Project Office in India: When & How to Set One Up

This article is part of our Complete Guide to Company Registration in India for Foreign Companies. Here we cover everything foreign companies need to know about setting up and operating a project office in India.

What Is a Project Office and When Do You Need One?

A Project Office (PO) is a temporary establishment that a foreign company sets up in India to execute a specific project. Unlike a Branch Office, which can conduct ongoing commercial activities, or a Liaison Office, which is limited to non-commercial market exploration, a project office exists for one purpose: to deliver a defined project and then close.

The RBI governs project offices under FEMA — specifically, Regulation 5 of the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. In October 2025, the RBI released draft regulations that will replace this 2016 framework with simplified procedures, though the core structure remains similar.

Typical Scenarios Requiring a Project Office

Foreign companies typically set up project offices when they have been awarded an infrastructure contract (roads, railways, metro, power plants, bridges), a government tender for engineering or construction work, an EPC (Engineering, Procurement, Construction) contract from an Indian company, a turnkey project requiring on-ground presence for 1-7 years, or a technology installation or commissioning project with a defined timeline.

The key characteristic is that the work is project-specific and time-bound. If you need ongoing commercial presence without a specific project contract, consider a Branch Office instead. If you want to explore the Indian market without conducting business, a Liaison Office is more appropriate. Our comparison guide covers these differences in detail.

RBI Approval Routes: Automatic vs Government

One of the key advantages of a project office is that it can often be established through the automatic route — with approval from an Authorised Dealer (AD) Category-I bank — without requiring direct RBI approval. This is faster and simpler than the process for branch or liaison offices.

Automatic Route (AD Bank Approval)

An AD Category-I bank can approve a project office if all of the following conditions are met:

1. The project is funded directly by inward remittance from abroad
2. The project is funded by a bilateral or multilateral international financing agency (World Bank, ADB, JICA, AIIB, etc.)
3. The project has been cleared by an appropriate authority (Central or State Government)
4. An Indian company or entity has awarded the contract, and the party providing contract funding is satisfied with the foreign company's credentials

If any one of these conditions is met, the AD bank can approve the project office under the automatic route. Processing time: typically 2-4 weeks from submission of the complete application.

RBI Approval Route

If the project does not meet any of the automatic route conditions, the foreign company must apply to RBI through its AD bank. This is required when the foreign company is from Pakistan, Bangladesh, or any country sharing a land border with India (Press Note 3 implications), the project involves a sector with security concerns (defence, telecom, critical infrastructure), or the funding arrangement does not fall under any of the automatic route categories.

RBI approval typically takes 4-8 weeks. The application is submitted through the AD bank, which forwards it to the RBI's Foreign Exchange Department with its own due diligence assessment.

2025 Draft Regulation Changes

The RBI's draft Foreign Exchange Management (Establishment in India of a branch or office) Regulations, 2025, released in October 2025, proposes several simplifications. Additional offices can be opened by intimation to the AD bank (rather than fresh approval). The automatic closure mechanism means non-filing of Annual Activity Certificates for 3 consecutive years triggers a closure notice. Greater discretion is delegated to AD banks, reducing direct RBI involvement. While these draft regulations are not yet notified as of March 2026, they signal the direction of regulatory reform. Foreign companies should plan their project office setup based on current rules while keeping these changes in mind.

Step-by-Step Registration Process

Setting up a project office involves approvals from multiple authorities. Here is the complete process with realistic timelines.

Step 1: AD Bank Application (Week 1-4)

Apply to your AD Category-I bank with the project contract, board resolution of the parent company authorizing the project office, the foreign company's audited financial statements (last 3 years), details of the project including value, duration, and funding source, proposed office address in India, and details of the designated signatory in India.

Step 2: ROC Registration — Form FC-1 (Week 4-6)

Within 30 days of establishing the project office, register with the Registrar of Companies by filing Form FC-1 under Section 380 of the Companies Act, 2013. This is mandatory — many foreign companies complete the AD bank process but forget ROC registration, which attracts penalties. Attach the Certificate of Incorporation of the parent company (apostilled), MOA and AOA of the parent company (translated and apostilled if not in English), board resolution authorizing the PO, and the AD bank approval letter.

Step 3: Tax Registrations (Week 5-8)

Obtain PAN (Permanent Account Number) from the Income Tax Department, TAN (Tax Deduction Account Number) for withholding tax compliance, and GST registration if the project office provides taxable services or imports services from the parent company.

Step 4: Bank Account (Week 6-10)

Open a project-specific bank account with the AD bank. The account will be used for receiving inward remittances from the parent company, making local payments (salaries, vendor payments, statutory dues), and remitting surplus funds back to the parent company upon project completion. Banks require PAN, TAN, AD bank approval letter, Form FC-1 acknowledgment, and KYC documents of the authorized signatory.

Step 5: Employment and Statutory Registrations (Week 8-12)

If the project office hires Indian employees, register under the Shops and Establishments Act, Employees' Provident Fund (EPF), Employees' State Insurance (ESI), and professional tax (state-specific). Foreign employees working at the project office need Employment Visas — not Business Visas. The company must register with the FRRO (Foreigners Regional Registration Office) for each foreign employee.

Tax Treatment: What a Project Office Pays

A project office creates a Permanent Establishment (PE) in India under most DTAAs. Article 5 of the OECD Model Convention specifically includes construction and installation projects lasting beyond a treaty-specified threshold (usually 6-12 months) as a PE.

Corporate Tax Rate

As of FY 2025-26, project offices (as foreign company establishments) are taxed at the following rates:

Note: The base rate was reduced from 40% to 35% effective April 2024. Some older guides still reference 40% — the current rate is 35% plus applicable surcharge and cess.

Transfer Pricing

Transactions between the project office and the parent company — equipment transfers, management fees, technical services, seconded personnel costs — must be at arm's length under Section 92 of the Income Tax Act. If international transactions exceed INR 1 crore, a Transfer Pricing Report (Form 3CEB) must be filed with the income tax return. Tax authorities regularly scrutinize project office transfer pricing, particularly for equipment valuations and intercompany service charges.

DTAA Benefits

The applicable DTAA between India and the parent company's home country may provide relief. Key treaty provisions to evaluate include the PE threshold — construction PE thresholds vary by treaty (6 months in India-Japan, 12 months in India-US), withholding tax rates on payments to the parent company (royalties, technical fees), and the availability of double taxation relief through foreign tax credits. A Tax Residency Certificate (TRC) from the parent company's home country and Form 10F are required to claim DTAA benefits.

Annual Compliance Calendar

Project offices have substantial annual compliance obligations. Missing deadlines triggers penalties and can lead to automatic closure under the 2025 draft regulations.

The Annual Activity Certificate (AAC) is the most critical FEMA compliance. It must be certified by a Chartered Accountant and submitted to the AD bank by September 30 each year. Non-submission for 3 consecutive years now triggers automatic closure proceedings under the proposed 2025 regulations.

Closure Process: How to Wind Down a Project Office

Closing a project office is more complex than setting one up. The process typically takes 3-6 months, with tax clearance being the main bottleneck.

1. Complete the project and settle all contractual obligations with the Indian counterparty.
2. Discharge all statutory dues — income tax (including any pending assessments), GST (file final returns and cancel registration), EPF, ESI, professional tax, and any pending TDS.
3. Obtain a Tax Clearance Certificate from the Income Tax Department. This involves filing all outstanding returns, clearing any tax demands, and obtaining an order under Section 195 for the final remittance.
4. File Form 15CA/15CB for the final remittance of surplus funds to the parent company.
5. Submit closure application to the AD bank with a CA certificate confirming all obligations are discharged, tax clearance certificate, proof of payment of all local liabilities (vendors, employees, statutory dues), and final audited financial statements.
6. De-register with ROC by filing the closure form with the Registrar.
7. Cancel GST registration and close the bank account.

The Income Tax NOC stage is where most delays occur. Pending assessments, pending refund claims, or transfer pricing adjustments from earlier years can hold up closure for 6-12 months beyond the project completion date. The best practice is to initiate the tax clearance process at least 6 months before the expected project completion.

Common Mistakes to Avoid

• Continuing operations after project completion. A project office must close when the project ends. Operating beyond the project scope without converting to a Branch Office or subsidiary violates FEMA regulations and can trigger Enforcement Directorate scrutiny.
• Taking on multiple unrelated projects. Each project office is tied to a specific project and contract. If the foreign company wins a second, unrelated project, it generally needs a separate PO — unless both projects are under the same contract. Commingling projects under one PO creates FEMA and tax complications.
• Ignoring transfer pricing on equipment and intercompany charges. Equipment, materials, and management fees from the parent company must follow arm's length pricing. The tax department regularly audits project office transfer pricing. Maintain contemporaneous documentation from day one.
• Forgetting ROC registration (Form FC-1). AD bank approval alone is not sufficient. The project office must register with the ROC within 30 days under Section 380 of the Companies Act. Non-compliance attracts penalties of INR 1 lakh for the foreign company and INR 25,000 for every officer in default.
• Delaying the closure process. Some project offices remain open years after project completion due to unresolved tax assessments. Start the closure process immediately upon project completion — ideally, begin preliminary tax clearance discussions with your CA 6 months before the project end date.

Key Takeaways

• A project office is the right structure for foreign companies executing specific, time-bound contracts in India — typically infrastructure, construction, or EPC projects lasting 1-7 years.
• Most project offices qualify for the automatic route through AD bank approval, making setup faster (2-4 weeks) than branch or liaison offices.
• Tax rate for project offices is 35% plus surcharge and cess (effective rate 36.40%-38.22% for FY 2026-27), down from the earlier 40% rate.
• Annual Activity Certificate (AAC) submission to the AD bank by September 30 is the most critical FEMA compliance — non-filing for 3 years triggers automatic closure.
• Plan for closure from the start. Tax clearance is the main bottleneck — begin the process 6 months before project completion to avoid costly delays.