Piercing the veil on foreign offices
The Hindu Business Line
Director, Tax & Regulatory Services
Ernst & Young
According to prevailing regulations, a foreign entity can set up a branch office, liaison office or project office in India to carry out certain activities. While a liaison office cannot undertake any business activity or earn income in India, a branch can be established for certain commercial activities. A project office can execute a project in India. The Reserve Bank of India prescribes specific annual reporting requirements for these kinds of offices.
Recently, it introduced additional requirements, including immigration-related information of the foreign nationals who visit these offices for business or employment.
The offices have to submit the new information every year to the Director General of Police of the State concerned. New offices should submit this report within five days of opening.
According to Indian visa norms, foreign nationals employed at such offices should have employment visas and register at the Foreigner’s Regional Registration Office or Foreigners’ Registration Officer within 14 days of arrival in some cases.
Now, the offices have to disclose details of foreign employees not on employment visas, and reasons if any staff who is on employment visa has not reported to local authorities. In order to make it comprehensive, separate details are needed for foreign nationals employed with these offices, as well as those who are merely business visitors. This is a significant development as, until now, the offices did not have to report the immigration-related compliance of foreign nationals entering India.
While, it may seem strange at first glance that the RBI is looking into matters related to immigration compliance, the reason for it seems to be national security. This is in line with the recent trend of Government authorities cross-verifying whether foreign nationals are complying with regulations in the jurisdiction of other agencies.
For instance, immigration authorities require details of income tax and provident fund compliance from foreign nationals at the time of initial registration, as well as visa extension with the Foreigner’s Regional Registration Office or Foreigners’ Registration Officer.
The increased reporting requirements throw up practical challenges. As most foreign nationals (other than those employed with such offices) frequently travel into and out of India on business visas, the information systems of their employers may not be geared to capture the required extensive details such as parentage or place of stay in India). Furthermore, certain details of Indian employees too have to be reported, which would involve significant time and effort for large numbers.
Despite these practical issues, foreign entities that have established or intend to establish a branch, liaison office or project office in India should comply with the reporting requirements. They may need to review their immigration policies and practices to ensure compliance with the appropriate type of visa for foreign nationals employed in, or visiting the office, and with regard to registration and visa extensions.