India is one of the fastest-growing economies in the world, attracting global companies to explore its market.
Many foreign businesses enter India to execute specific projects, and one of the most common routes is Project Office Registration in India.
A Project Office (PO) acts as a temporary base for foreign companies to execute a contract in India. However, setting up such an office requires careful understanding of legal and tax implications to stay compliant.
In this blog, Corpbiz explains the process, rules, and compliance involved in setting up a Project Office in India.
1. What is a Project Office?
A Project Office is a temporary establishment set up by a foreign company to carry out a specific project in India. It cannot engage in any business other than the project for which it is established.
For example:
If a foreign construction company gets a contract to build a highway in India, it can set up a Project Office to manage work, hire staff, and execute the contract.
2. Legal Framework for Project Office Setup in India
The setup of a Project Office in India is regulated by:
Reserve Bank of India (RBI) – For approval and guidelines.
Companies Act, 2013 – For registration and reporting.
Foreign Exchange Management Act (FEMA) – For foreign investment rules.
Income Tax Act, 1961 – For taxation.
Key Point: Project Offices are treated as an extension of the foreign company and not as a separate legal entity.
3. Approval Process for Project Office Registration in India
Foreign companies can set up a Project Office in India in two ways:
Automatic Route – If the project is funded directly by inward remittance from abroad or by an Indian entity awarding the contract.
Approval Route – If the conditions of the Automatic Route are not met, prior approval from RBI is needed.
Steps for Project Office Registration in India:
Check Eligibility – Ensure the project falls under permitted categories.
File Application with RBI – Through an Authorised Dealer (Category-I Bank).
Submit Documents – Such as company profile, project contract, funding details, and board resolution.
Obtain RBI Approval – Usually granted within a few weeks.
Register with ROC (Registrar of Companies) – As per Companies Act, within 30 days of establishment.
4. Tax Implications for Project Offices
a) Permanent Establishment (PE) Status
Under Indian tax law, a Project Office is treated as a Permanent Establishment of the foreign company. This means it is subject to tax in India on income attributable to the project.
b) Corporate Tax Rate
Foreign companies with a Project Office are taxed at around 40% (plus surcharge and cess) on their taxable income in India.
c) Withholding Tax
Payments made to the foreign company for services rendered in India may be subject to withholding tax under the Income Tax Act.
d) GST Registration
If the project involves supply of goods or services, GST registration may be required.
e) Transfer Pricing
If transactions occur between the Project Office and the foreign head office or group companies, Transfer Pricing regulations may apply.
5. Compliance Requirements
Once a Project Office is set up in India, it must comply with:
Filing Annual Activity Certificate (AAC) with RBI.
Income Tax Return Filing every year.
ROC Filings as per Companies Act.
GST Returns (if applicable).
Statutory Audit of accounts.
6. Difference Between Project Office, Liaison Office, and Other Entities
Foreign companies often get confused between different types of offices in India. Here’s a quick comparison:
Type of Office | Purpose | Allowed Activities | Taxation |
Project Office | Execute a specific project | Only work related to the project | Taxed in India |
Liaison Office | Represent parent company | No commercial activities | Usually no income tax liability |
Owned by one person | Full business activities | Taxed as personal income | |
Separate legal entity | Any lawful business | Taxed as per corporate tax rates |
7. Benefits of Setting Up a Project Office in India
Easier Entry for Project Execution – Streamlined approvals for genuine projects.
Local Presence – Ability to manage on-ground activities.
Legal Recognition – Recognized by Indian authorities.
Better Coordination – Direct link with suppliers, contractors, and clients in India.
8. Key Legal Challenges
Strict Compliance – Missing deadlines can lead to penalties.
Limited Scope of Work – Cannot do any activity outside the project.
Tax Burden – Higher tax rates for foreign companies.
Approval Delays – RBI approval can take time in complex cases.
9. How Corpbiz Can Help
At Corpbiz, we have helped numerous foreign companies with Project Office Registration in India, Liaison Office Registration in India, and Indian Subsidiary Company Registration in India.
Our experts can assist with:
Preparing and filing RBI applications.
Compliance with FEMA and Companies Act.
Tax planning and GST registration.
Annual filings and audits.
We ensure a smooth and compliant setup so you can focus on your project execution.
FAQs on Project Office Setup in India
Q1. Can a Project Office be converted into a Liaison Office?
No. They are separate structures with different permissions. You must close the Project Office and apply for a fresh Liaison Office Registration in India.
Q2. Is GST registration mandatory for Project Offices?
Yes, if your project involves supply of taxable goods or services in India.
Q3. Can a Project Office open bank accounts in India?
Yes, but only one bank account is allowed, and it must be used only for project-related transactions.
Q4. What is the validity period of a Project Office?
It remains valid for the duration of the project and must be closed within six months after completion.
Q5. Can a foreign company register a sole proprietorship in India for a project?
No. Sole Proprietorship Registration in India is available only to Indian residents. Foreign companies must opt for a Project Office, Liaison Office, or Indian Subsidiary Company Registration in India.
Final Words by Atul Shukla
Setting up a Project Office in India is an excellent option for foreign companies executing specific contracts. However, it comes with strict compliance, tax obligations, and limitations on activities. With proper guidance from experts like Corpbiz, you can ensure a smooth entry into the Indian market without legal or financial hiccups.
