For Foreign Companies
For Indian Companies
GIFT City
Taxation Services
Advisory & Regulatory
Accounting Services
On October 3, 2025, the Reserve Bank of India released the Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025, as part of its Statement on Developmental and Regulatory Policies. These draft regulations are intended to replace the existing FEMA framework notified in 2016, which governs how foreign entities establish branch offices, liaison offices, project offices, and other places of business in India.
The proposed framework signals a deliberate regulatory shift. Instead of relying on rigid eligibility thresholds and RBI-centric approvals, the draft adopts a principle-based approach that emphasises ease of entry, bank-led oversight, and post-establishment compliance. The objective is to reduce procedural friction for foreign businesses while preserving controls linked to sectoral policy, national security, and foreign exchange management.
The 2016 FEMA regulations were framed during a period when foreign establishments in India were fewer and predominantly approval driven. They imposed uniform entry conditions irrespective of sector, scale, or business intent. These included minimum net worth thresholds, profitability requirements, and fixed operational tenures, particularly for liaison offices.
Over time, these requirements became misaligned with India’s evolving economic landscape. Foreign participation expanded across consulting, technology, infrastructure, and project-based services, many of which did not fit neatly within the original financial eligibility framework. The requirement to seek RBI approval for routine matters such as additional locations further contributed to delays and compliance complexity.
India’s foreign direct investment profile underscores this shift. FDI equity inflows reached USD 81.04 billion in FY 2024–25, reflecting an increase of nearly 18 percent over the previous year. This scale of participation necessitated a regulatory framework capable of handling volume without compromising oversight.
A central feature of the 2025 draft is the introduction of the concept of an “Entity Resident Outside India”. This term applies to any person resident outside India other than a natural person and becomes the foundational eligibility category for establishment in India.
The draft also restructures how foreign establishments are classified. Instead of maintaining separate regulatory regimes for branch offices, liaison offices, and project offices, the framework consolidates these into two categories:
This consolidation removes interpretational ambiguity and aligns FEMA treatment more closely with India’s foreign direct investment policy and sectoral regulations.
The most substantive policy change lies in the shift from prescriptive activity lists to principle-based regulation. Under the draft framework, the permissibility of activities is determined by broader regulatory principles rather than narrowly defined approvals.
Branches are permitted to undertake commercial activities unless such activities are expressly prohibited under India’s FDI policy or other applicable laws. Offices, other than project offices, are restricted from engaging in commercial activities and are limited to representational, coordination, or support functions. Certain prohibitions continue to apply uniformly, including the restriction on legal consultancy services by foreign entities.
By removing net worth and profitability thresholds and eliminating tenure limits for liaison offices, the draft lowers entry barriers and enables long-term operational flexibility. At the same time, it shifts greater responsibility onto authorised dealer banks to assess substance, compliance, and risk on a case-by-case basis.
These Draft Regulations introduce a structured approval mechanism that distinguishes routine foreign establishments from cases requiring enhanced regulatory or security review. The framework balances operational ease with regulatory oversight by clearly defining the approval authority for each category.
General Approval Route
The General Approval Route functions as the default pathway for most foreign entities proposing to establish a branch or office in India. Salient features include:
The delegation of routine approvals to authorised dealer banks is expected to significantly reduce approval timelines and administrative friction compared to the previous RBI-centric process.
Specific Approval Route
The Specific Approval Route applies to proposals that involve heightened regulatory scrutiny, public interest considerations, or national security sensitivities.
Under this route:
This route applies to the following entities and scenarios:
If the applicant has already obtained the relevant sectoral or governmental approvals, the draft regulations recognise such clearances to avoid duplication. However, any subsequent change in ownership, control, or permitted activities that brings the entity within the Specific Approval Route will require fresh approval.
Following establishment, branches and offices must operate through non-interest-bearing INR current accounts maintained with their designated authorised dealer banks. Project offices are additionally permitted to open foreign currency accounts for project-specific transactions, subject to maintaining separate books of account for each project.
The draft allows limited treasury flexibility by permitting temporary surplus funds to be placed in short-term deposits with maturities of up to six months. Fund-based and non-fund-based facilities remain governed by existing RBI norms. Any change in the designated authorised dealer bank requires confirmation of prior compliance and reporting to the RBI.
Authorised dealer banks are required to submit periodic reports on new establishments and closures, reinforcing their role as the primary compliance interface between foreign entities and the regulator.
The compliance architecture under the draft regulations is streamlined but more enforceable. Each branch or office is required to submit an Annual Activity Certificate (AAC) along with audited financial statements within six months after the end of the financial year. The certificate must be filed with both the designated authorised dealer bank and the Director General of Income Tax (International Taxation).
Entities operating from multiple locations may submit a consolidated certificate, while project offices are required to provide project-wise disclosures. Failure to submit the Annual Activity Certificate triggers progressive enforcement, beginning with account restrictions and culminating in automatic closure if non-compliance continues for three consecutive years.
Additional reporting obligations apply to entities from specified jurisdictions, including registration with local police authorities and intimation to the Ministry of Home Affairs. These measures reflect the RBI’s effort to balance liberalisation with security and public interest considerations.
The draft simplifies exit procedures for foreign entities seeking to close their operations in India. Voluntary closure requires only intimation to the designated authorised dealer bank, provided all tax liabilities and statutory obligations have been discharged. Separate RBI approval is no longer required for routine closures.
The RBI retains the authority to direct closure in cases involving FEMA violations, threats to public interest, or national security concerns. Automatic closure applies if Annual Activity Certificates are not filed for three consecutive years. An appeal mechanism is provided, with defined timelines for filing and disposal.
Repatriation of winding-up proceeds requires certification by a chartered accountant confirming settlement of liabilities, absence of pending proceedings, completion of regulatory filings, and compliance with sectoral requirements. Following remittance, accounts must be closed and reported to the RBI.
The draft regulations materially alter the cost-benefit analysis for foreign entities considering an entry into India. The removal of financial eligibility thresholds, elimination of liaison office tenure limits, and delegation of approvals to banks reduce entry friction and support long-term strategic operations.
At the same time, the strengthened compliance framework discourages non-serious or dormant establishments. India hosted over 1,200 active foreign branches as of 2024, and with GDP growth projected at 7.2 percent for FY 2025–26, the revised framework aligns regulatory design with economic scale.
Authorised dealer banks emerge as central stakeholders under the new regime, combining advisory responsibility with heightened monitoring obligations. Foreign entities will need to integrate regulatory reporting into internal governance systems to ensure continuity.
As of December 30, 2025, the draft regulations have not yet been notified in the Official Gazette. The RBI has completed stakeholder consultations, and final notification is expected following internal review, potentially with effect from FY 2026-27.
Foreign entities planning entry or expansion should monitor RBI notifications closely, ensure alignment with prevailing FDI policy, and engage authorised dealer banks early to assess eligibility, approval routes, and compliance readiness.
The Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025 represent a meaningful recalibration of India’s foreign exchange regulatory framework. By replacing prescriptive entry conditions with a principle-based, bank-led approval model, the RBI aimsto balance facilitation with oversight in line with India’s evolving economic role.
Once notified, the framework is expected to improve predictability, reduce administrative friction, and support sustainable foreign participation in India, while retaining safeguards essential to foreign exchange management and national interest.
