RBI Approval for Project Office Registration, A Guide

For foreign corporations eyeing the vast opportunities in India's growing market, executing specific projects, such as building infrastructure and delivering complex software systems, is a common entry point. To undertake and execute such projects legally, establishing a Project Office in India is a crucial step. This process of establishing a Project Office is governed by the Reserve Bank of India (RBI). Understanding the RBI's approval process for project office in India is essential for a smooth and compliant market entry.    

What is a Project Office?

A Project Office is a temporary place/location of business established by a foreign company to carry out business activities related to the execution of a specific project in India. However, a project office can’t be established for carrying out any ongoing or general business activities. The key factor is that the office is co-terminus with the project itself, which means once the project is completed, the office is expected to be closed.

Common examples include:

• Construction and infrastructure development firms building roads, bridges, or ports.

• Power companies are setting up a plant.

• IT and consulting firms implementing a large-scale software project for an Indian client.

When is RBI Approval Required?

The regulatory framework has undergone significant liberalization. As a result, in most cases, no RBI approval is now required under the Automatic Route. However, under this route, certain eligibility criteria must be met.

You can establish a Project Office under the Automatic Route if:

1. The project is funded by bilateral or multilateral International Financing Agencies.

2. The project has been granted a loan by a public financial institution or a bank in India.

3. The company has secured the project directly from an Indian company, and the project is worth at least the specified threshold as per the prevailing Foreign Exchange Management Act (FEMA) regulations.

If a foreign company does not meet these conditions, it must apply for specific approval from the RBI through an Authorized Dealer Category-I (AD Category-I) bank.

Key Documents and Application Process

Under the Automatic Route, the company must provide specific documents to the AD Bank before establishing the office. The bank acts as the facilitating and monitoring body.

The essential documentation typically includes:

• A certified copy of the Certificate of Incorporation of the parent company.

• A Board Resolution from the parent company authorizing the establishment of the Project Office in India.

• Details of the project in India, including the name, scope, and value.

• A copy of the detailed contract or agreement awarded by the Indian entity.

• The projected duration and estimated expenses of the Project Office.

• A declaration stating that the company meets the conditions for the Automatic Route.

The AD Bank will verify the documents and permit the company to open a bank account for the Project Office. This approval is the green light to commence operations.

Critical Compliance and Operational Conditions

Setting up the office is just the beginning. Maintaining strict compliance is non-negotiable.

• Permitted Activities: The Project Office can only undertake activities related and incidental to the execution of that specific project. It cannot engage in any other trading, commercial, or manufacturing activities.

• Tax Obligations: The income generated by the Project Office is taxable in India. It must obtain a Permanent Account Number (PAN) and comply with all direct and indirect tax regulations, including GST if applicable.

• Validity and Closure: The office is valid only for the duration of the project. Upon completion of the project, the company must ensure all liabilities are settled, and the office must be formally closed. An annual certificate from a Chartered Accountant, confirming the completion of the project and the non-existence of any liabilities, must be submitted to the AD Bank for closure.

• Reporting: The Project Office must file annual activity certificates and other required returns with the RBI through the AD Bank.

Conclusion 

Navigating the nuances of RBI regulations, how to get RBI approval for project office, contract valuation, and tax laws can be complicated. Seeking guidance from legal and financial experts specializing in India entry can ensure that your foray into the Indian project landscape is not just successful, but also fully compliant from day one. By securing the right approval and adhering to the prescribed rules, foreign companies can confidently build their legacy in India by following the project office registration process with RBI, one project at a time. Consulting a leading India Entry Services provider like Setindiabiz can help establish a foreign company’s project office efficiently in India.