and is funded by inward remittance from abroad, or by bilateral or multilateral international financing agencies, or the project has been cleared by an appropriate authority.

Step 2: Eligibility Criteria

For a Branch Office, the foreign parent company should have a profitable track record during the immediately preceding five financial years in its home country and should have a net worth of not less than USD 100,000 (or its equivalent). For a Liaison Office, similar financial eligibility criteria apply, and the initial approval is typically granted for a period of three years, which may be extended by the AD bank for further periods of three years each, subject to verification that the LO has been operating within its permitted activities. Applicants from countries or entities that are on the Financial Action Task Force (FATF) non-compliant list or are subject to sanctions may require prior RBI approval rather than AD bank approval.

Step 3: Registration After Approval

Once the approval is granted, the foreign company must establish the office within six months from the date of the approval letter. If the office is not established within this period, the approval lapses, though the AD bank may grant an extension of up to an additional six months. Upon establishing the office, the foreign company must complete the registration with the Registrar of Companies (ROC) under Section 380 of the Companies Act, 2013, by filing Form FC-1 within 30 days of establishing the place of business. The company must also obtain a Permanent Account Number (PAN) from the Income Tax Department, register under the Goods and Services Tax (GST) laws (if applicable), and open a bank account with the designated AD bank. For related information on corporate registration filings, see our guide on obtaining a DIN and appointing a director.

Step 4: Annual Compliance Obligations

All types of offices (BO, LO, and PO) are subject to ongoing annual compliance requirements. The most important of these is the Annual Activity Certificate (AAC), which must be prepared by a Chartered Accountant and submitted to the AD bank. The AAC confirms that the office has been operating within its permitted activities during the financial year and that it has not undertaken any activity outside its charter. The AAC, along with the audited financial statements (including a receipt and payment account), must be submitted on or before 30 September of each year for the financial year ending on 31 March.

Additional annual compliance obligations include filing Form FC-3 (Annual Return of a Foreign Company) and Form FC-4 (Financial Statement of a Foreign Company) with the ROC, filing income tax returns (even if the LO claims no taxable income, it must file a return and submit Form 49C with details of its activities), and maintaining proper books of account as required under Section 381 of the Companies Act, 2013.

Step 5: Renewal of Liaison Office Approval

Liaison Office approvals are granted for an initial period of three years. The AD bank may extend the approval for additional periods of three years each, provided the LO has been operating in compliance with the terms of its approval and has not engaged in any prohibited activities. The application for renewal should be submitted well before the expiry of the current approval period, along with a fresh set of financial statements and an AAC confirming compliance during the preceding period. For LOs that have been in existence for an extended period, the RBI may require the foreign company to provide justification for continuing the LO rather than incorporating a subsidiary in India.

Step 6: Closure Process

The closure of a BO, LO, or PO involves a multi-step process. The foreign company must first discharge all liabilities in India, including tax liabilities, employee dues, and vendor payments. It must then obtain a No Objection Certificate (NOC) from the Income Tax Department (tax clearance certificate) and complete all pending ROC filings. The company submits an application for closure to the AD bank, along with supporting documents including the final audited accounts of the office, the tax clearance certificate, proof of discharge of all liabilities, and a board resolution of the parent company authorising the closure.

The AD bank reviews the application and, once satisfied, issues a closure certificate. The remittance of winding-up proceeds (the balance of assets after discharging all liabilities) to the foreign parent company is governed by the Foreign Exchange Management (Remittance of Assets) Regulations, and the AD bank facilitates this remittance after confirming compliance with all applicable regulations. The RBI will not permit closure until all requirements under the Companies Act, 2013 and other conditions of the original approval have been fully complied with. For related compliance regarding filing Form FC-GPR and foreign investment reporting, refer to our detailed guide.

Tax Implications of Different Office Structures

The tax treatment of BO, LO, and PO offices differs significantly, and the choice of structure has important tax consequences. A Branch Office is generally considered a Permanent Establishment (PE) of the foreign company in India under the applicable Double Taxation Avoidance Agreement (DTAA), and its income earned in India is subject to Indian income tax. The branch profits are taxed at the applicable corporate tax rate, and a branch profit remittance tax may also apply when profits are repatriated to the head office.

A Liaison Office, by contrast, should not create a PE if it restricts itself strictly to its permitted liaison activities and does not earn any income in India. However, the Income Tax Department has been known to assess LOs as having a PE where the activities undertaken go beyond mere liaison, for example, where the LO negotiates contracts, concludes agreements, or provides services that generate revenue for the parent company. This makes it critical for LOs to maintain clear documentation demonstrating that their activities are limited to representational functions. A Project Office is treated as a PE for the duration of the project and is taxed on its project-related income in India. For understanding the broader regulatory framework around foreign investment and taxation, companies may refer to our article on the new FEMA foreign investment rules 2026.

Common Pitfalls and Practical Tips

First, do not confuse the permitted activities of an LO with those of a BO. A liaison office that engages in commercial activity risks having its income deemed taxable in India and may be treated as a Permanent Establishment (PE) for tax purposes, with significant tax consequences. Second, apply for renewal of the LO approval well before the expiry date, as operating without a valid approval is a FEMA violation. Third, ensure that the AAC accurately reflects the activities undertaken during the year, as discrepancies may trigger RBI scrutiny. Fourth, budget for the time required for closure, as the process of obtaining tax clearance and ROC clearance can take several months. Fifth, for companies considering a more permanent presence in India, evaluate whether incorporating a wholly owned subsidiary or a joint venture may be a more appropriate structure, as BO and LO structures come with significant restrictions on activities and operations. For companies exploring FEMA compliance in the context of larger investments, our article on the IBBI framework for voluntary liquidation provides additional context on winding down business operations in India.

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Conclusion

Setting up a Branch Office, Liaison Office, or Project Office in India under FEMA provides foreign companies with a regulated pathway to establish a business presence without incorporating a separate Indian entity. Each type of office serves a distinct purpose: a BO for commercial and revenue-generating activities, an LO for representational and liaison activities only, and a PO for executing specific projects. The application process through the AD bank using Form FNC, followed by registration with the ROC and ongoing compliance through the Annual Activity Certificate, forms the regulatory backbone of these establishments. By understanding the permitted activities, maintaining strict compliance with FEMA and Companies Act requirements, and planning the closure process in advance, foreign companies can effectively manage their Indian operations while staying within the regulatory framework. For further reading on corporate compliance and company law filings, see our guides on converting a private company to a public company and responding to a SARFAESI notice.