Liaison Office Registration- Introduction

The Foreign Exchange Management Act (FEMA) defines Liaison Office as “a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial / trading / industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel”.

The master circular of RBI states that a Liaison Office (“LO”) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of a Liaison Office should be met entirely through the foreign exchange from your Head Office outside India. Therefore, the role of a Liaison Office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an “AD Category I bank”.

Any Foreign Body Corporate (incorporated outside India) /Firm/AOI (Association of Individuals) who wants to expand their business in India and wants to reach the Indian Customers, then it may be done by establishing a Liaison Office (LO)/ Branch Office under the provisions of Foreign Exchange Management Act, 1999 subject to RBI approval.

There are two routes available for setting up the Liaison Office:

First one is called the Reserve Bank Route.
Second one is called the Government Route.

A liaison office or a representative office works as a communication channel between the parent company settled abroad and their parties in India. Foreign companies take liaison office registration in India to explore and support business prospects in India.

Such an office acts as a communication bridge. It promotes import and export from/to India, promotion of technical and financial participation of foreign parents/group company, conducting market research, providing feedback, etc.

Foreign investors appreciate the opportunity that liaison offices offer. It allows international investors to investigate the Indian market and establish a fast-growing market while limiting their financial, legal, and administrative responsibilities.

Characteristics of Liaison Office (LO) in India

Liaison Office is also called Representative Office.
It carries only liaison activities.
It means a POB (Place of Business.)
Its main role is to act as a Channel of Communication between the Head-office located outside India and Business Entities in India.
It has limited role only.
No any branch activities have to undertake by this office.
Initially, permission to set up such office is granted only for 3 years.
An Authorized Category-I Bank may extend the Initial time limit to set up such office from time to time
It has to collect the information about possible market opportunities.
It also has to provide the c information in regards to the Company (situated outside India) & the products manufactured by them to the Indian Customers.
The name of Indian Liaison Office (LO) shall be same as foreign parent company.
It is suitable for foreign companies which are looking to set up a temporary office in India to liaison its existing business with Indian clients.
The Liaison Office is simply an extension of the existing foreign company abroad.
All the expenses of the Liaison Office are met by the head office; hence, the funds shall be received from head office account only.
Liaison Office can open a non-interest-bearing INR current account in India. For opening a bank account, L.O. is required to approach to their Authorized Dealer.

Routes available for setting up the Liaison Office

If the LO applicant is a non-governmental/non-profit organization engaged in any of the activities under Foreign Contribution (Regulation) Act 2010 (FCRA), they will have to obtain a certificate of registration under the FCRA instead of seeking permission through FEMA.

The Foreign Exchange Management Act(FEMA) governs the application and approval process for the establishment of a liaison or branch office in India.

Under the Act, foreign enterprises must receive specific approval from the Reserve Bank of India’s (RBI) Foreign Exchange

Department to operate a liaison office in the country.

Foreign insurance companies can establish LOs in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).

Foreign banks can establish LOs only after obtaining approval from the Department of Banking Regulation (DBR), RBI. Applications are to be submitted through Form FNC Annex-1(Application for Establishment of Branch/Liaison Office in India).

Working of the Liaison Office in India

Comparison between Liaison Office, Project Office & Branch Office

Particulars	Liaison Office	Branch Office	Project Office
Definition	An office that facilitates close working relationships between the parent company situated abroad and the business parties in India. The other term for Liaison offices is Representative Office. Liaison offices have restrictions and cannot undertake any business activities in India and also cannot earn any income in India	A branch office mirrors the function of a parent company. The offices are established to perform similar business operations as the foreign parent company at different locations in India. Branch offices can carry on substantially the same business as the parent company. They can carry out all the trading activities that a parent company does. The major restriction is that of carrying out manufacturing activities although the same can be subcontracted to Indian Manufacturers.	The RBI grants the parent company situated abroad to have project offices in India for representing the interests of the parent company executing projects in India but excludes Liaison Office.The project office can only undertake the activity relating and incidental to the project. The primary condition for opening a project office India is that the parent company must have secured a contract from an Indian company.
Inward Remittances	Only receive inward remittances from the parent company through normal banking channels.	All the expenses of the Branch office will be incurred using the funds received from abroad or the income generated by the branch.	Only receive inward remittances from the parent company through normal banking channels.
Time Period for Registration	40-45 Days	40-45 Days	10-15 Days
Validity of registration	Three Years Exception –Construction Development & NBFC – Two Years	No Specific time frame generally 2-3 years	Depends on Project timeline
Validity of Approval for establishment of Office	6 months from date of approval	6 months from date of approval	6 months from date of approval
Net Worth required to be eligible	Greater than or equal to USD 50000 or its equivalent	Greater than or equal to USD100000 or its equivalent
Track Record required to be eligible	A track record showing profit during the immediately preceding 3 financial years in the home country	A track record showing profit during the immediately preceding 5 financial years in the home country.	6 months from date of approval

Procedure for applying

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The application for establishing BO / LO/ PO in India may be submitted by the non-resident entity in Form FNC (Annex B) to a designated AD Category - I bank (i.e. an AD Category – I bank identified by the applicant

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The AD Category-I bank shall after exercising due diligence in respect of the applicant’s background, and satisfying itself as regards adherence to the eligibility criteria for establishing BO/LO/PO, antecedents of the promoter, nature and location of activity of the applicant, sources of funds, etc., and compliance with the extant KYC norms grant approval to the foreign entity for establishing BO/LO/PO in India.

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The AD Category-I banks may frame appropriate policy for dealing with these applications in conformity with the FEMA Regulations and Directions.

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However, before issuing the approval letter to the applicant, the AD Category-I bank shall forward a copy of the Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO Cell, New Delhi, for allotment of Unique Identification Number (UIN) to each BO/LO.

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After receipt of the UIN from the Reserve Bank, the AD Category-I bank shall issue the approval letter to the non-resident entity for establishing BO/LO in India. This is in order to enable the Reserve Bank to keep, maintain and upload up-to-date list of all foreign entities which have been granted permission for establishing BO/LO in India, on its website.

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The validity period of an LO is generally for three years, 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. The validity period of the project office is for the tenure of the project.

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An applicant that has received permission for setting up of a BO/LO/PO shall inform the designated AD Category I bank as to the date on which the BO/LO/PO has been set up. The AD Category I bank in turn shall inform Reserve Bank accordingly.

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In case an approval granted by the AD bank has either been surrendered by the applicant or has expired without any BO/LO/PO being set up, the AD Category I bank shall inform RBI accordingly.

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The approval granted by the AD Category I bank should include a proviso to the effect that in case the BO/LO/PO for which approval has been granted is not opened within six months from the date of the approval letter, the approval shall lapse.

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In cases where the non-resident entity is not able to open the office within the stipulated time frame due to reasons beyond its control, the AD Category-I bank may consider granting extension of time for a further period of six months for setting up the office. Any further extension of time shall require the prior approval of Reserve Bank of India in this regard.

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All applications for establishing a BO/LO in India by foreign There is a general permission to non-resident companies for establishing BO in the Special Economic Zones (SEZs) to undertake manufacturing and service activities subject to the conditions that: such BOs are functioning in those sectors where 100% FDI is permitted; such BOs comply with Chapter XXII of the Companies Act, 2013; and such BOs function on a stand-alone basis.banks and insurance companies will be directly received and examined by the Department of Banking Regulation (DBR), Reserve Bank of India, Central Office and the Insurance Regulatory and Development Authority (IRDA), respectively. No UIN for such representative offices is required from the Foreign Exchange Department, Reserve Bank of India.

In the event of winding-up of business and for remittance of winding-up proceeds, the branch shall approach an AD Category – I bank with the documents as mentioned in para 10 under "Closure of Liaison / Branch Office".

Opening of bank account by Liaison Office

An LO may approach the designated AD Category I Bank in India to open an account to receive remittances from its Head Office outside India. It may be noted that an LO shall not maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permitted Credits and Debits to the account shall be:

(a). Credits

Funds received from Head Office through normal banking channels for meeting the expenses of the office.
Refund of security deposits paid from LO’s account or directly by the Head Office through normal banking channels.
Refund of taxes, duties etc., received from tax authorities, paid from LO’s bank account.
Sale proceeds of assets of the LO

(b). Debits

Permission is granted only for meeting the local expenses of the office.

Application for additional offices and activities

Requests for establishing additional Liaison Office may be submitted to the AD Category-I bank in a fresh FNC form. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier
If the number of offices exceeds 4 (i.e. one Liaison Office in each zone viz; East, West, North and South), the applicant has to justify the need for additional office/s and it shall require prior approval of RBI.The applicant may identify one of its offices in India as the Nodal Office, which will coordinate the activities of all of its offices in India.

Whenever the existing Liaison Office is shifting to another city in India, prior approval from the AD Category-I bank is required. However, no permission is required if the LO/BO is shifted to another place in the same city subject to the condition that the new address is intimated to the designated AD Category-I bank. Changes in the postal address may be intimated to the CO Cell, New Delhi by the AD Category-I bank at the earliest.
Requests for undertaking activities in addition to what has been permitted initially (Annex C) by Reserve Bank of India/ AD Category-I bank may be submitted by the applicant to the Reserve Bank through the designated AD Category -I bank justifying the need.

Transfer of assets of Liaison Office

Proposals for transfer of assets may be considered by the AD Category-I bank only from Liaison Office who are adhering to the operational guidelines such as submission of AACs (up to the current financial year) at regular annual intervals with copies endorsed to DGIT (International Taxation); have obtained PAN from IT Authorities and have got registered with ROC under the Companies Act 2013, if necessary. Also

Transfer of assets by way of sale to the JV/WoS be allowed by AD Category-I bank only when the non resident entity intends to close their Liaison Office operations in India.
A certificate is to be submitted from the Statutory Auditor furnishing details of assets to be transferred indicating their date of acquisition, original price, depreciation till date, present book value or written down value (WDV) value and sale consideration to be obtained. Statutory Auditor should also confirm that the assets were not re-valued after their initial acquisition. The sale consideration should not be more than the book value in each case.
.The assets should have been acquired by the Liaison Office from inward remittances and no intangible assets such as good will, pre-operative expenses should be included. No revenue expenses such as lease hold improvements incurred by the Liaison Office can be capitalized and transferred to JV/WOS.
AD Category-I bank must ensure payment of all applicable taxes while permitting transfer of assets.
Credits to the bank accounts of BO/LO/PO on account of such transfer of assets will be treated as permissible credits.
Donation by BO/LO/PO of old furniture, vehicles, computers and other office items etc. to NGOs or other not for-profit organizations may be permitted by the AD category-I banks after satisfying itself about the bonafides of the transaction.

Requirements for establishment of Liaison Office in India

The Foreign Entities should have a profit making track record during the immediately preceding 3 financial years in the home country.
It should have minimum Net worth of USD 50,000
The applicant entity should have the Latest Audited Balance Sheet.
It should have the English Version of Certificate of Incorporation/Registration or Memorandum & Articles of Association.
COI/MOA & AOA should be attested by Indian Embassy / Notary Public in the Country of Registration.
The latest Balance Sheet has to be certified by a Certified Public Accountant/Any Registered Accounts Practitioner.
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.

Before setting up the Liaison Office, Foreign Entities have to check which route suitable for them.There are two routes available under the FEMA 1999 for setting up the Liaison Office in India:

Reserve Bank Route
Government Route.

The applications have to be submitted in the prescribed Form FNC(As per Annexure A) to the Reserve Bank of India through a designated (Authorized Dealer Bank ) AD Category –I.

After getting approval by RBI, a Unique Identification Number (UIN) has been allotted to the Liaison Office.The Liaison Office has to also obtain Permanent Account Number (PAN) for setting up the offices in India.Apart from that, if the Foreign Entity is unable to fulfill the Eligible Criteria and subsidiaries of other companies, then it can submit a Letter of Comfort (As per Annexure-B) from their parent company.

Cases in which prior approval of RBI required:-

There are many cases in which Foreign Entities have to get prior approval before setting up Liaison Office:-

If any Foreign Bank wants to set up Liaison Office in India, then it has to take approval from the Department of Banking Regulation (DBR), RBI.
If the principal business of the Foreign Entity falls under the category of Defense, Telecom, Private Security & Broadcasting, then prior approval of RBI is required.
If any Foreign Entity wants to open Branch/Units in Special Economic Zone (SEZ) to undertake manufacturing and Service activities, then it has to take general permission from the RBI subject to following conditions:-

such BOs are functioning in those sectors where 100% FDI is permitted;
such BOs comply with Chapter XXII of the Companies Act, 2013; and
such BOs function on a stand-alone basis.

4. If any person being a citizen of/having registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau wants to establish Liaison Office in India, then they have to take prior permission of RBI.

5. The entities registered in Nepal could set up only the Liaison Office in India. Permission of setting up the Branch Office is not allowed.

6. Any immovable property can be purchased by the Foreign Entities for their own use and to carry out the permissible activities but if Foreign Entities belong to the country of Pakistan/ Bangladesh/Sri Lanka/Afghanistan/Iran/China/Hong Kong/ Macau/ Nepal/ Bhutan/China wants to acquire Immovable Property in India, then prior approval of RBI is required.

7. Time period of carrying out the permitted activities by Liaison Office from any Leased Property is maximum 5 years.

8. Any Liaison Office could open non-interest bearing INR Current Accounts in India.

9. Liaison Office could transfer their assets subject to the prescribed conditions.

10. Term Deposit for a period of maximum 6 months is allowed to the Liaison Office of a person resident outside India

11. Any Liaison Office may open an account in India through its AD to receive the remittance from its Head Office in India.

12. If any Liaison Office wants to open more than one account, then it may have to take prior approval of the RBI

Eligibility Criteria for Liaison Office Registration in India?

Foreign Exchange Management Regulations, 2016 governs the establishment of a place of business for a foreign company. Therefore, it is important to fall under the criteria of the below-mentioned qualifications to set up a liaison office in India:

Income-generating activity is prohibited.
The foreign head office must own net worth of above $50,000
A beneficial track record of the past three years of the applicant company is required

Permitted Activities of Liaison Office in India

Establish healthy communication between the foreign head company and the parties in India with a motive to create market opportunities
Promotion of import/export relationship between countries
Form a financial and technical collaboration between Indian and overseas companies
Represent the foreign parent company in India
As India is among rapidly growing and progressing economies globally, many multinational companies are willing to invest in the Indian market. Therefore, they are always looking forward to establishing their liaison office in India.
It can represent the Parent/Group companies in India.
It can promote export from India.
It can promote import to India.

It can promote the technical or financial collaborations between Indian companies and parent or overseas group company.
It can act as a communication channel
It can render the insurance activities in India after getting IRDA approval.

Restrictions on activities of Liaison Office:

Liaison Office can neither borrow or lend money in India
The Liaison Office is not allowed to undertake any commercial/ trading/ industrial activity, directly or indirectly and thus cannot derive any income in India

Important points to consider before registering Liaison office in India

Net Worth Requirement

A parent company must have a beneficial track record of the past three years in a row, and they should own a net worth of more than $50,000 attested by their auditors.

No Income Generating Activity

The liaison office can not earn any income in India, and the parent company must finance all its operations. An undertaking from the parent company is required.

Name & New Additional Liaison Office

The name must be similar to that of the foreign parent company. In addition, a new approval is needed for each new liaison office from the Reserve Bank of India with complete justification.

Taxation In India

Income tax authorities have the right to impose income tax on a liaison office when it is established that the transaction amounts to commercial operation through PE.

Preliminary Steps to set up Liaison Office

In order to establish a liaison office and to make it workable, you need different kinds of approvals and registrations from different government authorities:

Designate a Bank and branch where your account will be opened (post-approval) who will be an Authorized Dealer Bank (AD Bank) for your Liaison Office in India
File an application with all necessary documents to the Reserve Bank of India (RBI) through the AD Bank
Obtain approval of RBI
Apply to ROC to obtain a “Certificate of Establishment of Place of Business in India ”
Apply for registration for PAN with Income Tax Authority
Apply for registration for TAN with Income Tax Authority
Open an account with the Bank and to obtain account number
Obtain registration under Shop and Establishment Act (depends on location)
Obtain registration under Professional Tax (depends on location)
Obtain Import Export Code (if samples have to be imported)

Drafting of Government Forms and Documents

On receiving the complete set of documents, the next step is to draft the following documents for the signature purpose by the applicant company and from the authorized signatory.

Approval from the Board Resolution for opening the liaison office in India.
Approval from the Board Resolution for opening the liaison office in India.
A declaration stating the nature of the activity, location of the activity of the proposed Liaison office
A declaration stating the nature of the activity and the location of activity of the applicant company
Form FNC
A letter of comfort from the holding company

List of Documents for Liaison Office Registration

Documents Required From Parent Company

Certificate of Incorporation/Registration of Foreign Company
Memorandum of Association
Article of Association
List of Details in respect of Directors/Key Executives
Complete details of shareholders of the applicant company
Net worth certificate attested by Certified Public Accountant (CPA)
Audited financial statement of the last three years
Applicant’s banker’s report in the host country

Documents Required From the Proposed Authorized Signatory

5 Passport size photos
5 copies of passport
Business visa with immigration stamp of arrival
5 copies of national identity card
Latest Address Proof (Bank Statement/ Electricity / Water Bill / Phone Bill)
Board resolution while appointing the AR
Power of attorney in the name of AR

Legalization of Documents:

All documents which are originating from a foreign country or which is signed/executed in a foreign country shall be legalized either through Indian Embassy or to be apostilled as per the Hague Convention. On fulfilling the eligibility criteria, the parent company must submit an application in Form FNC (As per Annex B of Foreign Exchange Management Regulations, 2016) for the establishment of a Liaison Office/ Branch Office/ Project Office or any other place of business.

Process & Timeline for Liaison office Registration in India

Step - 1: Application for Digital Signature of Authorized Signatory

A digital signature is the equivalent of physical or paper signature under the information technology act. As per new process all applications to the registrar of companies are filed in digital format which need to be authenticated by the digital signature of the proposed shareholders and directors as the case may be. The filing process starts with the issue of digital signature for all the promoters.

Step - 2: Filing of Application with RBI through AD Bank

The application for registration of a Liaison office of a foreign company is filed in FNC to the reserve bank of India through AD Bank (Authorized Dealer). The AD Bank plays a crucial role as all the communication to the RBI has to be routed through them. We have an excellent relationship with many banks in India, which certainly help in applying to the RBI and Follow Up.

Step - 3: Verification of KYC from Banker of Parent Company

After FNC Form is filed with the AD Bank, a request for verification of documents is sent to the banker of the foreign company. This process is also known as swift based verification. After receipt of confirmation of the documents from the foreign banker, the application is submitted to the RBI for their approval. The RBI may seek clarification or any additional document which need to be submitted.

Step - 4: Approval of RBI for Liaison Office Registration in India

There is a specific policy of approving the establishment of a liaison office by the AD Banker itself and only cases where the automatic route is not available the cases are forwarded for prior approval of the RBI. The process of approval after swift verification is of a week.

Step - 5: Registration of Liaison office with the ROC

After company incorporation, the Bank A/c has to be opened, wherein the FDI (foreign direct investment) must reach within 180 days of incorporation of the company with advance intimation to Banker. Please note that the new company can not start any of its business activities unless the capital has been received in India.

Step - 6: PAN Card, Tax Deduction Number & Bank A/c Opening

Income Tax Department allots a unique 10 Digit alphanumeric number as a permanent account number, also known as PAN Number. To comply with TDS provisions, every taxpayer needs to obtain a Tax Deduction Account Number. These identification numbers are essential to compliance with the tax rules. The bank account of the liaison office can be opened after allotment of Pan Number by the Income Tax Department.

Step - 7: Registration with State Police

Finally, the liaison office needs to register it with the state police (In the office of the superintendent of Police). The application must be accompanied by the RBI approval and KYC of all authorized persons in India and the foreign company.

Step - 8: GST Registration & IEC

By this time the Liaison office would have received the Bank Account and cheque book, we would need a copy of the check for making application for GST Registration and Import Export Code for the Liaison Office of the foreign Company

Approval process

The approval process generally takes 40 days and permission to operate a liaison office is granted for a three-year period, which can be extended at a later date (maximum three year extension). But, in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, the validity period is only two years, and no extension for these sectors (excluding infrastructure development companies) will be considered.

Once the validity period expires, the liaison office has to either close down or be converted into a joint venture/wholly owned subsidiary in conformity with the FDI policy.

An enterprise must also meet the following conditions before qualifying for the establishment of a liaison office:

Must have a three-year record of profitable operations in the home country; and,
Must have a minimum net worth of US$50,000 verified by the most recent audited balance sheet or account statement.

If a company does not meet these requirements, but is a subsidiary of a company that does, the parent company may submit a Letter of Comfort on the subsidiary’s behalf, as per Annex-2. To begin the process of setting up a liaison office, a company must submit a certificate of incorporation, Memorandum and Articles of Association (MOA and AOA), and a copy of the parent company’s latest audited balance sheet.

The liaison office must also obtain a Permanent Account Number (PAN) from the income tax department and a Unique Identification Number (UIN) from the RBI. The application for registration should be forwarded to the RBI by a designated AD Category – I Bank.

Within 30 days of establishment, the liaison office must register with the Registrar of Companies (RoC) by filing e-form FC-1 through the Ministry of Corporate Affair’s online portal.

The following documents must also be provided:

A notarized and apostilled copy of the liaison office charter or Memorandum and Articles of Association in English;
Full address of the enterprise’s principal place of operation outside of India;
Name and address of the liaison office in India;
List of directors; and
Name and address of the company’s official representative based in India (the person authorized to accept delivery of notices and documents served to the company).

Special approvals, registering with state police authorities

Prior approval of the RBI will be required only if applicants or companies from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau want to open a liaison office in Jammu and Kashmir, the North East region, and Andaman and Nicobar Islands.

Further, only applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong, Kong, Macau, and Pakistan have to register with the state police authorities.

A copy of the approval letter for persons from these countries shall be marked by the AD Category – I bank to the Ministry of Home Affairs, Internal Security Division – I, Government of India, New Delhi for necessary action and record.

All other countries are exempted from registering with the state police authorities.

Regulatory approvals (other than RBI) required for Liaison Office:

If any foreign bank wants to open a LO in India, it has to obtain approval from the Department of Banking Regulation (DBR), RBI.
Foreign Insurance Companies can set up liaison offices in India after obtaining approval from Insurance Regulatory and Development Authority (IRDA).
In other cases, approval under FEMA is required from RBI for setting up of a Liaison Office in India.

Compliance Requirements

There are various ongoing reporting requirements for a Liaison Office (LO):

Reporting to RBI about address and others – the LO has to report its office address to the RBI within 6 months of approval. It also has to report RBI about its Permanent Account Number (PAN) and “Certificate of Establishment of Business Place in India” issued by the office of ROC.
Annual Activity Certificate – the LO has to obtain Annual Activity Certificate from practicing Chartered Accountant and to file the same with the following;

Authorized Dealer Bank
Director General of Income Tax (International Taxation)

Submission of Annual Activity Certificate (AAC):-

.Every Liaison Office has to file AAC at the end of 31st March in every year.
Audited Balance Sheet is also attached with AAC at the time of reporting.
AAC should be submitted to the designated AD Category-I bank as well as Director General of Income Tax (International Taxation), New Delhi.
In case, if the Liaison Office is sole proprietor, then the concerned Liaison Office has to file the AAC.
In case, there are multiple Liaison Offices, then a combined AAC in respect of all the offices situated in India has to be submitted by the Nodal Officer.

Thus each year, the liaison office must file an Annual Activity Certificate (AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter (Annex-3). An AAC along with Form 49C should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year.

If an LO wants to open more than one bank account in India, it has to obtain prior permission of the RBI through its AD Category – I bank justifying the reason for the additional account. An LO can also be upgraded into a branch office (BO) structure once its bank account is re-designated as a BO account. The entity will not require a new PAN.

3.Return with ROC – the LO is required to file the following: annual receipt and payment statement, an assets and liabilities statement duly audited by practicing local Chartered Accountants to the office of Registrar of Companies (ROC); along with the latest consolidated financial statement of parent company (duly notarized and certified by Indian Embassy / Consulate office that has proper jurisdiction in the office location of the parent company). If the language of the parent company is other than English, then this will have to be translated by a certified translator before starting the process of notarization and certification. Apart from the financials, Liaison Office must also provide the list of all place of business, along with a copy of approval obtained if any. ROC filing has to be done before 6 months from the date of closure of books of accounts of Liaison Office.

Apart from the compliances under FEMA, 1999, the Foreign Entities have also to fulfill the compliances prescribed under the Companies Act, 2013:-

(1).Under sub-section 42 of section 2 of the Companies Act, 2013 Foreign Companies have defined.
(2).Such Foreign Companies who wants to set up Liaison Office in India, shall be governed by the provisions of:

Chapter XXII (Companies Incorporated Outside India) of Companies Act, 2013 &
The Companies (Registration of Foreign Companies) Rules, 2014

After getting approval from the RBI, it has to get register itself under the Companies Act, 2013.
It has to file e-Form FC-1 to the MCA within 30 days of the establishment of its Place of Business (POB) i.e., Liaison Office in India.
It also has to file e-Form FC-2 which is for Return of alteration in the documents filed for registration before the Ministry of Corporate Affairs (MCA).
E-Form FC-3 which is for reporting the Annual accounts along with the list of all principal places of business in India established by it to the MCA.
E-Form FC-4 which is for Annual Return of a Foreign Company has also filed by it.

Extension of validity period of the approval of LO

Requests for extension of time for LOs may be submitted before the expiry of the validity of the approval, to the AD Category-I bank concerned under whose jurisdiction the LO/nodal office is located. The designated AD Category - I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted if the applicant has complied with the following conditions and the application is otherwise in order:

The LO should have submitted the Annual Activity Certificates for the previous years and
. The account of the LO maintained with the designated AD Category – I bank is being operated in accordance with the terms and conditions stipulated 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 under intimation to the General Manager, Reserve Bank of India, CO Cell, New Delhi quoting the reference number of the original approval letter and the UIN. Reserve Bank shall update the information on its website immediately.

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 in conformity with the extant Foreign Direct Investment policy.

Renewal of registration

Initial approval to set up an LO is granted by RBI to establish your India Liaison office for a 3 year period. If desired, your LO can apply for an extension of the same to its authorized dealer Bank. The AD Bank, in consultation with RBI, has the power to grant an extension for a further period of 3 years (subject to confirmation of certain compliance requirements). The LO should apply for an extension at least 1 to 2 months before the expiry of the initial time period.

Punishment for Non Compliance

Punishment for non compliances with provisions in respect of delivery of documents to ROC, return, accounts, prospectus, IDR etc. is with fine which shall not be less then ₹ 1,00,000/- but can extend upto ₹ 3,00,000/- and in case of continuous offence additional fine of ₹ 50,000 per day. Further every officer of foreign company who is in default is punishable with fine plus imprisonment- Section 392

Closing a Liaison Office in India

Once you decide to close your operations – usually because you now need a more extensive set up in India – then you need to wind it up properly so that it doesn’t have unintended consequences on future operations and any new companies you have registered or partnerships you are getting into.

Requests for closure of the Liaison Office and allowing the remittance of winding up proceeds of Liaison Office may be submitted to the designated AD Category - I bank by the Liaison Office or their nodal office, as the case may be. The application for winding up may be submitted along with the following documents:

Copy of the Reserve Bank's/AD Category-I bank’s approval for establishing the Liaison Office.
Auditor's certificate:

indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant and indicating the manner of disposal of assets;
confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been either fully met or adequately provided for; and
Confirming that no income accruing from sources outside India (including proceeds of exports) has remained non-repatriated to India.

(c).Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the Liaison Office and there is no legal impediment to the remittance.

(d) A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Liaison Office in India, wherever applicable.

e). The designated AD Category - I banks has to ensure that the Liaison Office had filed their respective AACs.

(f). Any other document/s, specified by Reserve Bank of India/AD Category-I bank while granting approval.

Designated AD Category-I bank may allow remittance of winding up proceeds in respect of offices of banks and insurance companies, after obtaining copies of permission of closure from the sectoral regulators along with the documents mentioned above.

Closure of LO needs to be done with ROC and with RBI:
ROC

Board Resolution passed by the parent company with the intention to close the LO in India
Identify a date of closure of LO activity
Terminate employment contract(s) with Employees and complete all full and final settlements
Obtain a Board Resolution for the closure of the LO and empowering authorized person to file an application with ROC
File an e-form with ROC and obtain approval of ROC

RBI

Board Resolution passed by the parent company with the intention to close the LO in India
Copy of original approval letter granted by RBI along with Extension letter granted if any
Auditor’s certificate
Confirmation that no legal proceedings are pending and no legal impediment to remittance
Report from ROC or closure of registration with ROC

Any assets that the LO is holding (e.g. computer, laptop, car, etc.) in its books need to be transferred before applying for the closure of the LO with ROC and RBI. These can be transferred by sale to a Joint Venture or Wholly Owned Subsidiary of the parent company in India. However, RBI approval is required before any transfer of assets following due process of law.

Before filing your application for closure with ROC/RBI, ensure that any reporting has been taken care of already by your LO. During closure with RBI, request your AD Bank to remit any money left in the account to your promoter company and only after that is done then you can close the Bank Account.

Guidance note for the AD Category-I bank

A Liaison Office or any other place of business by whatever name called is required to register with the Registrar of Companies (ROCs) once it establishes a place of business in India if such registration is required under the Companies Act, 2013.
The Liaison Offices shall obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up of their office in India and report the same in the AACs.
The existing PAN and bank accounts can be continued when an LO is permitted to upgrade into a BO.
Each Liaison Office is required to transact through one designated AD Category-I bank only who shall be responsible for the due diligence and KYC norms of the Liaison Office. Liaison Office, present in multiple locations, is required to transact through their designated AD. However, the AD of the nodal office is required to comply with all the reporting norms.
Liaison Office can change their existing AD Category-I bank subject to both the AD banks giving consent in writing for the transfer and the transferring AD bank confirming submission of all AACs and absence of any adverse features in conducting the account by the Liaison Office.
As per section 6 (3) (h) of the Foreign Exchange Management Act, 1999, Liaison Offices have general permission to carry out permitted/ incidental activities from leased property subject to lease period not exceeding five years.
AD Category-I bank can allow term deposit account for a period not exceeding 6 months in favor of a Liaison Office of a person resident outside India provided the bank is satisfied that the term deposit is out of temporary surplus funds and the Liaison Office furnishes an undertaking that the maturity proceeds of the term deposit will be utilized for their business in India within 3 months of maturity. However, such facility may not be extended to shipping/airline companies.
In case a Liaison Office has been established and continues to exist without approval of the Reserve Bank, such Liaison Office may approach their AD Category-I bank to regularize their offices under FEMA 1999, even if permission of Reserve Bank was not required as per the regulations existing at the time of setting up of the office. Such cases may be brought to the notice of Reserve Bank immediately for allotment of UIN. The foreign entities who may have established Liaison Office with the permission from the Government of India in the pre-FEMA period shall also approach their AD Category–I bank with a copy of the said approval for allotment of a UIN by the Reserve Bank.
Change in the name of the existing Liaison Office may be permitted by the AD Category-I bank only if the non-resident entity changes its name without change in ownership and if the application to this effect is received with the Board resolution for change of name and documents/certificate from ROC India showing change of name. The change in name of the Liaison Office should be reported to FED, CO Cell, New Delhi. Where change in name is requested on account of acquisitions or mergers of foreign entities involving change in ownership, the acquired entity or new entity is required to apply afresh by closing the existing entity. Foreign entities should note that the approvals are given by the Reserve Bank/AD Category-I bank after detailed scrutiny as per laid down guidelines and FDI policies and hence the approvals given to one foreign entity is not transferrable to another foreign entity.
Change in the Top Management or CEO/MD/CMD etc. of the Liaison Office does not require prior approval from the Reserve Bank/AD Category-I bank. However, AD Category-I bank should be intimated about the same.

Conclusion

A Liaison office acts as a place in India which presents foreign company primarily with the need to understand and explore the environment of business, the business conditions, understanding or agreement nature of the market and carrying on market research for the product of the organization in order to look and to provide for further information from future customers or vendors.

Liaison offices provide opportunities to foreign investors and pave the way for investors from overseas to explore the Indian business market and set their footstep in the growing business market place along with the advantage of keeping their financial, administrative, legal, and commitments low.

The purpose of starting a liaison office is to present the parent company in India, group companies, promotionof export or import in India, encourage the technical and financial participation of parent company and group companies and to work as a communicative or transaction bridge between the Indian companies and the parent company

The application and approval procedure for the setting up of the liaison office in India is managed and regulated by the Foreign Exchange Management Act or FEMA. As per FEMA Act, it is mandatory for the foreign companies to take the approval of RBI’s Foreign Exchange Department in order to function as a liaison office in India.

Foreign Insurance entities can also operate Liaison Office in India; all they have to do is to obtain the approval from the IRDA or Insurance Regulatory and Development Authority. A liaison office can be set up for representing in India the parent company/group companies, Promoting export/import from/to India, Promoting technical/ financial collaborations between parent/group companies and companies in India and to Act 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 the expenses of the liaison office. A liaison office is a foreign company and Indian government taxes the profits of such entities when it carries out the transactions which amount to commercial activities through a permanent establishment (PE) at higher rates. As of now the tax on the profit of the foreign company is 40% in contrast to the tax rate @ 22% on Indian company.Prospective companies and investors looking to enter India must carefully consider their options for investment and available avenues for establishing a business presence. Liaison offices (LOs) are a popular option for foreign investors exploring the Indian market for the first time, and unsure of how the country’s liberalizing FDI caps will affect their business.In contrast to other business structures, LOs allow foreign companies to establish a light footprint in India while keeping their financial, legal, and administrative commitments low.

Foreign companies can open a liaison office in India to facilitate and promote the parent company’s business activities, and act as a communications channel between the foreign parent company and Indian companies.Unable to engage in commercial, trading, or industrial activities, liaison offices must be sustained by private, inward remittances received from their foreign parent company.

Frequently Asked Questions

1. What is a liaison office & who can set-up a liaison office?
A foreign company before entering the Indian market may intend to conduct some preliminary research or representation before the potential customers or partners, for that limited purpose a foreign company normally establishes a representative office also known as a Liaison Office in India. Any person resident outside including a foreign company, group company, association of person can establish a liaison office in India.
2. What are permitted/allowed activities for a branch office in India of a foreign entity?
A liaison office of a foreign company is allowed to do only limit activity in India provided none of the activities is profit-making activity. In other words, a liaison office can do market research and representation activity only.
- Establish healthy communication between the foreign head company and the parties in India with a motive to create market opportunities
- Promotion of import/export relationship between countries
- Form a financial and technical collaboration between Indian and overseas companies
- Represent the foreign parent company in India
- As India is among rapidly growing and progressing economies globally, many multinational companies are willing to invest in the Indian market. Therefore, they are always looking forward to establishing their liaison office in India.
- It can represent the Parent/Group companies in India.
- It can promote export from India.
- It can promote import to India.
- It can promote the technical or financial collaborations between Indian companies and parent or overseas group company.
- It can act as a communication channel.
- It can render the insurance activities in India after getting IRDA approval.
3. Who approves the opening of a liaison office?
The Reserve Bank of India approves the setting up of a liaison office in India. A particular agenda or policy is followed in the approval process of the liaison office in India by the AD Banker. Priority is afforded to the applicants where an automatic route is not available.
4. What are the requirements for opening a liaison office in India?
- Income-generating activity is forbidden
- It is mandatory for the foreign parent office to own net worth that exceeds $50,000
- Beneficial track statement or report of the preceding three years of the applicant company is necessary
5. What is the drafting of government forms and documents?
On collecting the complete set of required documents the next step is to draft the documents mentioned below for the signature purpose by the company and from the authorized officer.
- Approval from the Board Resolution of the company for setting up the liaison office in India.
- A resolution from the applicant stating the FDI eligibility and source of fund
- A resolution explaining the nature of the business activity, location of the business activity of suggested Liaison office
- A resolution stating the nature of the business activity and the location of business activity of the suggested Liaison office
- Form FNC
- A formal letter from holding company stating comfort
6. What is DSC?
The application for Digital Signature Certificate (DSC) for such companies is filed through the online portal, and the shareholders and directors of the company should sign it. The issuing of DSC needs some mandatory documents like address proof, identity proof associated with some photographs.
7. What is swift based verification?
A request concerning the scrutiny of documents is submitted to the foreign company’s banker. This process is also called swift based verification (sending requests for the purpose of verification)
8. What are the countries for which liaison office registration cannot be done under the automatic route and can be established only after prior approval is received from theRBI?
- Pakistan,
- Bangladesh,
- Sri Lanka,
- Afghanistan,
- Iran,
- China,
- Hong Kong,
- Macau
- Or any application for opening of a branch office in Jammu & Kashmir, North East Region and Andaman and the Nicobar Islands.
9. Who approves the setting up of a liaison office?
The RBI is empowered to approve the establishment of a liaison office in India, under master direction dated January 01, 2016 for the establishment of a place of a foreign corporation the powers have been delegated to any AD Category 1 Banker.

10. What are the conditions /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 USD 50,000 or its equivalent. The financial statement duly attested by the statutory auditor of the parent company is required.
11. What is Income Tax rate for a Liaison office of a Foreign Company?
A Liaison office of a foreign mother company is not treated as a separate and distinct entity in India and for all tax purposes, the Indian government taxes the profits of such entities at higher rates. As of now the Income Tax on the profit of a foreign company is 40% in contrast to the tax rate of 30% on an Indian company.
12. What Documents are required for forming a Liaison Office in India?
Following documents are required for registration of a liaison office of the foreign company
- Certificate of Incorporation or business license of parent company
- Charter issued to the foreign company by the government
- Memorandum of Association or Articles (Rules of the Company)
- A declaration from the foreign corporation (parent company) that the parent company shall meet any shortfall in meeting the expenses of branch office
- Three years historical Financial Statement of the parent company duly attested by its auditors
- A certificate from the auditors of the parent company that the net worth of the parent co is more than $ 50,000 or its equivalent
- The identity and address proof of the responsible person to do compliance for the branch office in India.
- Premises proof, where the branch office shall be registered
- A No objection certificate from the owner of the premises of office.
- In case the document is in the foreign language, then a certified translation thereof must be filed.
- All other documents having foreign origin shall be legalized as per Hague convention or by the Indian embassy, high commission.
13. What are Other Incorporation Requirements for Liaison Office Registration in India?
After approval of the RBI for establishing a Liaison office in India by a foreign company is obtained the same need to be registered with the ROC within 30 days by filing form FC-1 with the digital signature of the authorized person and following documents as annexure
14. Who can set up a liaison office?
Any individual resident of a foreign country, including a remote organization, group organization, association, or individual, can set up a liaison office in India.
15. How do I file an annual activity certificate?
Every year, the branch office must document an Annual Activity Certificate (AAC), arranged by a chartered accountant, to the RBI confirming the workplace's exercises are within its sanction. LIKEWISE, an AAC ought to be recorded with the Directorate General of Income Tax within 60 days of the end of the fiscal year.-