Liaison Office in India
Establish an Liaison Office in India.
Liaison Office in India: An Overview
A Liaison Office is in the nature of a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and is required to maintain itself out of inward remittances received from parent company through normal banking channels. The Liaison Office is permitted to undertake following activities only:
Representing the parent Company in India
Promoting export/ import from/ to India
Promoting technical / financial collaborations between the parent companies and companies in India
Acting as a communication channel between the parent company and Indian companies
Any foreign company intending to open a Liaison Office in India is required to obtain prior approval from the RBI, the apex bank in India. Approval is usually granted for one to three years and can be renewed on expiry thereof.
Suitability of a Liaison Office
The Liaison Office generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The Liaison Office can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company.
The Liaison Office cannot undertake any business activity in India nor earn any income in India.
At the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company. Since the Liaison Office is not permitted to earn any income, it should not constitute a taxable entity in India. However, the Liaison Office would be required to withhold tax from certain payments and hence is expected to comply with the requisite "tax withholding" obligations under the domestic tax law.
Liaison Office in India: Eligibility Criteria
As per recent circulars of Reserve Bank of India, a Foreign Company wishing to set up a Liaison Office (LO) needs to fulfill following requirements:
Reserve Bank Route — Principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route.
Government Route — Principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.
Kindly let us know the proposed activities of the LO to enable us to advise you further on the available route for you in India.
Track Record — a profit making track record during the immediately preceding three financial years in the home country.
Net Worth — not less than USD 50,000 or its equivalent. [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].
Applicants that do not satisfy the eligibility criteria and are subsidiaries of other companies may submit a Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria as prescribed.
Liaison Office in India: Documents Required
Following documents are required for applying to RBI for setting up the Liaison Office (LO) in India:
You need to choose a banker in India with whom you would bank once the LO is formed. It may be noted that the application for setting up is to be forwarded to RBI through this bankers.
Application in Relevant Forms, duly completed in all respects and signed by the authorized signatory of the foreign entity in the home country may be submitted along with the Letter of Comfort, wherever applicable, to the designated AD Category - I bank for onward transmission to the Reserve Bank, along with their comments and recommendations and the prescribed documents.
Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration [If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country].
Latest Audited Balance sheet of the applicant company. [If the applicants's home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]
KYC i.e. Bankers' Report from the applicant's banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.
Liaison Office in India: Post Formation Compliance
Having obtained the permission from Reserve Bank of India (RBI), a liaison office (LO) is expected to obtain following registrations –
Permanent Account Number (PAN).
Tax Account Number (TAN).
Registration with House of Companies (Locally called Registrar of Companies - ROC).
Unique Identification Number (UIN).
Obtain Import Export Code (IEC) – This is not mandatory.
APR (Annual Performance Report) with RBI
Comply with with-holding tax Regulations
Maintain Accounts and have them periodically audited
Renew the LO permission periodically
On an on-going basis a LO is expected to submit