The Reserve Bank of India (‘RBI’) as a part of its continued efforts has been taking effective measures to promote ease of doing business in India. Pursuant to the same, as announced in the RBI’s Statement on Developmental and Regulatory Policies dated 1 October 2025, the RBI released the Draft Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2025 (‘Draft Regulations’) on 3 October 2025. The Draft Regulations mark a transition to an investor friendly legal framework and easier access to Indian market.
The Draft Regulations proposes to:
- relax the eligibility criteria for establishment of a place of business in India;
- enhance operational flexibility and reduce compliance burden by transitioning from a prescriptive to a principle-based framework; and
- simplify the shut-down and exit process.
Once finalised by the RBI, post receipt and review of stakeholder comments, the Draft Regulations shall supersede the Foreign Exchange Management (Establishment in India of a Branch Office, Liaison Office, Project Office or any Other Place of Business) Regulations, 2016 (‘Existing Regulations’).
Key changes are summarised below:
- Simplification of Categories of Offices:
The Existing Regulations define Branch Office (‘BO’), Liaison Office (‘LO’), Project Office (‘PO’) and Site Office as distinct categories for foreign entities establishing a presence in India. However, the Draft Regulations propose a more streamlined approach by consolidating the different forms of offices into two categories: Branch and Office.
- Relaxed Eligibility Criteria:
Under the Existing Regulations, foreign entities are required to meet stringent financial criteria to establish a BO or LO in India, including a profit-making track record of 3-5 years and minimum net worth thresholds (USD 100,000 for BOs and USD 50,000 for LOs). The Draft Regulations have omitted these eligibility requirements thereby liberalizing and broadening access for foreign entities intending to establish a presence in India.
However, this shall increase the burden on the AD Banks to play a more active role in granting approval to foreign entities to establish a presence in India.
- Permitted Activities:
The Existing Regulations prescribe a specific and restrictive list of permitted activities that could be undertaken by foreign entities through their BOs and LOs. However, such list has been omitted in the Draft Regulations although explicit prohibition has been retained for activities related to legal consultancy, commercial activity undertaken by an Office other than PO and activities prohibited or requiring approval under the Foreign Direct Investment (FDI) policy of India.
- Additional Offices:
Under the Draft Regulations, unlike the Existing Regulations, there is no requirement to submit a fresh application or seek prior RBI approval to open additional BO/LO, even if the number of offices exceeds 4. It is proposed that a simple intimation to the designated bank is sufficient, thereby significantly reducing administrative burden and accelerating expansion.
- No Tenure Limit:
The Existing Regulations provide for a tenure limit of 3 years for LOs. Additionally, post expiry of such validity periods, the LOs were required to be closed down or be converted into a Joint Venture / Wholly Owned Subsidiary in conformity with the FDI policy. This ceiling limit of 3 years has been omitted in the proposed amendment.
- Annual Activity Certificate (AAC):
Under the Existing Regulations, only LOs and BOs are required to submit the AAC to both the AD Bank as well as the Director General of Income Tax (International Taxation), New Delhi. The Draft Regulations have proposed that all Branches and Offices shall be required to submit the AAC to both the aforesaid authorities. Entities failing to submit AACs for 3 consecutive years shall become liable for closure.
- Appeal Against Closure:
The Draft Regulations provide for a formal appeal mechanism for EROIs whose Branch or Office in India is closed by either the AD Bank or the RBI. An appeal against closure must be filed within 45 calendar days of receiving the closure notice, and the Appellate Authority is required to issue a reasoned decision within 90 calendar days from the date of receipt of the appeal, after providing both parties a fair opportunity to be heard. This proposed change shall enhance procedural fairness, ensure transparency and accountability.
LKS Comments
The Draft Regulations mark a significant and progressive shift in India’s regulatory framework for foreign establishments and promoting ease of doing business in India. By removing rigid financial thresholds, abolishing tenure limitations, and streamlining the approval process, the draft fosters a more transparent, efficient, and business-friendly environment. Empowering AD Banks and simplifying sectoral approvals further reflect the RBI’s commitment to enhance operational ease.
However, the Draft Regulations should have provided a time-bound approval mechanism for the opening of Branches or Offices that require specific RBI approval. Such a framework would provide greater clarity to prospective investors before committing resources. In the absence of defined timelines, the RBI may be inundated with applications, potentially resulting in delays or decisions being held in abeyance.
Overall, the draft regulations strike a balanced and forward-looking approach, enhancing ease of doing business while strengthening compliance accountability. Upon effective implementation, they are likely to foster greater and diverse foreign investor participation, improve regulatory efficiency, and reinforce India’s position as a global hub for business and investment.