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Note on Foreign Investment Promotion Board (FIPB) Now let us talk in detail about the FIPB process. The FIPB is the high level body which

approves investments which require prior approval through a single window clearance

system . The FIPB has some of the topmost officers and secretaries as its members.An online application is to be made and when the case is put up for discussion, the investor or his

appointed professional can make a presentation. Please note that the FIPB is a highly transparentmechanism and it is indeed very fair to the investors.Once a person is clear with the FDI rules applicable to the proposed transaction, then he can

decide on the nature of business entity that he wants to set up.

Types of Entities The next question that is to be asked is the type of entity to be formed in India. It can be notedthat FDI is not allowed in India in the form of sole proprietorship or partnership businessesexcept that NRIs are allowed to do so on non-repatriable basis.However it may not be advisable to opt for that route. Also, FDI is not allowed in trusts and non-

governmental organizations except that of Venture Capital trusts. The options that remain areindividually discussed below:

1. Liaison office:This is most suitable for companies who neither have nor see much of a presence in India.Liaison offices are extremely restricted in what they can do and are mainly set up as acommunication medium between the Foreign company and its existing customers in India. ALiaison office cant solicit customers nor indulge in any form of promotion. They cant carry out

business operations in India. At the cost of repetition, their role is merely to act as a

communication medium between the Foreign Company and the existing Indian customers.Because of its limited role, the compliance to be completed by a Liaison Office are the least. The

biggest advantage is in income taxes where the provisions of Permanent Establishment andTransfer Pricing may not be much of a concern since the Liaison office does not earn any incomeas such.

2. Branch Office:This is the next step towards a full fledged branch business presence in India. A branch office inIndia can execute most of the tasks that a Limited Company can execute except manufacturing. A

Branch Office acts as a branch of the foreign company, be its permanent establishment under thetax laws and can earn income from business operations. Recently the RBI has tightened thenorms regarding who can open a branch office in India. One of the criteria is that the ForeignCompany intending to open a branch office in India should have a track record of at least 5 years

of profit making.

3. Project Office:A Project office is like a temporary branch office set up for a particular project.

4. Limited Companies:A Limited company can have a full fledged presence in India. Unlike the previous three entitieswhich are technically called as Foreign Companies, a subsidiary company is called an Indiancompany. The compliances are also greater than a foreign company.

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5. Limited Liability Partnership (LLP):Recently the Government has allowed Foreign Direct Investment through Limited LiabilityPartnerships (LLPs). However the policy change seems to have been made for names sake andthe conditions that accompany the investment in LLP have been made very stringent. For all

practical purposes, one needs to wait for further clarity. Till then FDI in LLP shall be advisableonly for a very limited set of investment proposals. First thing to note is that FDI will be allowed only in those companies where 100% FDI is

allowed through the automatic route and there are no FDI-linked performance related

conditions.

Automatic approval route means no prior permission from the Government/ FIPB is required.FDI-linked performance related conditions meant that in sectors, where conditions likeminimum capitalization, compulsory disinvestment after a few years etc are prescribed; even

though 100% FDI is allowed under automatic route, LLPs will not be allowed t o bring FDI

with the approval of Government of India.

No FDI shall be allowed in agricultural/plantation activity, print media or real estate business.

Procedures to setup a Branch, Liaison or ProjectOffice in India Now let us talk in detail about the procedure to set up a branch, liaison or project office in India.1). The first step is to approach the Reserve Bank (RBI) of India for permission to do so. Thedocuments that are generally required are Parent Companys Annual Report for last three years,Certificate of registration, License, Power of Attorney attested by the Indian embassy in the homecountry, Board Resolution, reason for setting up an office in India etc.2). If the RBI is satisfied with the above documents, then it gives a letter of approval .Kindly notethat the approval letter from RBI may contain some conditions and which are to be observed in

the strictest sense. The permission may be for a particular time period , generally three years.3). Once the permission from the RBI is obtained, then the permission is required from theRegistrar of Companies in a single form along with payment of the requisite fees.4). The entity is known with the extension of the particular office. For example, the branch office

in India of XYZ Inc. would be known as XYZ Inc. India Branch Office.5). One important thing to be noted is the appointment of an Authorized Signatory in India. Heshall be responsible for all the compliances of the Foreign Company in India

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