Regulatory Alert - Revised Framework for LO BO PO Set up

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Regulatory Update

Revised Framework for establishment of Liaison or Branch or

Project Office in India

Prepared by: Corpcode Consulting, India

5 April 2016

Intended for Private Circulation Only

Background

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In order to further promote the ease of doing business in India, the Reserve Bank of India (RBI) has issued revised regulations* concerning establishment of foreign companies in India in the form of liaison office, branch office or project office (LO BO PO).

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The revised regulations are termed as 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.

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Under revised regulations, the regulatory framework for setting up of LO BO PO has been liberalized to a large extent by delegating the power to Category I Authorized Dealer (AD) banks to approve the applications.

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Revised regulations provides differential treatment to applicants from destinations like Pakistan, Iran, Afghanistan,

China etc. for which RBI approval would be required.

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Further, relaxations in setting up of LO BO PO has been made conditional depending on applicant’s host country and location of the proposed office to be set up in India. RBI approval would be required for setting up of LO BO

PO in J&K, North East region, Andaman and Nicobar Islands.

* Issued vide RBI notification no. FEMA 22( R)/RB-2016 dated 31 st

March, 2016

Intended for Private Circulation Only

Summary of provisions relaxed and tightened

Provisions Liberalized

Power to approve the applications for setting up of LO BO PO delegated to Category-I Authorized Dealer (AD) Bank

BO and PO can now raise fund and non-fund based facilities from banks

Transfer of assets of Branch/Liaison/Project Office to a Joint

Venture/Wholly Owned Subsidiary or other entity in India has been allowed with prior permission of AD Bank

Requirement of submission of report with Local Police Authorities has been withdrawn.

Registration with police in case of applicants from Bangladesh, Sri

Lanka, Afghanistan, Iran, China, Hong Kong, or Macau

Provisions Tightened

Office to be set-up within 6 months of approval

(Extensions permitted by AD Bank and RBI)

Applicants from specified countries to set up office in specific

Indian Region / states to obtain RBI Approval

For additional office, justification required for need of additional office(s)

Remittance of profits by Branch Offices (net of Tax) requires additional documentation with AD Bank

Intended for Private Circulation Only

Revised Approval Mechanism for LO BO PO

Applicant Category

Geography Based

Pakistan

Sector Based

Other Applicants

Bangladesh, Sri Lanka,

Afghanistan, Iran, China,

Hong Kong, or Macau setting up office in:

J&K, North East Region,

Andaman & Nicobar

Defence,

Telecom,

Private Security;

Information and

Broadcasting Sector

Non Government

Organization

Not for Profit Organization

Body/Agency/Department of

Foreign Government

To be approved by AD Bank

To be approved by Reserve Bank of India

Intended for Private Circulation Only

1

Revised Process Chart for setting up of LO BO PO

2 3 4

Eligibility Check

Application to RBI/AD

Bank

Processing of

Application

Approval Letter

5

Opening of Office within 6 months of approval

6

If office is not opened within 6 months, to seek extension from

AD/RBI

7

Registration with State

Police Authorities for applicants from specified countries*

8

Submission of Annual

Activity Certificate to

AD Bank and

International Tax

Department by 30

September** of following year

*Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau

**If financial year of LO BO PO is not closed on 31 March, in such cases due date shall be within 6 months from close of the financial year

Intended for Private Circulation Only

Intended for Private Circulation Only

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