Project Office

By Manu Rao | Updated March 2026

What Is a Project Office?

A Project Office (PO) is a temporary establishment set up by a foreign company to execute a specific project in India. Unlike a Branch Office or Liaison Office, a project office is tied to a single contract or project and must close once the project concludes. It can carry out only activities related to that project.

The RBI governs project offices under Regulation 5 of FEMA (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations 2016.

Legal Framework

• FEMA Regulations 2016, Regulation 5 — Establishment and operation of project offices
• Companies Act 2013, Section 380 — Registration with ROC within 30 days
• RBI Master Direction dated November 22, 2016 — Operational guidelines, updated periodically

When Is a Project Office Required?

Foreign companies typically set up project offices when they have been awarded:

• A contract by an Indian company for infrastructure, construction, or engineering work
• A government tender for road, rail, power, or telecom projects
• A turnkey project that requires on-ground presence for an extended period (1-5 years)
• An EPC (Engineering, Procurement, Construction) contract

The project office exists only for the duration of the contract. Once the project is complete and all financial obligations are settled, the PO must be closed.

How to Set Up a Project Office

Unlike branch and liaison offices, project offices can often be established with AD bank approval alone — without going through RBI:

Automatic Route (AD Bank Approval)

An AD Category-I bank can approve a project office if all these 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
3. The project has been cleared by an appropriate authority (central or state government)
4. A company or entity in India has awarded the contract and the party providing the contract funding is satisfied with the foreign company's credentials

RBI Approval Route

If the project does not meet all automatic route conditions, the foreign company must apply to RBI through the AD bank. Cases requiring RBI approval include:

• The foreign company is from Pakistan or Bangladesh
• The project involves a sector with security concerns
• The funding arrangement does not fall under the automatic categories

Registration Steps

1. Obtain AD bank approval (or RBI approval if applicable)
2. Register with the Registrar of Companies — Form FC-1 within 30 days (Section 380)
3. Obtain PAN and TAN
4. Open a project-specific bank account
5. Register under GST if providing taxable services

Tax Treatment

A project office creates a Permanent Establishment (PE) in India under most DTAAs. Article 5 of the OECD Model Convention specifically includes "a building site or construction or installation project" lasting more than a specified threshold (usually 6-12 months depending on the treaty) as a PE.

Tax implications:

• Corporate tax — 40% plus surcharge and cess (same as branch office rate for foreign companies)
• Transfer pricing — Transactions between the project office and parent company must be at arm's length under Section 92 of the Income Tax Act
• Withholding tax — Payments to the parent company may attract withholding under Section 195
• GST — Services provided by the PO in India attract GST. Imports of services from the parent company attract reverse charge GST.

The applicable DTAA between India and the parent company's home country may reduce the tax burden. For example, the India-Japan DTAA sets the PE threshold for construction projects at 6 months (Article 5(2)(h)).

Profit Repatriation

Project offices can remit surplus funds to the parent company after project completion. The AD bank processes the remittance upon receiving:

• Auditor's certificate confirming tax compliance and project completion
• No-objection from the Income Tax Department (Form 15CB/15CA for remittance)
• Confirmation that all local liabilities (statutory dues, vendor payments, employee settlements) have been discharged

During the project, the PO can remit interim profits if the project contract allows it and tax obligations are current.

Annual Compliance

• Annual Activity Certificate (AAC) — Submit to AD bank by September 30, certified by a CA
• Form FC-3/FC-4 — Annual returns with ROC
• Income Tax Return (ITR-6) — File by October 31
• Tax Audit Report — If turnover exceeds Rs. 10 crore (Section 44AB)
• Transfer Pricing Report (Form 3CEB) — If international transactions exceed Rs. 1 crore
• GST Returns — Monthly GSTR-1 and GSTR-3B if registered

Closure Process

Closing a project office involves multiple steps:

1. Complete the project and settle all contractual obligations
2. Discharge all statutory dues — income tax, GST, PF, ESI
3. Obtain a No Objection Certificate (NOC) from the Income Tax Department
4. File closure application with the AD bank
5. Remit surplus funds to the parent company
6. De-register with ROC and GST authorities

The closure process typically takes 3-6 months. Delays usually happen at the Income Tax NOC stage — pending assessments or refund claims hold up the process.

Common Mistakes

• 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 violates FEMA regulations.
• Taking on multiple unrelated projects — Each project office is tied to a specific project. If the foreign company wins a second project, it generally needs a separate PO (unless the projects are under the same contract).
• Ignoring transfer pricing — Equipment, materials, and management fees from the parent company must follow arm's length pricing. Tax authorities regularly scrutinize PO transfer pricing arrangements.
• Not registering with ROC — Many foreign companies set up project offices with AD bank approval but forget ROC registration under Section 380. This attracts penalties.
• Delayed closure — Some POs remain open years after project completion because of unresolved tax assessments. It is better to start the closure process immediately upon project completion.

Practical Example

A French construction company wins a government contract to build a metro rail section in Bangalore. The contract value is Rs. 800 crore, funded partly by the Asian Development Bank (ADB) and partly by the Government of Karnataka. The project timeline is 4 years.

Since the project has multilateral financing (ADB) and government clearance, the AD bank (BNP Paribas India) approves the project office under the automatic route. The French company registers the PO with the ROC Bangalore within 30 days, obtains PAN, TAN, and GST registration.

The PO hires 200 Indian workers and 15 French engineers (who obtain Employment Visas). Equipment worth Rs. 50 crore is imported from France — transfer pricing documentation supports the valuation. The India-France DTAA (Article 5) treats the PO as a PE since the project exceeds 6 months. Income is taxed at 40% plus applicable surcharge and cess.

After 4 years, the project is completed. The PO settles all vendor payments, discharges GST and income tax dues, obtains the IT NOC, and remits the remaining surplus (approximately Rs. 45 crore) to France. The AD bank processes the remittance after verifying the CA certificate. The PO is de-registered with ROC and formally closed.

Project Office vs. Other Structures

Use a project office when you have a specific, time-bound project in India. For ongoing commercial presence, a Branch Office or subsidiary is more appropriate. For non-commercial market exploration, consider a Liaison Office.

Visit our services page for help setting up the right structure.