How to Set Up a Project Office (PO) in India: A Complete Guide

A Project Office (PO) is a temporary establishment set up by a foreign company in India to execute a specific project. Unlike a Branch Office (BO) or Liaison Office (LO), a PO exists only for the project duration and is governed by the Foreign Exchange Management Act (FEMA), 1999. Approval from the Reserve Bank of India (RBI) and the Authorized Dealer (AD) Bank may be required for its establishment.

This comprehensive guide provides detailed information on the eligibility criteria, step-by-step procedures, required documents, legal requirements, costs, and compliance obligations for setting up a Project Office in India.

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Eligibility Criteria for Establishing a Project Office in India

A foreign company can set up a Project Office in India if it fulfills any of the following conditions:

i) It has secured a contract from an Indian company or government agency.

ii) The project is funded through inward remittances from abroad.

iii) The project is financed by bilateral or multilateral international agencies.

iv) The project has received clearance from an appropriate authority.

v) The project is financed by a foreign company in collaboration with an Indian company.

If these conditions are met, the company can proceed without prior RBI approval. Otherwise, specific RBI approval is mandatory.

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Permitted Activities of a Project Office

A Project Office in India is authorized to:

i. Represent the parent company for the execution of the project.

ii. Carry out activities strictly related to the specific project.

iii. Maintain a local bank account in India for project-related expenses.

iv. Receive foreign funds essential for the project.

However, a Project Office is restricted from:

i. Undertaking any other business apart from the approved project.

ii. Generating income from activities outside the project scope.

iii. Engaging in retail trading, manufacturing, or processing activities.

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Step-by-Step Process to Set Up a Project Office in India

Step 1: Apply for RBI Approval (If Required)

If the automatic route conditions are not met, the company must apply for RBI approval through an Authorized Dealer (AD) Bank.

Documents Required for RBI Approval:

i. Application in Form FNC (Foreign Company Registration form).

ii. Certificate of Incorporation and Memorandum of Association (MOA) – Notarized and Apostilled.

iii. Copy of the contract awarded by the Indian company.

iv. Proof of funding sources (details of inward remittances or funding agency).

v. Board Resolution authorizing the establishment of a PO.

vi. Audited Financial Statements of the parent company for the last five years.

vii. Details of the authorized representative in India.

Timeline: Approximately 4 to 6 weeks.

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Step 2: Register with the Ministry of Corporate Affairs (MCA)

After obtaining RBI approval, the foreign company must register the PO with the Ministry of Corporate Affairs (MCA) by filing Form FC-1.

Documents Required for MCA Registration:

i. RBI Approval Letter.

ii. Certified copy of the Certificate of Incorporation.

iii. Details of directors and authorized representatives.

iv. Digital Signature Certificate (DSC) of the authorized signatory.

v. Application for a Permanent Account Number (PAN).

Timeline: Approximately 2 to 3 weeks.

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Step 3: Open a Bank Account

The Project Office must open a dedicated bank account with the same AD Bank through which the RBI approval was obtained. All funds for the project must come directly from the parent company or designated funding agencies.

Timeline: Approximately 1 to 2 weeks.

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Step 4: Obtain Tax and Regulatory Registrations

The following registrations are mandatory for compliance:

i. Permanent Account Number (PAN) from the Income Tax Department.

ii. Tax Deduction and Collection Account Number (TAN) for TDS compliance.

iii. Goods and Services Tax (GST) Registration if applicable.

iv. Shops and Establishment Act Registration (State-specific compliance).

v. Employees’ Provident Fund (EPF) and Employees’ State Insurance (ESI) Registration if hiring employees.

Timeline: Approximately 1 to 2 weeks.

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Compliance and Annual Reporting Requirements

Once operational, a Project Office in India must comply with the following regulations:

i. File an Annual Activity Certificate (AAC) with the RBI and AD Bank, certified by a Chartered Accountant.

ii. Submit Form FC-4 for annual compliance with the Ministry of Corporate Affairs.

iii. File tax returns, GST, and TDS as per applicable laws.

iv. Maintain audited financial statements and submit them to the appropriate authorities.

Estimated Annual Compliance Cost: ₹1,00,000 to ₹3,00,000.

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Closing a Project Office in India

Once the project is completed, the Project Office must be closed. The following steps are required for the closure process:

i. Obtain a No Objection Certificate (NOC) from relevant project authorities.

ii. Submit the Final Accounts and obtain a Tax Clearance Certificate.

iii. Close the bank account and file Form FC-2 with the MCA.

iv. Obtain RBI approval for the closure of the Project Office.

Timeline for Closure: Approximately 2 to 3 months.

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Conclusion

Setting up a Project Office in India is a well-defined process regulated by FEMA, RBI, and MCA. A Project Office serves as an ideal solution for foreign companies executing specific projects without establishing a permanent presence.

Proper planning and compliance with regulations ensure smooth operations and successful completion of the project. For expert assistance in establishing and managing a Project Office in India, consider our team of experts professionals who specialize in regulatory compliance and corporate governance. Speak to us!!