How to Set Up a Project Office in India from Hong Kong
A Project Office (PO) in India allows a Hong Kong company to establish a temporary presence in the country specifically to execute a project for which it has secured a contract from an Indian entity. Unlike a Liaison Office (which is limited to non-commercial activities) or a Branch Office (which can carry out ongoing commercial activities), a project office is tied to a specific contract and ceases to exist once the project is completed.
Project offices are particularly suited for Hong Kong companies in sectors such as engineering, construction, infrastructure, power, telecommunications, and IT services that have won project contracts from Indian companies or government bodies. The project office can carry out activities directly related to the project scope, including executing the contract, managing sub-contractors, and coordinating deliverables.
However, because Hong Kong is a Special Administrative Region of China, the establishment process is more complex. The RBI requires entities from Hong Kong to obtain specific prior approval rather than the general permission route available to companies from countries like the USA or Switzerland. Additionally, Press Note 3 (2020) considerations apply, and the project office must register with the local state police authority.
FDI Route & Regulatory Requirements
Project office establishment is governed by the Foreign Exchange Management Act (FEMA) and RBI regulations, separate from the FDI regime that governs equity investments. However, Hong Kong entities face additional regulatory hurdles under both frameworks.
General Permission vs. Specific Approval Route
Under the FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office) Regulations, 2016, the RBI has granted general permission to foreign companies to establish project offices in India, provided certain conditions are met:
- The company has secured a contract from an Indian entity to execute a project in India
- The project is funded by inward remittance from abroad, or
- The project is funded by a bilateral or multilateral international financing agency, or
- The project has been cleared by an appropriate Indian authority, or
- The Indian entity awarding the contract has been granted a term loan by a public financial institution or bank in India
However, this general permission route is not available to Hong Kong entities. Companies from China (including Hong Kong and Macau), Pakistan, Bangladesh, Sri Lanka, Afghanistan, and Iran must obtain prior RBI specific approval regardless of whether they meet the general permission criteria. The application must be routed through an AD Category-I bank to the RBI.
Press Note 3 Implications
While Press Note 3 primarily targets equity-based FDI, Hong Kong entities establishing project offices face a parallel restriction under RBI FEMA regulations. The project office must also register with the local state police authority, a requirement specific to entities from China, Hong Kong, and certain other neighboring countries. Recent 2025 relaxations in Press Note 3 for select manufacturing sectors do not extend to direct Chinese or Hong Kong investments.
2025 Draft Regulations Update
The RBI's October 2025 draft regulations propose several changes relevant to project offices: a requirement for project offices executing multiple projects to maintain separate books of accounts for each project; a streamlined UIN allotment process; and the continuation of the two-track approval system (General and Specific routes) that keeps Hong Kong entities under the specific approval requirement. The draft also introduces a principle-based restriction stating that project offices may not undertake activities prohibited under FDI policy.
Permitted Activities
A project office in India may carry out activities strictly related to the project for which it was established:
- Executing the specific project contract awarded by the Indian entity
- Managing project operations, sub-contractors, and personnel
- Procuring materials and services necessary for project execution
- Coordinating technical deliverables with the Indian counterparty
- Any ancillary activities necessary for the project's completion, as approved by the RBI
Activity Limitations
A project office cannot undertake activities beyond the scope of the approved project contract. It cannot take on new projects without obtaining fresh RBI approval for each additional project. If the Hong Kong company wins multiple contracts, it may need to establish separate project offices or seek RBI permission to execute multiple projects through a single office (subject to maintaining separate books of accounts under the 2025 draft regulations).
DTAA Benefits for Hong Kong Companies
The India–Hong Kong DTAA (effective November 2018) has critical implications for project offices, particularly regarding Permanent Establishment (PE) classification and taxation of project profits.
Permanent Establishment Classification
Unlike a liaison office, a project office in India almost always constitutes a Permanent Establishment of the Hong Kong parent company under the DTAA. Article 5 of the India-Hong Kong DTAA defines PE to include a construction site, installation or assembly project, or supervisory activities connected therewith, if it lasts more than 183 days within any 12-month period. Given that most projects executed through a PO exceed this threshold, the project office will typically be classified as a PE.
Tax Implications
As a PE, the project office's profits attributable to its Indian operations are taxable in India at the foreign company tax rate of 35% (plus applicable surcharge of 2%-5% and 4% health and education cess), resulting in an effective rate of approximately 37.13%-38.22%. The profits are determined on the basis of the project office's separate accounts and the arm's length principle.
Key Treaty Rates
- Interest: Withholding tax capped at 10%
- Royalties: Withholding tax capped at 10%
- Fees for Technical Services: Withholding tax capped at 10%
- Dividends: 5% (if beneficial owner holds at least 25% capital) or 10% (other cases)
Tax Credit and Double Taxation Relief
The DTAA provides for tax credit mechanisms allowing the Hong Kong parent company to claim credit for taxes paid in India on the project office's profits, preventing double taxation. The project office must file Form 15CA/15CB for all outward remittances to Hong Kong, and a CA certificate (Form 15CB) is required for remittances exceeding INR 5 lakh.
Document Requirements & Authentication
Hong Kong has been a member of the Hague Apostille Convention since 1965. All documents submitted to the RBI and the Registrar of Companies must be apostilled by the High Court of Hong Kong.
Documents Required from Hong Kong
- Certificate of Incorporation: Of the Hong Kong parent company, apostilled
- Memorandum & Articles of Association: Of the Hong Kong entity, apostilled
- Board Resolution: Authorizing the establishment of a project office in India, apostilled
- Audited Financial Statements: Of the Hong Kong parent for the latest 3 financial years, apostilled
- Power of Attorney: In favor of the authorized representative in India, apostilled
- Passport copies: Of the authorized representative in India, notarized
- Copy of the Project Contract: Awarded by the Indian entity, apostilled
- Project Details: Scope, duration, value, and funding source of the project
- Banker's Certificate: From a Hong Kong bank confirming the parent company's financial standing
Documents Required in India
- Form FNC (Application for Establishment of Branch/Liaison/Project Office)
- Registered office address proof (rental agreement + NOC from landlord + utility bill)
- Digital Signature Certificate (DSC) for authorized representative
- Form FC-1 for registration with the Registrar of Companies
Apostille Process in Hong Kong
The High Court of Hong Kong issues apostilles within approximately 2 working days at a fee of HKD 125 (approximately USD 16) per document. Since September 2025, Hong Kong also offers an e-Apostille service as a digital alternative. Documents must first be notarized by a Hong Kong notary public who verifies the company seal and authorized signatory before the apostille is affixed.
Step-by-Step Registration Process
The registration process for a project office from Hong Kong differs from non-land-border countries due to the mandatory specific RBI approval requirement.
Step 1: Secure Project Contract
The prerequisite for establishing a project office is a specific project contract awarded by an Indian entity. The contract must clearly define the project scope, timeline, deliverables, and value. Ensure the contract specifies the funding source (inward remittance, international financing, or Indian term loan). Timeline: Precondition (before application).
Step 2: Document Preparation & Apostille
Prepare all required documents in Hong Kong, have them notarized by a Hong Kong notary public, and obtain apostilles from the High Court. Ensure the project contract and board resolution are included in the apostilled document set. Timeline: 1–2 weeks.
Step 3: Submit Form FNC to AD Category-I Bank
File the completed Form FNC with all supporting documents (including the project contract) with an AD Category-I bank in India. The AD bank conducts preliminary due diligence and forwards the application to the RBI for specific approval. For Hong Kong entities, the AD bank cannot approve at the bank level. Timeline: 1–2 weeks for AD bank processing.
Step 4: RBI Specific Approval
The RBI reviews the application, evaluating the parent company's credentials, the project contract details, funding arrangements, and security considerations. For Hong Kong entities, additional security clearances may be required. The RBI may request supplementary information during review. Timeline: 4–12 weeks.
Step 5: Register with Registrar of Companies
Upon receiving RBI approval, file Form FC-1 with the ROC within 30 days of establishing the project office (Section 380 of the Companies Act, 2013). The ROC issues a certificate of registration. Timeline: 2–3 weeks.
Step 6: Obtain PAN & TAN
Apply for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN). Both are essential for tax filings, TDS compliance on payments to contractors and employees, and banking operations. Timeline: 1–2 weeks.
Step 7: Open Bank Account
Open a current account with the AD bank in India. All project-related inward remittances and domestic payments must flow through this account. The AD bank will require the RBI approval letter, ROC certificate, PAN, and project contract. Timeline: 2–3 weeks.
Step 8: Register with State Police Authority
Under Press Note 3 regulations, project offices of Hong Kong companies must register with the local state police authority. This is an additional security compliance step applicable to entities from China (including Hong Kong). Timeline: 1–2 weeks.
Step 9: Commence Project Execution
Begin project operations within the scope defined in the approved contract. Maintain separate books of accounts for the project office and ensure all compliance timelines are met from the date of establishment.
Timeline & Costs
The timeline for establishing a project office from Hong Kong is extended due to the specific RBI approval requirement and potential security clearances.
Realistic Timeline Breakdown
| Step | Duration |
|---|---|
| Document preparation & apostille | 1–2 weeks |
| AD bank processing & submission to RBI | 1–2 weeks |
| RBI specific approval (including security clearance) | 4–12 weeks |
| ROC registration (Form FC-1) | 2–3 weeks |
| PAN & TAN application | 1–2 weeks |
| Bank account opening | 2–3 weeks |
| State police registration | 1–2 weeks |
| Total estimated timeline | 12–22 weeks |
Fee Breakdown
- RBI application fee: No government fee for Form FNC, but AD bank processing fees apply
- ROC registration (Form FC-1): INR 6,000
- PAN application: INR 107
- TAN application: INR 65
- Stamp duty: Varies by state of registration
- Professional fees: INR 50,000–1,50,000 (for CA/CS handling RBI and ROC filings)
- Apostille fees (Hong Kong): HKD 125 per document
- Notarization fees (Hong Kong): HKD 600–2,000 per document
- Project-specific costs: Site setup, equipment, workforce mobilization (funded via inward remittance)
Post-Registration Compliance
Project offices have specific compliance obligations tied to both their operational nature and the project lifecycle.
Annual Filings
- Annual Activity Certificate (AAC): Submitted to the AD bank, certified by a Chartered Accountant, within 6 months of the financial year end. The AAC must confirm project progress and adherence to approved activities
- Financial Statements (Form FC-3): Filed with the ROC within 6 months of the close of the financial year
- Income Tax Return: Filed by October 31 each year. Project offices generating revenue are taxed as foreign companies at 35% (plus surcharge and cess)
- GST Returns: Monthly/quarterly if GST registered (likely required for project execution activities)
- FLA Return: Annual Foreign Liabilities and Assets return to RBI by July 15
Project-Wise Accounts
Under the 2025 draft regulations, project offices executing multiple projects must maintain separate books of accounts for each project. This ensures transparency in profit attribution and facilitates closure proceedings when individual projects are completed.
Fund Remittance
Project office profits can be remitted to the Hong Kong head office after payment of applicable Indian taxes. Each outward remittance requires Form 15CA/15CB filing. Upon project completion, the remaining funds (after settling all Indian liabilities and taxes) can be repatriated through the AD bank.
Closure Upon Project Completion
A project office must be closed upon completion of the project. The closure process involves obtaining a CA certificate confirming all tax liabilities have been settled, submitting a closure application to the AD bank, filing Form FC-4 with the ROC, and repatriating remaining funds. The AD bank verifies full compliance before approving fund repatriation.
Common Challenges for Hong Kong Companies
1. Specific Approval Delays
The mandatory RBI specific approval process for Hong Kong entities can add 4-12 weeks to the timeline compared to the general permission route available to US or Swiss companies. This can create difficulties when project timelines are tight, as the PO cannot commence operations until RBI approval is received.
2. Contract Prerequisite
Unlike a branch office or liaison office, a project office can only be established after the Hong Kong company has secured a specific project contract from an Indian entity. This means the company cannot set up the office speculatively while bidding for contracts. Companies in the bidding phase should consider a liaison office as a temporary measure.
3. Scope Limitation
The project office's activities are strictly limited to the scope of the approved contract. Taking on additional projects requires fresh RBI approval for each new contract. This inflexibility can be challenging for Hong Kong companies that win multiple contracts in India—each may require a separate project office or a consolidated approval.
4. Higher Tax Rate
Project offices are taxed at the foreign company rate of 35% (plus surcharge and cess), resulting in an effective rate of approximately 37.13%-38.22%. This is significantly higher than the 25%-30% rate applicable to domestic Indian companies or subsidiaries. For large, long-duration projects, incorporating a subsidiary may be more tax-efficient.
5. State Police Registration Requirement
Hong Kong entities must register the project office with the local state police authority, a compliance step not required for most other countries. This adds an administrative burden and requires ongoing coordination with local law enforcement.
6. Closure Complexity
Closing a project office upon project completion requires a systematic process: settling all Indian tax liabilities, obtaining CA clearance certificates, filing closure applications with the AD bank, deregistering with the ROC, and repatriating remaining funds. For Hong Kong entities, this process may involve additional RBI scrutiny before final fund repatriation is approved.
Frequently Asked Questions
Can a Hong Kong company establish a project office under the general permission route?
No. Hong Kong, as a Special Administrative Region of China, is on the list of countries requiring specific RBI approval for establishing any type of office in India. Even if the project meets all criteria for general permission (secured contract, inward remittance funding, etc.), the application must be routed to the RBI through an AD Category-I bank for specific approval.
What type of contract is required to establish a project office?
The Hong Kong company must have a secured contract from an Indian entity to execute a specific project in India. The contract must define the project scope, timeline, and value. Additionally, the project must be funded through one of the approved methods: inward remittance from abroad, bilateral/multilateral international financing, appropriate authority clearance, or an Indian term loan.
Is a project office taxable in India?
Yes. A project office typically constitutes a Permanent Establishment under the India-Hong Kong DTAA and is taxable on profits attributable to its Indian operations at the foreign company rate of 35% plus surcharge and cess (effective rate approximately 37.13%-38.22%). The DTAA provides tax credit mechanisms to prevent double taxation.
Can a project office take on additional projects?
Not automatically. A project office is established for a specific contract. Taking on additional projects requires either fresh RBI approval for each new project or a modification to the existing approval. Under the 2025 draft regulations, project offices with multiple projects must maintain separate books of accounts for each.
How long does RBI approval take for a Hong Kong project office?
RBI specific approval for Hong Kong entities typically takes 4-12 weeks, longer than the 2-4 weeks for general permission route applications. The timeline depends on the complexity of the project, security clearance requirements, and whether additional information is requested.
What happens when the project is completed?
The project office must be closed upon project completion. The closure process involves settling all Indian tax liabilities, obtaining CA certificates, filing closure applications with the AD bank, deregistering with the ROC via Form FC-4, and repatriating remaining funds to Hong Kong after RBI/AD bank verification.
Does the project office need to register with state police?
Yes. Under Press Note 3 regulations, project offices of companies from China (including Hong Kong) must register with the local state police authority in the state where the office is located. This is an additional security compliance requirement not applicable to most other countries.