June 19, 2024

How can a CA firm help set up project office of foreign company in India?

The changing demographics and market trends make the Indian market more attractive to investors, and several foreign companies are investing in different industries in India. In the last couple of years, many measures have been taken to make the process of setting up a new business in India more accessible and, hence, encourage foreign players to invest in India.

A business entity can be established through a proprietary concern or partnership firm, limited liability partnership, or private limited company. There are different forms of business, and one has to choose the appropriate form according to the needs of the business. Let’s see how to set up Project office of foreign company in India.

Understanding the Project Office

A project office is an interim corporate structure that a global business organization may establish in India to implement specific activities. A project office is set up to deliver a unique project; hence, it is created when the project begins and disappears when it is over. It enables FDI to implement various functions like planning, operation, and management of projects in the Indian context.

Establishing the project office of any foreign company is only legally possible in India if and when they have permission from the Reserve Bank of India. Thus, it may be likely that before a foreign company establishes the project office in India, it has signed a contract with an Indian company to initiate the project:

The International Financing Agency should provide the funds for this project.
Such a project should be approved by an authorized official.
Project funding should be raised through inward remittance from other countries;
In case the above-stated conditions are not met, or the parent entity has been established in Pakistan, Bangladesh, Iran, Sri Lanka, Afghanistan, China, Hong Kong, or Macau, then for approval, such applications are forwarded to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office

Why Set up a project office of foreign company in India?

India is among the most rapidly growing countries in the world in terms of its economy and, thus, presents immense business opportunities for foreign investors. Setting up a project office can help foreign companies to:

Directly implement and coordinate Indian projects.
Leverage one of the largest growing markets in the world and a human resource pool of intelligent and innovative workforce.
Maintain a local branch to cater to the environment and demands of the Indian market.
Facilitate smoother operations and quicker decision-making processes.

Role of a CA Firm in Setting Up a Project Office

1. Regulatory Compliance

RBI Approval-Establishing the project office in India demands prior permission from RBI or the Reserve Bank of India. Some tasks that a CA firm can assist in include preparing and submitting the necessary documents to the RBI as a ministry during the application process.

Compliance with FEMA: The project offices in India are regulated and controlled under the Foreign Exchange Management Act (FEMA). A CA firm makes sure that every action of the project office with FEMA is legal to prevent any legal entanglements.

2. Taxation and Financial Planning

Tax Registrations- A CA firm also helps the client obtain the right tax registrations, including a Permanent Account Number, PAN, and GST registration. It also ensures that the project office schedules meet all the tax filing needs.

Tax Planning: This is recommended because it is important because it helps plan how to reduce tax. CA firms also discuss and devise legal entities’ tax structures and check whether offshore companies enter into agreements and arrangements compliant with existing Indian tax laws, including corporate tax, withholding tax, and transfer pricing laws.

3. Accounting and Auditing

Financial Reporting- The reporting of the firm’s financial activities is crucial to the functioning of different companies. It is by engaging CA firms to assist in putting in place efficient accounting systems coupled with appropriate standards in preparing financial statements across India.

Audit Services- Regular audits must be necessary in project offices. CA firms offer audit services that make the company’s operations more transparent and legally compliant.

4. Legal and Documentation Support

Consulting and Preparing Various Agreements- CA firms help prepare and revise agreements like renting agreements, vendor and seller agreements, and employment contracts.

Documentation- Since the setting up of a project office requires specificity, adequate documentation is necessary. CA firms assist in developing and sustaining all important records, including the Memorandum of Association (MoA) and Articles of Association (AoA).

5. Operational Support

Banking and Financial Activities- CA firms help in operations related to bank accounts and any other financial transactions that must be conducted. They also assist in the remittance of funds and the different activities of foreign exchange operations.

Another reason is Liaison with Authorities – In establishing the project office, proper consultations are made with different government authorities. The CA firms, therefore, play an intermediary role in communicating and making necessary arrangements for compliance with regulations.

Steps to step up a project office of foreign company in India

Step 1: Project Approval and Documentation

This includes obtaining project approval from the authority to proceed with the project from Indian authorities. This includes:

Project Approval: Secure the necessary permission from the government of India for the said project.

RBI Approval: Submit an application to the RBI for approval to set up the project office, which includes a project description, balance sheet, P&L accounts, and other required documents for the project implementation.

Step 2: Registration and Compliance

Once the approvals are in place, the following registrations and compliances must be completed:

PAN and TAN Registration: The applicant is required to acquire the PAN card from the Income Tax Department and the TAN from the Tax Information Network.

GST Registration: The steps that need to be followed for an office involved in the taxable supply of goods and/or services for GST registration are as follows:

Registration with ROC: The initial formal step towards company registration is incorporating the project office under the Registrar of Companies (ROC).

Step 3: Organizational Preparations

After a go-through registration process, the project office is ready to launch its activities. This includes:

Bank Account Opening: Opening a bank account in India is also necessary for any financial transactions.

Hiring Employees: Selective hiring of employees and their training and orientation about the rules and regulations as per the Indian employment laws.

Setting Up Office Space: Secure office space through leasing or rental and make all the other preparatory arrangements for operational activities.

Step 4: Continuous Compliance and Disclosure

The operation of the project office requires adhering to the laws of India to avoid legal issues with legal authorities. This involves:

Tax Filings: Timely submission of income tax returns, GST returns, and other statutory filings per the country or state’s laws.

Audit and Financial Reporting: Maintain a system of annual audits and prepare the financial statements per the Indian accounting standards.

Regulatory Compliance: Continuously remain compliant with FEMA, RBI guidelines, and other related regulatory frameworks that may apply.

Summing it up

Establishing a project office in India may involve careful planning, strategic considerations for compliance with legal and regulatory frameworks, and getting professional advice. Many firms can offer these services, but VJM Global, one of the top CA firms in India, can provide end-to-end services to make this process seem effortless.

VJM Global has specialized in business formation services, FEMA regulations, expatriates’ taxation, account outsourcing services, intra/inter nationals’ taxation, auditing, and transaction consulting. Due to their international experience and knowledge of Indian laws and policies, they are ideally suited to assist overseas companies keen on having a project office in India.

Regarding VJM Global, you can trust that we will be able to guide you in the proper setup and help you get compliant on time. The company’s highly qualified staff will assist you every step of the way in creating your project office and sustaining its functionality. Choose VJM Global for your success as you venture to India and the global market.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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