The Reserve Bank of India (RBI) has circulated draft rules under the Foreign Exchange Management Act (FEMA) 1999 that set out how entities based outside India can establish branches, offices or project offices inside India. These new rules replace the older FEMA framework from 2016 and bring in tougher compliance and reporting requirements so that foreign presences are more transparent and better aligned with India’s security and economic priorities.
Why this matters now
India remains an attractive destination for foreign companies, but the central bank wants to make sure those entities operate within a clear, regulated structure. The draft rules are intended to reduce opportunities for misuse of foreign entities operating in India, to protect national security and economic interests, and to streamline reporting responsibilities for the authorised dealer banks that deal with these accounts.
Main points in the draft regulations
1. Who may set up a branch or office: Any entity resident outside India may seek to open a branch, office or project office, except individual persons. Before establishing a presence, the overseas entity must obtain either a general permission or a specific licence from the RBI. If the proposed activities are already regulated by financial sector regulators, the entity must also get prior approval from the relevant regulator.
2. Activities that are excluded or restricted: Law firms offering legal advice are not allowed to use these rules to open branches or offices. Ordinary commercial activity is not permitted in offices other than project offices, which are meant for executing specific projects. Where activity falls under the foreign direct investment approval route or involves sectors that are prohibited, the entity must secure special permission.
3. How the application is made: The first step in the procedure is to submit Form FNC to an authorized dealer bank of Category I. The authorized dealer examines the request, grants its approval, and sends the details to the RBI. Once the RBI gives the go-ahead, it issues a Unique Identification Number (UIN) to the branch or the office for future reference.
4. Situations that need government clearance: There are extra restrictions for those entities, which have links to certain countries and for the particular sensitive sectors. Applicants owned, headquartered or controlled from Pakistan, Afghanistan, Bangladesh, China, Hong Kong, Macau or Sri Lanka may face extra scrutiny, especially if they intend to operate in sensitive territories such as Jammu and Kashmir, Ladakh, the North East or the Andaman and Nicobar Islands. Nonprofit organisations, entities owned or controlled by foreign government bodies, and businesses in defence, telecommunications, private security, broadcasting or other sectors that require FDI approval will need government permissions before proceeding.
5. Banking rules for branches and offices: Foreign branches and offices may open non interest bearing Indian rupee current accounts for their Indian operations. Project offices are allowed to maintain foreign currency accounts when those accounts are needed specifically for the project. Temporary surplus funds may be placed in term deposits but only for short durations, typically up to six months.
6. Compliance and reporting responsibilities: There is a clear obligation to file an Annual Activity Certificate together with audited financial statements within six months after the end of the financial year. Failure to comply can lead to account restrictions and ultimately account closure.
7. Rules for closure and repatriation: Profits and amounts arising from winding up can be remitted back to the head office abroad, but repatriation is subject to tax compliance, certification by auditors and the absence of unresolved legal disputes. The RBI also reserves the right to order closure of a branch or office if its operations are judged to threaten public interest or national security.
Implications for foreign businesses
The draft RBI guidelines aims to make it easier to do business in India while tightening controls that protect national and economic interests. It puts clearer lines of accountability on foreign entities and gives authorised dealer banks and the RBI stronger tools to monitor activities.
Practical next steps
Review the draft carefully to see if it has any implications on your existing or planned presence in India. During the consultation period, send your comments to the RBI and start developing or updating your internal compliance systems in order to comply with the reporting, banking, and approval requirements when they get finalized.
Wrap up
These draft guidelines signify an essential step towards harmonizing the benefits that come with foreign investment and still keeping the regulatory oversight intact. If you are planning to set up a branch, office or project office in India, reviewing the rules and organizing your documentation and compliance procedures is the right thing to do at this point.
Draft FEMA (Establishment in India of a branch or office) Regulations, 2025 dated 03/10/2025