Monday, March 7, 2011

How to Establish a Project Office in India: Regulation, Procedure and Documentation


Provisions regarding setting up of a project

General Permission by RBI
Reserve Bank has granted general permission to foreign companies to establish Project Offices  in India,  provided they have  secured  a  contract  from an Indian company to execute a project in India, and
        i.            the project is funded directly by inward remittance from abroad; or
     ii.            the project is funded by a bilateral or multilateral International Financing  Agency; or
   iii.             the project has been cleared by an appropriate authority; or
iv. 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.
However, if the above criteria are not met, the foreign entity has to approach the  Reserve Bank of India, Central Office, for approval.
Opening of Foreign Currency Account
AD Category – I banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:
i.          The  Project  Office  has  been  established  in  India,  with  the  general  / specific  permission of Reserve Bank, having the requisite approval from the concerned Project Sanctioning Authority concerned.
ii.         The contract, under which the project has been sanctioned, specifically provides for payment in foreign currency.
iii.       Each Project Office can open two Foreign Currency Accounts, usually one denominated in USD and other in home currency, provided both are maintained with the same AD category–I  bank.
iv.        The permissible debits to the account shall be payment of project related expenditure and credits shall be foreign currency receipts from the Project Sanctioning  Authority,   and   remittances  from  parent/group   company abroad or bilateral / multilateral international financing agency.
v.         The responsibility of ensuring that only the approved debits and credits are allowed in  the Foreign Currency Account shall rest solely with the branch concerned of the AD. Further, the Accounts shall be subject to 100 per cent scrutiny by the Concurrent Auditor of the respective AD banks.
vi.        The Foreign Currency accounts have to be closed at the completion of the Project.
Intermittent Remittances by Project Offices in India
(i)        AD Category – I bank can permit intermittent remittances by Project Offices pending winding up / completion of the project provided they are satisfied with the bonafides of the transaction, subject to the following:
a)         The  Project  Office  submits  an  Auditors'  /  Chartered  Accountants’ Certificate to  the effect that sufficient provisions have been made to meet the liabilities in India including Income Tax, etc.
b)        An undertaking from the Project Office that the remittance will not, in any way,  affect the completion of the Project in India and that any shortfall of funds for meeting any liability in India will be met by inward remittance from abroad.
(ii)       Inter-Project transfer of funds requires prior permission of the Regional Office concerned of the Reserve Bank under whose jurisdiction the Project Office is situated
Procedural Part
Procedure for Opening Project Office by Foreign Companies has been simplified by the government of India. Procedure for Opening Project Office by Foreign Companies in India involves various steps such as, an application has to be send by the foreign company to the Reserve Bank of India and also it has to secure a contract for a project from an Indian firm.
Project Office by Foreign Companies in India:
Project Office that is set up by the Foreign Company in India is a business place which executes a project in the country and also stands for the welfare of the foreign company.
Various Procedures for Opening Project Office by Foreign Companies in India are:
·        The foreign company has to apply in the form FNC 1 to the Reserve Bank of India in order to open a project office in the country
·        The foreign company has to secure a contract for a project from an Indian firm that will be executed in India
·        The project, that the foreign company has secured, has to be approved by the appropriate authority or
·        The project, that the foreign company has secured, has to receive funding directly from abroad in the form of inward remittance or
·        The project that the foreign company has secured has to receive funding from Agency of International Financing or
·        The Indian firm that has given the contract to the foreign company has been granted by a bank or Financial Public Institution a term loan in the country for the project 
Procedures for the surplus remittance when the project is completed in the Project Office by Foreign Companies in India:
·        A certified copy of the accounts of the project
·        Assessment of the income tax order to show that income tax has been paid
·        A certificate by a chartered accountant that shows the style of arriving at the surplus of remittance
·        A certificate by a chartered accountant that states that funds have been kept in order to pay the tax liabilities in India

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