Project Office in India
ABOUT PROJECT OFFICE
A Project Office is a temporary establishment set up by a foreign company in India to execute a specific project. It allows foreign entities to have a presence in India without incorporating a subsidiary or branch office, provided the project is funded directly by inward remittance or international financing institutions.
A Project Office in India is not a separate incorporated entity like a company; it operates as an extension of the foreign parent company. Therefore, there is no formal requirement to appoint Directors for a Project Office.
Key Points:
- Authorized Representative: Instead of Directors, a Project Office requires an Authorized Representative in India to oversee operations and act on behalf of the parent company.
- No Board of Directors: Since a Project Office is not a legal entity distinct from its parent company, there is no concept of a "board" or "minimum directors" for its setup.
- Parent Company Control: All strategic decisions and overall management remain under the parent company’s purview.
BENEFITS OF FORMING PROJECT OFFICE IN INDIA
- Simplified Establishment: No need for a separate incorporation; approvals can be obtained through Reserve Bank of India (RBI).
- Project-Specific Focus: Operates exclusively for the project's execution, avoiding unnecessary overheads for unrelated activities.
- Tax Efficiency: Income is taxed only on project-related earnings in India.
- Enhanced Local Presence: Facilitates coordination with local vendors, government bodies, and stakeholders.
- No Minimum Capital Requirement: Operates with funding specific to the approved project.
BASIC REQUIREMENTS FOR FORMING PROJECT OFFICE IN INDIA
- Managed by an Authorized representative of the parent company in India.
- Applicant must be a body corporate incorporated outside India.
- The project must be funded directly by inward remittance from the parent company or by bilateral/multilateral international funding.
- The project should be approved by an Indian entity or funding agency as per RBI guidelines.
- The parent company must submit proof of securing the contract and details of the funding arrangement.
- Operations are restricted to activities directly related to the execution of the specific project.
DRAWBACK OF PROJECT OFFICE
- Limited Scope: Operations are restricted to the specific project and cannot undertake any other business activities.
- Temporary Presence: Exists only for the duration of the project, limiting long-term business continuity in India.
- Approval Dependence: Requires prior RBI approval if the project does not qualify under the automatic route.
- Restricted Revenue Generation: Revenue must be tied directly to the approved project; no additional income streams allowed.
- Closure Formalities: Winding up the Project Office requires compliance with RBI and tax authorities, which can be time-consuming.
- Inflexibility for Expansion: Cannot pivot to new opportunities or projects without re-establishing a new office
STEP-BY-STEP PROCESS AND CHECKLIST FOR ESTABLISHING A PROJECT OFFICE IN INDIA
Step-by-Step Process
- The application for establishing a Project Office in India is submitted by the Non-Resident in Form FNC to a designated AD Category 1 Bank (Authorized Dealer Bank), along with the prescribed documents and the Letter of Comfort (LOC).
- Letter of Comfort (LOC): If the applicant is a subsidiary of another company and not financially sound, it may submit an LOC from its parent/group company, provided the parent/group company meets the prescribed net worth and profitability criteria.
- The AD Bank, after scrutinizing the application and ensuring compliance with KYC norms, permits the establishment of the Project Office.
- The validity period of the Project Office is tied to the tenure of the project.
- Upon receipt of permission for setting up the Project Office, the applicant must notify the AD Bank of the establishment date. The AD Bank, in turn, reports the same to the RBI.
- If the permission granted has been surrendered or has expired without the Project Office being established, the AD Bank must inform the RBI accordingly.
- The applicant is required to establish the Project Office within six months of receiving the approval letter. If the establishment is delayed, the approval may lapse unless an extension is granted.
- The AD Bank may grant an extension for another six months due to reasons beyond the applicant’s control. Any further extension requires prior approval from the RBI.
- Documentation Preparation: Gather necessary documents, such as the certificate of incorporation, project contract, proof of funding, and parent company’s financial details.
- Obtain Project Office Registration Certificate (PORC): Register the Project Office with the Registrar of Companies (RoC) through the Ministry of Corporate Affairs (MCA).
- PAN and TAN Application: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for tax compliance.
- Bank Account Setup: Open a bank account in the name of the Project Office for operational transactions.
- GST Registration (Optional): Register for GST if the project requires it for tax compliance.
Registration Requirement with Police Authorities
Applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau, or Pakistan intending to open a Project Office in India must register with the state police authorities.
For individuals from these countries, the AD Category-I Bank will forward a copy of the approval letter to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi, for necessary action and record-keeping
CHECKLIST FOR FORMING PROJECT OFFICE IN INDIA
- Parent Company Documents:
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- Certificate of Incorporation of the parent company.
- Board Resolution authorizing the establishment of the Project Office.
- Financial statements of the parent company for the past three years.
- Project Documents:
- Contract/agreement specifying the scope of the project.
- Proof of project funding (inward remittance or funding agreements).
- Letter of award from the Indian entity (if applicable)
Authorized Representative Details:
- Identification and contact details of the authorized signatory in India.
Compliance Documents:
- Form FNC-1 (if RBI approval is required).
- Application for PAN and TAN.
POST-INCORPORATION COMPLIANCE FOR A PROJECT OFFICE (PO) IN INDIA
Once a Project Office (PO) is established in India, it must adhere to several compliance requirements under Indian laws and regulations. These include filings with various authorities such as the RBI, GST, Income Tax Department, and Registrar of Companies (RoC). Below is a comprehensive guide to the post-incorporation compliance for a Project Office:
1. Reserve Bank of India (RBI) Compliance
- Annual Activity Certificate (AAC):
- Submit the AAC certified by a Chartered Accountant to the designated AD Category-I Bank and the RBI.
- This report must confirm that the activities undertaken by the Project Office align with the terms of approval.
- The AAC is due within six months of the end of the financial year.
- Utilization Reporting:
- Submit details of funds received from the parent company and their utilization for the project.
2. Registrar of Companies (RoC) Compliance
Annual Filing:
- File Form FC-3 (Annual Accounts and List of Place of Business).
- File Form FC-4 (Annual Return) within 60 days from the financial year-end, containing information about the activities and financial details of the Project Office.
Maintenance of Statutory Registers:
- Maintain books of accounts at the Project Office and ensure compliance with the Companies Act, 2013.
Income Tax Compliance
Permanent Account Number (PAN):
- Ensure the Project Office has a PAN for all tax-related filings.
Tax Filing:
- File annual Income Tax Returns, including tax audits if applicable.
- Comply with Transfer Pricing regulations if transactions with the parent company are involved.
Tax Deduction at Source (TDS):
- Deduct and deposit TDS for employee salaries, contractor payments, and other applicable transactions. File TDS returns quarterly.
Goods and Services Tax (GST) Compliance (if applicable)
GST Registration:
- Obtain GST registration if the Project Office is involved in providing taxable supplies in India.
Regular GST Filings:
- File monthly or quarterly GST returns (GSTR-1, GSTR-3B, etc.) based on the turnover threshold.
- File annual GST return (GSTR-9) if applicable.
Financial Compliance
Audit of Accounts:
- Ensure the accounts of the Project Office are audited annually by a qualified Chartered Accountant.
Repatriation of Funds:
- Maintain proper records of funds remitted to and from the parent company, ensuring compliance with FEMA regulations.
Other Key Compliances
Labour Laws:
- Comply with applicable labour laws, including Provident Fund (PF) and Employee State Insurance (ESI) if the Project Office employs personnel.
Local Regulations:
- Adhere to specific state laws, such as Shop and Establishment registration, if required.
Employee Settlements:
- Manage payroll, tax deductions, and benefits like gratuity, if applicable.
PROCEDURE FOR CLOSING A PROJECT OFFICE (PO) IN INDIA
To close a Project Office (PO) and remit its winding-up proceeds, the PO or its nodal office must submit a request to the designated AD Category-I Bank (AD Bank). The following documents are required for the process:
1. Goods and Services Tax (GST):
GST Registration Cancellation:
If the Project Office is registered under GST, an application must be submitted for cancellation of GST registration.
Final GST returns (GSTR-10) must be filed, declaring details of liabilities, credits, and closing stock.
2. Registrar of Companies (RoC):
Compliance Filings:
File Form FC-4 (Annual Return) for the foreign entity's activities up to the closure date.
Notify the RoC about the closure of the Project Office by submitting Form FC-2 (Return of Closure) along with required documents like the final financial statements, auditor's certificate, and board resolution from the parent company.
3. Income Tax:
Final Tax Returns:
File the final income tax return, ensuring all pending taxes, including TDS liabilities, are cleared.
Obtain a No Objection Certificate (NOC) from the Income Tax Department if required.
Tax Audits:
Ensure that tax audits (if applicable) have been completed and reports filed.
Details of the remittable amount, supported by a statement of assets and liabilities, and the method of asset disposal.
Confirmation that all liabilities in India, including employee benefits like gratuity, Provident Fund, ESI have been fully settled or adequately provided for.
Assurance that no income earned abroad, including export proceeds, remains unremitted to India.
4. Reserve Bank of India (RBI):
Winding-Up Approval:
Obtain RBI or AD Bank's approval for remitting proceeds from the closure of the Project Office.
Annual Activity Certificate (AAC):
Ensure all pending AAC filings have been submitted to the AD Bank for the entire period of operation.
5. General Compliance:
Employee Settlements:
Settle all employee-related dues, including salaries, gratuities, and other benefits.
Vendor/Third-Party Payments:
Ensure all liabilities to vendors, contractors, and service providers are cleared.
Legal Confirmation:
Declaration from the applicant or parent company that no legal proceedings are pending in any Indian court against the Project Office and no legal obstacles exist for the remittance.
Annual Compliance:
Proof that the Project Office has filed its Annual Activity Certificate(s) with the AD Bank as required.
Sector-Specific Permissions:
For banks and insurance companies, copies of sectoral regulator permissions for closure must also be submitted.
Additional Documentation:
Any other documents specified by the Reserve Bank of India or the AD Bank during the approval process.