Expanding business operations to a new country involves navigating through a series of regulatory processes. In the context of setting up Branch Offices (BO) and Liaison Offices (LO) in India, the Reserve Bank has laid out specific guidelines. This blog aims to demystify the procedures for undertaking additional activities or establishing more offices, shedding light on the application process, annual reporting requirements, and the role of designated banks.
Application for Additional Activities or Offices
Requests for undertaking activities beyond the initially permitted ones must be submitted through the designated AD Category – I bank to the Chief General Manager-in-Charge at the Reserve Bank of India’s Foreign Exchange Department in Mumbai. The application should not only outline the need for these additional activities but also include comments from the designated AD Category – I bank, highlighting their perspective.
Similarly, requests for establishing additional BO/LOs follow a process involving the submission of a fresh FNC form (Annex 1), signed by the authorized representative of the foreign entity in their home country. Notably, if there are no changes to the documents submitted earlier, there’s no need to resubmit them. However, if the number of offices exceeds four (one in each zone – East, West, North, and South), the applicant must provide a justification for the need for each additional office.
To streamline operations, the applicant can designate one of its offices in India as the Nodal Office, responsible for coordinating the activities of all offices in the country.
Annual Activity Certificates for Branch/Liaison Offices
Every year, Branch Offices and Liaison Offices must submit Annual Activity Certificates (AAC) (Annex 3) to the Reserve Bank. These certificates, prepared by Chartered Accountants, should be accompanied by the audited Balance Sheet and filed by March 31, with a final submission deadline of September 30. If the annual accounts are based on a date other than March 31, the AAC and audited Balance Sheet must be submitted within six months from the due date to the designated AD Category I bank. A copy of these documents should also be sent to the Directorate General of Income Tax (International Taxation) in New Delhi.
Here’s a breakdown of who needs to file these certificates:
(a) Sole BO/LO:
- The respective BO/LO should submit the Annual Activity Certificate.
(b) Multiple BO/LO:
- The Nodal Office of the BO/LOs should submit a combined Annual Activity Certificate covering all offices in India.
The designated AD Category – I bank plays a crucial role in this process. They review the Annual Activity Certificate to ensure that the activities carried out by the BO/LO align with the terms and conditions set by the Reserve Bank during approval. If the Auditor or the designated AD Category – I bank identifies any adverse findings, it must be reported promptly. For Liaison Offices, this report goes to the respective Regional Office of the Reserve Bank, while for Branch Offices, it goes to the Central Office of the Reserve Bank. The report should include a copy of the Annual Activity Certificate and the bank’s comments on the findings.
Conclusion:
Understanding the regulatory requirements for undertaking additional activities or establishing more offices in India is essential for the smooth functioning of foreign entities. As businesses expand, ensuring compliance with the Reserve Bank’s guidelines becomes paramount. By following these procedures diligently, companies can not only navigate the regulatory landscape effectively but also contribute to building a robust and transparent business environment in India. The collaboration between businesses and regulatory authorities is key to fostering growth and innovation on a global scale.
