Project office

A project office (PO) is a commercial facility established to represent the interests of a foreign company engaged in a specific project in India. These offices are restricted from conducting any activities other than those directly related to the execution of the project for which they were set up.

Eligibility

The Reserve Bank of India (RBI) has granted general authorization to international corporations to create POs in India, if they have a contract from an Indian company to undertake a project in India, subject to the following conditions:

• The project is funded directly by inward remittance from abroad; or
• The project is funded by a bilateral or multilateral International Financing Agency; or
• The project has been cleared by an appropriate authority; or
• A company or entity in India awarding the contract has been granted term loan by a private finance initiative or a bank in India for the project.

If the above criteria are not met, the foreign entity must seek authorization from the RBI Central Office.

Setting up a PO in India by foreign Non-Governmental Organizations (NGOs), Non-Profit Organizations (NPOs), and Foreign Government Bodies/Departments falls under the Government Route. These organizations are required to apply to the RBI for prior permission to establish an office in India. Here are the key points related to setting up a PO in India for these entities:

1. Approval Process: Foreign NGOs, NPOs, and Government Bodies/Departments need approval from the RBI to establish a PO in India.
2. Time Limit: Once approval is granted, the PO must be opened within 6 months from the date of the approval letter.
3. Extension: In cases where there are valid reasons beyond the control of the concerned individual residing outside India, an extension of 6 months may be granted by an Authorized Dealer (AD) Category-I bank.
4. Additional Extensions: Any further extensions beyond the initial 6 months must be approved by the RBI.
5. Registration Time: Typically, the registration process for a PO takes around 15 days.

It's important for foreign NGOs, NPOs, and Government Bodies/Departments to adhere to these regulations and timeframes stipulated by the RBI when establishing a PO in India.
Following clearance for the establishment of a PO from an AD Category – I bank, the PO is subject to the following compliance requirements from the RBI:

• Compliance under Companies Act, 2013 read with allied Rules
• Compliance under FEMA Regulations
• Compliance under Income Tax Act, 1961
• Compliance under Goods and Services Tax Act, 2017

Compliance with the Companies Act, 2013 as amended by the allied Rules

Section 380: Registration with the Ministry of Corporate Affairs (MCA)

Every foreign company establishing its PO in India must register with MCA by filing form FC-1 within thirty days of the establishment of PO.

The following documents must be presented along with Form FC-1.

• A certified authentic copy of the foreign company's charter, statues or memorandum and articles or any other instrument constituting or specifying the company's constitution.
• List of the foreign company's directors and secretary.
• A Power of attorney or board resolution naming an authorized representative in India.
• A Letter of authorization from the RBI.
• Complete address of registered or principal office.
• Declaration that none of the Company's directors or the approved representative in India has ever been convicted or disqualified from formation of companies and management in India or abroad.

Preparation and filing of financial statement [Section 381]

For each fiscal year, the foreign company shall prepare a Financial Statement of its PO in India in line with Schedule III. A copy of such a Financial Statement must be filed with the Registrar of Companies (ROC) in Form FC-3 within six months of the end of the foreign company's fiscal year. Along with the Financial Statement, a list of all the places of business established by the foreign company in India as of the date of the Balance Sheet must be sent to the Registrar in Form FC-3.

Audit of accounts [Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014]

Every foreign company shall get its accounts, pertaining to the PO audited by a practicing Chartered Accountant in India.

Filing of Annual Return [Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014]

Every foreign business must compile and file an annual return of its PO with the ROC in Form FC-4, within sixty days of the end of its fiscal year.

Compliance under FEMA Regulations

• Foreign Liabilities and Assets (FLA) Return: Every PO is required to file a FLA return on or before July 15 of each year.
• Annual Activity Certificate (AAC): Every PO is required to file an Annual Activity Certificate by March 31 each year with the authorized AD Category-I bank as well as Director-General of Income Tax (International Taxation), New Delhi.

Compliance under Income Tax Act, 1961

• Obtaining Permanent Account Number (PAN): A PO must obtain PAN from Income Tax Authorities.
• Statutory audit: Financials must be audited by a Chartered Accountant.
• Filing of income tax return: A PO registered and operating in India is considered as a foreign company and is therefore required to file an Income Tax return every year under Section 139(1) of the Income Tax Act, 1961.
• Tax audit of accounts: If the PO's gross receipts or turnover exceed the threshold as provided under Section 44AB, then it has to get its accounts audited by a chartered accountant by 30th September and submit the tax audit report by 30th November of the following year.

At present, the threshold for tax audit is as provided below:

• INR 10 million gross receipts - in case of business.
• A tax audit is not required if a business's gross revenues or turnover exceeds INR 10 million but is less than INR 100 million, and the percentage of cash transactions is less than five percent.
• INR 5 million - in case of the profession.

Compliances under the Goods and Services Tax (GST) Act, 2017