Approval to establish liaison office in india

A Liaison Office (LO) functions as a place in India that represents a foreign company, primarily to understand and explore the general business environment, conduct market research for the products of the parent company, and provide and seek information from potential customers or vendors. A liaison office can be set up for representing the parent company or group companies in India, promoting export or import from or to India, promoting technical or financial collaborations between parent or group companies and companies in India, and acting as a communication channel between the parent company and Indian companies. A liaison office of the foreign company cannot engage in any commercial activities, and the parent company shall meet all its expenses. However, if it generates any income by conducting activities that constitute a business connection with the parent company, such income will be taxed under the Income Tax Act of 1961. Since a liaison office is not considered a separate entity from its parent foreign company, the taxes imposed are the same as those on a foreign company. As of now, the tax on the profit of the foreign company is charged at a rate of 40% of the total income generated.

Establishment of Liaison Office in India by Foreign Entities

Liaison Office/ Representative office :

Liaison office/ Representative office acts a channel of communication /facilitator of trade between the foreign parent company and the market in India. It promote import/export and also facilitate collaborations between parent company and companies in India.

Permissible Activities:

A Liaison Office can undertake the following activities in India:

i. Representing in India the parent company / group companies.

ii. Promoting export / import from / to India.

iii. Collecting market information and providing information about the products to Indian customers

iv. Promoting technical/financial collaborations between parent/group Companies and companies in India.

v. Acting as a communication channel between the parent company and parties in India

Establishment of Liaison Office:

Liaison Office can be established in India with the permission of Reserve Bank of India (RBI). Permission is initially granted for a period of 3 years and may be extended from time to time. Application in Form FNC is made to obtain permission from the Reserve Bank under provisions of FEMA 1999. Permission can be given under two routes:

Reserve Bank Rout- Where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route, application is considered under this route.

Government Route- Where 100 per cent FDI is not permissible under the automatic route and applications from Non – Government Organizations / Non – Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

Eligibility Criteria:

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 (Net worth means 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 Account ant or any Registered Accounts Practitioner by whatever name)
Applicants who do not satisfy the eligibility criteria and are subsidiaries of other Companies can submit a Letter of Comfort from their parent company in the prescribed format subject to the condition that the parent company satisfies the eligibility criteria as prescribed above.
Other Conditions- After receiving the permission for setting up of Liaison Office, Designated AD Category- I Bank will be informed as to the date on which the Liaison Office has been established.

Documents required:

The following documents are required to open a branch office in India:

Ø Request letter from the principal officer of the Parent company to RBI

Ø Letter of authority from the parent company in favor of Local Representative

Ø Resolution from parent company for setting up liaison office in India.

Ø English version of the Certificate of Incorporation (attested by Indian Embassy/ Notary Public in the Country of Registration) or

Ø English version of Memorandum & Articles of Association (attested by Indian Embassy / Notary Public in the Country of Registration)

Ø Audited Balance Sheet of the applicant entity duly translated and notarized for the last five years

Ø Bankers’ Report from the applicant’s banker in the host country / country of registration

Ø Latest identity and address proof of all the Directors duly authenticated

Ø List of Directors/ Secretaries of parent company

Process for Liaison office Registration in India

STEP 1 – Application for Digital Signature of Authorised Signatory-The process of Liaison Office registration begins with application for Digital Signature Certificate. A digital signature is the equivalent of physical signature under the Information Technology Act. As per new guidelines, all applications to the Registrar of Companies are filed in digital format and are therefore required to be authenticated using a digital signature of the authorized signatory.

STEP 2 – Filing Application for AD Bank’s approval- After the authorized representative or signatory has obtained a Digital Signature Certificate, the next step is to seek approval for opening a liaison office. For opening a liaison office, approval can be sought from the AD Category-I Bank itself if 100% FDI is allowed in the sector to which it belongs. For this, the concerned foreign company will have to submit Form-FNC to the AD Category-I Bank (AD). We are networked with many banks in India, which operate as an AD Category-I Bank for foreign companies. Contact us, (direct to the form) if you need our assistance.

STEP 3 – Verification of KYC from Banker of Parent Company- After the FNC Form is filed with the AD Bank, it sends a request for verification of documents filed with the form to the banker of the foreign company in its country of origin. This process is also known as swift-based verification. Only after the documents are verified by the banker, the AD bank will be able to grant approval for setting up a liaison office.

STEP 4 – Approval of RBI for Liaison Office Registration in India- As mentioned before, liaison offices can be set up in India, usually with the approval of AD Bank itself if 100% FDI is allowed in the sector. However, approval from RBI will be required if 100% FDI is not allowed in the sector, if the applicant is involved in sectors like telecom, defense, private security, or information and broadcasting, if the applicant entity is an NGO/NPO, or if the applicant entity belongs to countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau, or any foreign entity which wants to open a branch in the North-east Indian States, Jammu and Kashmir, or Andaman & Nicobar islands. In such circumstances, the AD bank will further the FNC application to the RBI after the documents have been verified by the foreign banker. It usually takes a week for the RBI to process the application and gran

STEP 5 – Registration of Liaison Office with the ROC- After the approval of the RBI or the AD Bank, whichever applicable, has been obtained, the concerned foreign company can set up its liaison office in India. However, such an established office will have to get registered by the Registrar of Companies. For this, an application is filed in form FC-1 within 30 days from the date on which the approval was received. The filing can be done online on the official website of the Ministry of Corporate Affairs. Once the application reaches the ROC, it is examined carefully, and if found to be correctly filed, is approved by the ROC, after which the ROC will finally register the liaison office of the foreign company.

STEP 6 – Receive Certificate of Incorporation, PAN Card, Tax Deduction Number & Bank A/c Opening- Upon successful registration by the ROC, the liaison office of the foreign company will receive a Certificate of Incorporation from the ROC, a PAN and a TAN from the Income Tax Department to comply with the tax and TDS related provisions of the Income Tax Act of 1961. With the allotment of PAN, the liaison office can also open a bank account in the AD Bank. However, the LO cannot open more than 1 bank account without obtaining prior permission from the RBI.

STEP 7 – Registration with State Police- Finally, the liaison office needs to register itself with the state police (in the office of the superintendent of Police). The application must be accompanied by the document showing RBI approval and KYC of all authorised persons in India and the foreign company. Registration with State Police is not mandatory but is needed only if the foreign company is based in countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau.

STEP 8 – Other Local level Registrations- Post registration, liaison offices will also have to undertake several local and state-level registrations applicable to it. These are the same as the registrations applicable for any other company incorporated in India. A few of these include Shops and Establishment Registration, GST Registration, Professional Tax Registration, EPF Registration, ESI Registration, and IEC Registration.

What is time taken for Liaison Office Registration?

It usually takes 3-4 months from the date of application to finally get a liaison office registered in India, including 40-60 days required for getting approval from the concerned AD Bank or RBI. You must remember that the liaison office must be registered and must become operational within 6 months from the date on which it has received such approval, because the approval will lapse after the expiry of 6 months.

What is the validity of a Liaison Office?

A Liaison Office is established and registered for 3 years at a time, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only. Requests for extension of validity for LOs may be submitted before the expiry of the validity of the approval, to the concerned AD Category-I bank under whose jurisdiction the LO falls. The AD bank may extend the validity period of LO for a period of 3 years from the date of expiry of the original approval or the previous extension granted, only if the applicant has complied with the following conditions and the application has been filed accurately:

The LO should have submitted the Annual Activity Certificates for the previous years, and
The account of the LO maintained with the concerned AD Category – I bank is being operated in accordance with the terms and conditions mentioned in the approval letter.

Such extension has to be granted, as expeditiously as possible and in any case not later than one month from the receipt of the request of extension.

Further, entities engaged in construction and development sectors and Non-Banking Finance Companies are permitted to open a liaison office for two years only. No further extension would be considered for liaison offices of entities which are Non-Banking Finance Companies and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, the offices shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary of the foreign company.

FAQs

What are permitted/allowed activities for a Liaison office in India of a foreign entity?

A liaison office of a foreign company is allowed to do only Liaison activities in India, which include acting as a communication channel between the foreign company and its stakeholders in India, promoting export and import activities, establishing financial and technical cooperation between the foreign company and its Indian counterparts, conducting market research and analysis for the future business prospects of the foreign company in India, and representing the concerned foreign company in India. None of the activities conducted by a Liaison Office can be targeted at profit-making or income generation.

What is the Income Tax rate for a Liaison office of a Foreign Company?

A Liaison office of a foreign parent company is not treated as a separate and distinct entity in India and for tax purposes, the Indian government taxes such entities with tax rates applicable to a foreign company, viz. 40%, exclusive of surcharges, on income generated by conducting activities which constitute a “business connection” with the parent company.

What are the conditions / minimum requirements for opening a Liaison office in India?

The liaison or representative office of a foreign company can be opened if the applicant foreign corporation has a track record of profit generation for the past 3 years and it is financially sound. When we say financially sound in the context of a representative or liaison office establishment in India of a foreign company, we mean net-worth of at least USD 50,000 or its equivalent. The financial statement duly attested by the statutory auditor of the parent company is required for the purpose.

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