Set Up a Project Office in India from Israel

How to Set Up a Project Office in India from Israel

India-Israel economic relations have expanded significantly, with bilateral trade reaching approximately USD 3.9 billion in 2024 and over 300 Israeli companies operating in or invested in the Indian market. The two countries signed a bilateral investment agreement in September 2025, and sectors such as defence, infrastructure, agriculture technology, water management, and artificial intelligence are driving new project-level collaborations. For Israeli companies that have secured a specific project contract in India — whether for infrastructure development, technology deployment, defence cooperation, or consultancy — a Project Office (PO) provides the ideal temporary establishment to execute that contract on the ground.

A Project Office is a temporary presence established by a foreign company in India for the sole purpose of executing a specific project. Unlike a Private Limited Company or a Branch Office, a Project Office exists only for the duration of the project and must be closed once the project is completed. It is governed by the Foreign Exchange Management Act (FEMA), 1999, and requires registration with both the RBI (through an AD bank) and the Registrar of Companies (RoC).

The key advantage for Israeli companies is that the RBI has granted general permission for establishing Project Offices, meaning in most cases, no specific RBI approval is needed — the AD bank itself can process the application, provided the eligibility conditions are met. This makes the Project Office one of the fastest routes for an Israeli company to establish a physical presence in India.

FDI Route and Regulatory Requirements

The establishment of a Project Office in India by an Israeli company operates under the Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations. The RBI has granted general permission for Project Office establishment, subject to specific eligibility conditions.

Key regulatory requirements for Israeli companies:

• General permission route: The RBI has granted general permission for foreign companies to establish Project Offices in India. Israeli companies do not need specific RBI approval if they meet the eligibility conditions — the AD Category-I bank can process and approve the application directly.
• Eligibility conditions (General Permission): The Israeli company must have secured a contract from an Indian company or entity to execute a specific project in India. Additionally, at least one of the following funding conditions must be met: (a) the project is funded directly by inward remittance from abroad, (b) the project is funded by a bilateral or multilateral international financing agency, (c) the project has been cleared by an appropriate Indian authority, or (d) the Indian entity awarding the contract has been granted a term loan by a Public Financial Institution (PFI) or bank in India for the project.
• Specific permission route: If the eligibility conditions for general permission are not met, the Israeli company must apply directly to the RBI Central Office for specific approval through the AD bank.
• Press Note 3 exemption: Israeli companies are exempt from Press Note 3 of 2020 restrictions, ensuring no additional security clearance is required. Press Note 3 applies to entities from countries sharing a land border with India — China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, and Afghanistan — which require prior government approval for investment.
• Permitted activities: A Project Office can carry out activities solely related to the execution of the specific project for which it was established. This includes project management, supervision, procurement, subcontracting, and all activities necessary for project delivery.
• Prohibited activities: A Project Office cannot carry out activities unrelated to the specific project. It cannot function as a general commercial office, undertake new projects without fresh RBI permission, or engage in activities outside the scope of the original contract.

The Project Office must be established within six months of receiving approval or registration. Upon completion of the project, the office must be closed and all assets repatriated through the AD bank.

DTAA Benefits for Israeli Investors

The India-Israel Double Taxation Avoidance Agreement (DTAA), in force since 1996 and amended by the 2015 Protocol, has important tax implications for Project Office operations.

Key DTAA provisions relevant to Project Offices:

• Permanent Establishment (PE) status: A Project Office typically constitutes a Permanent Establishment (PE) in India under the DTAA. However, the treaty provides specific rules for construction and installation projects — a building site, construction, or installation project constitutes a PE only if it lasts more than six months (under most DTAA provisions). Israeli companies executing shorter projects should verify the exact PE threshold under the India-Israel treaty.
• Business profits: If the Project Office constitutes a PE, business profits attributable to the PE are taxable in India. Profits not attributable to the PE remain taxable only in Israel.
• Interest: 10% withholding tax rate on interest payments from India to Israel under the DTAA.
• Royalties: 10% withholding tax rate on gross royalty payments.
• Fees for Technical Services (FTS): 10% withholding tax rate.
• Dividends: 10% withholding tax rate under the treaty.
• Tax rate on PE profits: If the Project Office is treated as a PE, it is taxed at the foreign company rate of 35% on net income plus applicable surcharge and 4% health and education cess (effective rate approximately 37.13% to 38.22%).

Israeli companies should obtain a Tax Residency Certificate (TRC) from the Israeli tax authority and ensure that the Project Office maintains detailed records of income and expenses attributable to the Indian project for accurate transfer pricing compliance.

Document Requirements and Authentication

Israel is a member of the Hague Apostille Convention, so all documents originating from Israel require only an apostille — not full embassy legalisation. The Israeli Ministry of Foreign Affairs issues apostille certificates.

Documents required for establishing a Project Office in India:

• Certificate of incorporation: Of the Israeli parent company, apostilled by the Israeli Ministry of Foreign Affairs
• Memorandum and Articles of Association: Or equivalent constitutional documents of the Israeli company, apostilled
• Board resolution: Authorising the establishment of a Project Office in India for the specific project, specifying the authorised representative and project details, apostilled
• Project contract: Copy of the contract awarded by the Indian entity to the Israeli company, detailing the project scope, duration, value, and funding arrangement
• Latest audited financial statements: Of the Israeli parent company for the preceding three years, demonstrating financial capability, apostilled
• Power of attorney: In favour of the authorised representative in India, apostilled
• Banker's certificate: From the Israeli company's principal banker, confirming financial standing
• Passport and address proof: Of the authorised signatory and the person designated to head the Project Office
• Form FNC: Completed application form for submission to the AD bank
• Funding proof: Evidence demonstrating that the project meets one of the four funding conditions for general permission (inward remittance, bilateral/multilateral financing, government clearance, or Indian bank term loan)

For documents in Hebrew, certified English translations must be obtained and notarised before the apostille is affixed. The apostille fee in Israel ranges from ILS 100 to ILS 300 per document.

Step-by-Step Registration Process

The Project Office registration under the general permission route is faster than a Branch Office or Liaison Office because the AD bank can process the application without referring it to the RBI Central Office.

Step 1: Secure the Project Contract

Before applying, the Israeli company must have a signed contract with an Indian entity for a specific project. The contract should clearly define the project scope, timeline, value, and funding arrangement. This contract is the foundational document for the entire registration process.

Step 2: Select an Authorised Dealer Bank

Choose an AD Category-I bank in India. Major banks like State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank handle Project Office registrations. The AD bank reviews the application against the general permission criteria.

Step 3: Submit Form FNC with Supporting Documents

Complete Form FNC with details of the Israeli company, project specifics, proposed office location, and authorised representative. Submit along with all apostilled documents and the project contract. The AD bank verifies that the general permission conditions are satisfied.

Step 4: AD Bank Approval under General Permission

If the eligibility conditions are met, the AD bank grants approval and allots a Unique Identification Number (UIN) to the Project Office. This is significantly faster than the RBI approval route — typically 2-4 weeks. If conditions are not met, the AD bank refers the application to the RBI Central Office for specific permission.

Step 5: Register with the Registrar of Companies (RoC)

Within 30 days of establishing the Project Office, file Form FC-1 with the RoC under Section 380 of the Companies Act, 2013. Include details of the parent company, project contract, PO address, and the AD bank approval letter.

Step 6: Obtain PAN and TAN

Apply for a Permanent Account Number (PAN) using Form 49AA and a Tax Deduction Account Number (TAN) using Form 49B. PAN is required for tax return filing, and TAN is needed if the Project Office makes payments subject to TDS.

Step 7: Open a Bank Account

Open a current account with the AD bank for receiving project-related remittances from the Israeli parent company and payments from the Indian contracting entity. The Project Office can maintain both an Indian Rupee account and, where necessary, a foreign currency account for specific transactions.

Timeline and Costs

The timeline for establishing a Project Office in India from Israel is typically 4-8 weeks under the general permission route, making it one of the faster entity establishment options.

Professional fees for Project Office setup typically range from INR 50,000 to INR 1,50,000. If the application requires specific RBI permission (because general permission conditions are not met), the timeline extends to 8-12 weeks. Additional costs include office lease at the project site, staffing, equipment, and insurance.

For professional assistance with setup, consider our Project Office registration service.

Post-Registration Compliance

A Project Office in India has ongoing compliance obligations throughout the project duration:

• Annual Activity Certificate (AAC): Submit an AAC from the Project Office's auditor to the AD bank, confirming that the office is carrying out only activities related to the approved project and complying with all RBI conditions.
• Annual Accounts Filing: File financial statements with the RoC within 60 days of the financial year-end using Form FC-3, along with Form FC-4 listing places of business. See annual compliance services.
• Income Tax Return: The Project Office is taxed as a foreign company at 35% on net income plus surcharge and cess. Tax returns must be filed by the due date each year.
• Transfer Pricing: If the Project Office transacts with the Israeli parent company (inter-company charges, cost allocations), transfer pricing documentation is mandatory under Section 92 of the Income Tax Act. All transactions must be at arm's length.
• GST Compliance: Monthly or quarterly GST filings depending on turnover, if the Project Office provides taxable services related to the project.
• RBI Annual Return on FLA: Annual Return on Foreign Liabilities and Assets, due by 15 July each year.
• Project Completion and Closure: Upon project completion, the Project Office must be closed. The closure process involves obtaining a No Objection Certificate from the Income Tax Department, settling all liabilities, remitting remaining funds to the Israeli parent company through the AD bank, and filing Form FC-2 with the RoC.

Common Challenges for Israeli Companies

Israeli companies setting up Project Offices in India commonly encounter the following challenges:

• Single-project limitation: A Project Office is tied to one specific project. If the Israeli company wins additional contracts in India, it must establish a separate Project Office for each new project or consider transitioning to a Branch Office or Private Limited Company that can handle multiple engagements simultaneously.
• Mandatory closure on completion: Unlike a Branch Office or subsidiary, a Project Office must be closed once the project is completed. There is no mechanism to convert it into a permanent entity. Israeli companies planning long-term operations should consider a more permanent structure from the outset.
• Funding condition complexity: To qualify for general permission, the project must meet at least one of the four funding conditions. Projects that are self-funded by the Israeli company without inward remittance, multilateral financing, government clearance, or an Indian bank term loan may not qualify, requiring the longer specific permission route through the RBI Central Office.
• PE and tax exposure: A Project Office is generally treated as a Permanent Establishment under the India-Israel DTAA, meaning project profits attributable to the Indian operations are taxed at 35% plus surcharge and cess. Israeli companies should factor this tax cost into their project pricing and financial models.
• Hebrew document translation: Corporate documents in Hebrew require certified English translations and notarisation before apostille, adding approximately 3-5 business days to the preparation timeline.
• Closure timeline: Closing a Project Office after project completion requires obtaining NOCs from the Income Tax Department, settling all liabilities, and filing with both the AD bank and RoC. This process can take 3-6 months, during which the Project Office must remain administratively active.
• Subcontracting limitations: While a Project Office can subcontract work to Indian entities, it must ensure that subcontracting arrangements align with the approved project scope and do not create additional compliance obligations.
• Multiple project sites: If the project involves work at multiple locations in India, the Project Office may need to register at multiple sites, each with its own compliance obligations under local regulations.

Frequently Asked Questions

Can an Israeli Project Office take on multiple projects?

No. A Project Office is established for the execution of a single specific project. If the Israeli company secures additional contracts in India, it must establish a separate Project Office for each new project or consider a Branch Office or Private Limited Company that can handle multiple engagements.

Does the Israeli company need specific RBI approval for a Project Office?

In most cases, no. The RBI has granted general permission for Project Office establishment if the project meets the funding eligibility conditions. The AD bank can process and approve the application directly. Specific RBI approval is needed only if the general permission conditions are not met or if the applicant is from a restricted country (which does not include Israel).

What happens when the project is completed?

The Project Office must be closed upon project completion. The closure involves obtaining a No Objection Certificate from the Income Tax Department, settling all outstanding liabilities, remitting remaining funds to the Israeli parent company through the AD bank, and filing Form FC-2 with the Registrar of Companies. The closure process typically takes 3-6 months.

How is a Project Office taxed in India?

A Project Office is taxed as a foreign company at 35% on net income, plus applicable surcharge (2% if income exceeds INR 1 crore, 5% if exceeds INR 10 crore) and 4% health and education cess. The effective tax rate ranges from approximately 37.13% to 38.22%. Under the India-Israel DTAA, only profits attributable to the Indian Permanent Establishment are taxable in India.

Can the Project Office remit project profits to Israel?

Yes. After completion of the project and settlement of all Indian tax obligations, the Project Office can remit remaining funds (including profits) to the Israeli parent company through the AD bank. The remittance requires an auditor's certificate confirming all taxes have been paid and all liabilities settled.

What is the difference between a Project Office and a Branch Office?

A Project Office is temporary and tied to a single specific project — it must close when the project ends. A Branch Office is a more permanent presence that can carry out multiple permitted activities on an ongoing basis. A Branch Office requires direct RBI approval, while a Project Office can be set up under general permission through the AD bank. Choose a Project Office for specific contract execution and a Branch Office for ongoing commercial representation.

Can a Project Office hire employees in India?

Yes. A Project Office can hire employees in India for the execution of the specific project. It must comply with Indian labour laws, including the Employees' Provident Fund, Employee State Insurance, professional tax, and other statutory obligations. Employment contracts should be project-specific, aligning with the temporary nature of the Project Office.