Press Note 3 & 2026 FDI Amendment: Impact on Branch Office in India

Press Note 3 (2020 Series) was issued by the Department for Promotion of Industry and Internal Trade (DPIIT) on 17 April 2020 to regulate Foreign Direct Investment (FDI) from countries sharing a land border with India, namely China (including Hong Kong and Macau), Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan. On 15 March 2026, the Government issued Press Note 2 (2026 Series), which eased and clarified that framework. This article explains what changed in 2026 and how it affects the establishment of a Branch Office (BO), Liaison Office (LO) or Project Office (PO) in India, with particular relevance for Chinese companies.

Does Press Note 3 or the 2026 Amendment Apply to a Branch Office?

Not directly. Both PN-3 and Press Note 2 (2026 Series) regulate FDI into an Indian company or LLP. A Branch, Liaison or Project Office is an extension of its foreign parent and is not an Indian entity receiving FDI. Such offices continue to be governed by the RBI framework under the Foreign Exchange Management (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any Other Place of Business) Regulations, 2016 (Notification No. FEMA 22(R)/2016-RB). The 2026 amendment nonetheless matters where a foreign group also invests in, or later converts its presence into, an Indian subsidiary, LLP or joint venture.

What Changed Under Press Note 2 (2026 Series)?

• 10% safe harbour: Investors from non-land-border jurisdictions may now invest under the automatic route where land-border-country (LBC) beneficial ownership is up to 10% and does not confer control, subject to sectoral caps and DPIIT reporting.
• Entities incorporated in an LBC still need approval: A company directly incorporated in a land-border country continues to require prior Government approval regardless of the investment size (DPIIT clarification dated 11 March 2026).
• Beneficial owner defined: “Beneficial owner” is now determined under the Prevention of Money-laundering Act, 2002 and the PML (Maintenance of Records) Rules, 2005, with thresholds of 10% or 15% depending on the type of investing entity. The test applies at the level of the investing entity.
• 60-day expedited clearance: Applications in specified manufacturing sectors — capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer — are eligible for a 60-day decision timeline.
• Codified in NDI Rules: The changes were incorporated into the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 via Notification S.O. 2174(E) dated 1 May 2026.

Prior RBI Approval for BO, LO and PO

Independent of PN-3, applications from certain jurisdictions require prior approval of the Reserve Bank of India. Under Regulation 5 of the FEMA (Establishment of Office) Regulations, 2016, prior RBI approval is mandatory where: the business is in a strategic sector (defence, telecom, private security, information and broadcasting); the applicant is a non-government, non-profit or foreign government body; the proposed office is in Jammu & Kashmir, the North East region or the Andaman & Nicobar Islands; or the applicant is incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau.

Registration with the State Police Authority

A Branch, Liaison or Project Office of an entity incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan must register with the State Police authority having jurisdiction over its Indian office address. The designated AD Category-I bank forwards the approval intimation to the Ministry of Home Affairs for record.

Practical Checklist for Chinese Companies

• Parent-company incorporation and constitutional documents.
• Audited financials evidencing financial strength.
• Complete group structure chart up to the ultimate beneficial owners.
• Details of shareholders, directors and persons holding control or veto rights.
• Proposed business plan and permitted Indian activities.
• Proposed office address and State Police registration plan, where applicable.
• Details of any proposed Indian subsidiary, LLP, JV, capital infusion or restructuring.
• A separate beneficial-ownership assessment under Press Note 2 (2026 Series) if the group will invest in an Indian entity.

Conclusion

Press Note 2 (2026 Series) has liberalised the PN-3 regime for land-border-country FDI, most notably through the 10% non-controlling beneficial-ownership safe harbour and a 60-day clearance track for select manufacturing sectors. It does not, by itself, govern the establishment of a Branch, Liaison or Project Office, which remains subject to the RBI framework, security scrutiny and, where required, State Police registration. For Chinese companies, careful ownership-and-control due diligence remains essential — particularly where the India strategy also involves an Indian subsidiary, LLP, joint venture or downstream investment.