Set Up a Project Office in India from Saudi Arabia

How to Set Up a Project Office in India from Saudi Arabia

India and Saudi Arabia have entered a new era of strategic economic cooperation, with bilateral trade reaching approximately USD 41.88 billion in FY 2024-25 and Saudi Arabia reaffirming its commitment to invest USD 100 billion in India. Major Saudi entities — the Public Investment Fund (PIF), ARAMCO, SABIC, Alfanar, and Aljomaih — are already active in India across energy, technology, construction, and food security. With Saudi Vision 2030 driving diversification beyond oil and India's massive infrastructure expansion under the National Infrastructure Pipeline, project-level collaborations between the two countries are accelerating rapidly.

For Saudi companies that have secured a specific project contract in India — whether for infrastructure construction, energy development, IT system deployment, or engineering consultancy — a Project Office (PO) is the purpose-built vehicle for executing that contract. A Project Office is a temporary establishment that exists solely for the duration of the project and must be closed upon completion.

The key advantage for Saudi companies is the RBI's general permission route. Unlike a Branch Office or Liaison Office, which require formal RBI approval, a Project Office can be established with approval from the AD Category-I bank alone, provided the eligibility conditions are met. This makes the Project Office one of the fastest establishment routes available. Saudi Arabia is not on the Press Note 3 restricted list, so no additional security clearance is required.

A Project Office is particularly suitable for Saudi construction and engineering companies executing Indian infrastructure projects, energy firms involved in solar, wind, or hydrogen projects aligned with both India's renewable targets and Vision 2030, IT companies deploying systems or platforms under fixed-term contracts, and defence companies executing specific contracts under India's "Make in India" defence procurement programme.

FDI Route and Regulatory Requirements

The Project Office establishment framework operates under the Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, with the RBI's general permission route offering the fastest path for qualifying projects.

Key regulatory requirements for Saudi companies:

• General permission route: The RBI has granted general permission for foreign companies to establish Project Offices in India. Saudi companies do not need specific RBI approval if the eligibility conditions are satisfied — the AD Category-I bank can process and approve the application directly.
• Eligibility conditions (General Permission): The Saudi company must have secured a contract from an Indian company or entity to execute a specific project in India. At least one of these 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 general permission conditions are not met, or if the Saudi entity is a non-governmental organisation, non-profit, or government body, it must apply directly to the RBI Central Office for specific approval through the AD bank.
• Press Note 3 exemption: Saudi companies are fully exempt from Press Note 3 of 2020 restrictions. No additional security clearance or government route approval is required.
• Permitted activities: A Project Office can carry out all activities necessary for the execution of the specific project: project management, supervision, procurement, subcontracting, quality assurance, and related administrative functions.
• Prohibited activities: The Project Office cannot undertake activities unrelated to the approved project. It cannot function as a general commercial office, take on additional projects without fresh registration, or carry out any business beyond the original contract scope.

The Project Office must be established within six months of receiving approval or registration. Upon project completion, the office must be wound down, all liabilities settled, and remaining funds repatriated to the Saudi parent company through the AD bank.

DTAA Benefits for Saudi Investors

The India-Saudi Arabia Double Taxation Avoidance Agreement (DTAA), in force since November 1, 2006, has important implications for Project Office operations and the taxation of project profits.

Key DTAA provisions relevant to Project Offices:

• Permanent Establishment (PE) status: A Project Office generally constitutes a Permanent Establishment (PE) in India under the DTAA. Construction, installation, and assembly projects may have specific PE threshold rules — typically, a building site or construction project constitutes a PE if it lasts more than a specified period (usually 6-9 months). Saudi companies should verify the exact PE duration threshold under the India-Saudi Arabia treaty for their project type.
• Business profits: If the Project Office constitutes a PE, business profits attributable to the Indian PE are taxable in India. Only profits directly attributable to the Project Office operations are taxed — profits of the Saudi parent company from other sources remain taxable only in Saudi Arabia.
• Dividends: 5% withholding tax rate under the DTAA — notably lower than most other Indian DTAAs, benefiting Saudi investors in Indian entities.
• Interest: 10% withholding tax rate on interest payments from India to Saudi Arabia. Government institutions are exempt from interest income tax.
• Royalties: 10% withholding tax rate on gross royalty payments.
• Fees for Technical Services: The India-Saudi Arabia DTAA does not contain a separate provision for fees for technical services. Such income is typically treated as business profits (taxable only if attributable to a PE) or under India's domestic tax provisions.
• Tax rate on PE profits: The Project Office 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%).

Saudi companies should obtain a Tax Residency Certificate (TRC) from ZATCA (Zakat, Tax and Customs Authority) to claim treaty benefits. Since Saudi Arabia does not impose corporate income tax on Saudi-owned companies (only zakat), transfer pricing arrangements between the Project Office and the Saudi parent company require careful structuring to satisfy Indian arm's-length requirements.

Document Requirements and Authentication

Saudi Arabia acceded to the Hague Apostille Convention on December 7, 2022, becoming the 122nd member state. Documents from Saudi Arabia can now be authenticated through the apostille process rather than the more cumbersome embassy legalisation. The Saudi Ministry of Foreign Affairs and other designated competent authorities issue apostille certificates.

Documents required for establishing a Project Office in India:

• Certificate of incorporation / Commercial Registration (CR): Of the Saudi parent company, apostilled
• Memorandum and Articles of Association: Or equivalent constitutional documents (Company Bylaws or Articles of Establishment), apostilled
• Board resolution: Authorising establishment of the 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 Saudi company, detailing the project scope, duration, value, and funding arrangement
• Latest audited financial statements: Of the Saudi 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 Saudi 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 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 Arabic, certified English translations must be obtained and notarised in Saudi Arabia before the apostille is affixed. Given Saudi Arabia's relatively recent Hague Convention membership (December 2022), companies should allow 10-14 days for apostille processing and plan document preparation accordingly.

Step-by-Step Registration Process

The Project Office registration under the general permission route is one of the fastest establishment options for Saudi companies, as the AD bank handles the approval without routing to the RBI Central Office.

Step 1: Secure the Project Contract

The Saudi company must have a signed contract with an Indian entity for a specific project. The contract should clearly define the project scope, timeline, deliverables, value, and funding arrangement. This contract is the foundational document for the registration process and must be submitted alongside the application.

Step 2: Select an Authorised Dealer Bank

Choose an AD Category-I bank in India. Major banks including 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 and verifies all documentation.

Step 3: Submit Form FNC with Supporting Documents

Complete Form FNC with details of the Saudi company, project specifics (including contract value, duration, and funding source), proposed office location in India, and the authorised representative. Submit along with all apostilled documents, the project contract, and funding proof.

Step 4: AD Bank Approval under General Permission

The AD bank verifies that the general permission conditions are met and grants approval, allotting a Unique Identification Number (UIN) to the Project Office. This process takes 2-4 weeks under the general permission route. If the conditions are not satisfied, the application is referred to the RBI Central Office for specific permission, extending the timeline.

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 Saudi parent company, the 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 for TDS deductions on payments to employees, subcontractors, and vendors.

Step 7: Open a Bank Account

Open a current account with the AD bank for receiving project-related remittances from Saudi Arabia 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 cross-border transactions.

Timeline and Costs

The timeline for establishing a Project Office from Saudi Arabia is typically 4-8 weeks under the general permission route, making it one of the fastest entity setup 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, insurance, and any local permits required for the specific project.

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

Post-Registration Compliance

A Saudi company's 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 annually, 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 in India. 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 during the project's operation.
• Transfer Pricing: If the Project Office has transactions with the Saudi parent company (inter-company charges, management fees, cost allocations), transfer pricing documentation is mandatory. All transactions must satisfy the arm's-length standard under Section 92 of the Income Tax Act.
• GST Compliance: Monthly or quarterly GST filings depending on turnover, if the Project Office provides taxable services or goods related to the project.
• RBI Annual Return on FLA: Annual Return on Foreign Liabilities and Assets, due by 15 July each year.
• TDS Compliance: Deduct tax at source on payments to employees, subcontractors, vendors, and any other payments subject to TDS under the Income Tax Act.
• Project Completion and Closure: Upon project completion, the Project Office must be wound down. The closure process involves obtaining a No Objection Certificate from the Income Tax Department, settling all outstanding liabilities (including employee dues, subcontractor payments, and tax obligations), remitting remaining funds to Saudi Arabia through the AD bank, and filing Form FC-2 with the RoC.

Common Challenges for Saudi Companies

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

• Single-project limitation: A Project Office can only execute the specific project for which it was registered. If the Saudi company wins additional contracts in India, it must establish a separate Project Office for each new project or transition to a Branch Office or Private Limited Company that can handle multiple engagements.
• Mandatory closure on completion: Unlike a Branch Office or subsidiary, a Project Office has no permanence — it must be wound down when the project ends. Saudi companies with ongoing or expanding Indian operations should plan for a more permanent structure from the beginning.
• Arabic document translation and apostille: Saudi corporate documents in Arabic require certified English translations and notarisation before apostille. Given that Saudi Arabia only joined the Hague Convention in December 2022, the apostille infrastructure is still relatively new. Companies should budget SAR 500-1,500 for translation and apostille fees and allow 10-14 days for processing.
• Funding condition requirements: To qualify for general permission, the project must meet one of four funding conditions. Projects self-funded by the Saudi company without inward remittance, multilateral financing, government clearance, or an Indian bank term loan may not qualify for general permission, requiring the longer specific permission route.
• PE and tax exposure: A Project Office is generally treated as a Permanent Establishment under the India-Saudi Arabia DTAA, meaning project profits attributable to the Indian operations are taxed at the foreign company rate of 35% plus surcharge and cess. Saudi companies should factor this into project costing, especially given that Saudi Arabia itself does not levy corporate income tax on Saudi-owned companies.
• Transfer pricing complexity: Since Saudi Arabia does not impose corporate income tax on Saudi companies (only zakat at 2.5%), transfer pricing between the Project Office and the Saudi parent can be complex. Indian authorities may closely scrutinise inter-company transactions to ensure the arm's-length standard is met and profits are not artificially shifted away from the Indian PE.
• 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 and continue compliance filings.
• Labour law compliance: Saudi companies hiring Indian employees for the project must comply with complex Indian labour regulations including EPF, ESI, professional tax, minimum wages, and the new Labour Codes (as they come into effect). This requires dedicated HR and payroll management.

Frequently Asked Questions

Can a Saudi Project Office take on multiple projects in India?

No. A Project Office is tied to a single specific project. If the Saudi company wins additional contracts, it must establish a separate Project Office for each new project or consider a Branch Office or Private Limited Company for multiple simultaneous engagements.

Does a Saudi 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 processes and approves the application directly. Specific RBI approval is needed only when the general permission conditions are not met or when the applicant is a government body, NGO, or non-profit.

What happens when the project is completed?

The Project Office must be closed. The closure process involves obtaining a No Objection Certificate from the Income Tax Department, settling all liabilities (employees, subcontractors, vendors, taxes), remitting remaining funds to the Saudi parent company through the AD bank, and filing Form FC-2 with the RoC. The process typically takes 3-6 months.

How is a Saudi Project Office taxed in India?

The 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 rate ranges from approximately 37.13% to 38.22%. Under the DTAA, only profits attributable to the Indian PE are taxable in India.

Can the Project Office remit profits to Saudi Arabia?

Yes. After project completion and settlement of all Indian tax obligations, remaining funds including profits can be remitted to the Saudi parent company through the AD bank, supported by an auditor's certificate confirming all taxes have been paid and liabilities settled.

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

A Project Office executes a specific commercial project and can earn revenue from that project. A Liaison Office is strictly non-commercial — it cannot earn any income and is limited to representational activities. A Project Office is temporary (project-based), while a Liaison Office has a three-year renewable tenure. Choose a Project Office for contract execution and a Liaison Office for market exploration.

Can a Project Office hire employees in India?

Yes. The Project Office can hire Indian employees for project execution, complying with all Indian labour laws including EPF, ESI, professional tax, minimum wages, and applicable state labour regulations. Employment contracts should be project-specific and aligned with the project timeline.