Liaison Office/ Representative Office
Foreign companies are allowed to establish Liaison Office in India after obtaining prior approval from the Reserve Bank of India (RBI). The RBI grants approval, for one to three years, and it is renewable upon expiry. It is primarily a communication bridge between the foreign company and its customers or potential customers in India. The Liaison Office can also be setup to establish business contacts or gather market intelligence to promote the products or services of the parent company. It cannot engage in revenue generating activities
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
A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and is required to meet its expenses out of inward remittances received from parent company through normal banking channels. As a no-income earning entity, it is not subjected to tax 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. The office must file regular returns to the RBI. Such returns must include Audited Annual accounts and an activity report for the year. This is highly suitable for foreign companies that intend to setup full-fledged operations in India. They can conduct a detailed review of plans and potential before making a long term commitment through this vehicle.
Note: Foreign Insurance companies can establish Liaison Offices in India after obtaining approval from the Insurance Regulatory and Development Authority. Such Insurance companies have been given general permission under FEMA for establishing Liaison Offices in India
Relatively, quick and easy to set up, a Liaison office is incorporated for four main purposes -
- To represent the Parent Company in India,
- Explore opportunities for the parent company in India (gather contacts, conduct market research),
- Act as a communication channel between the parent company and associate in India and promote the export / import of goods and services from/ to India.
- In addition, Liaison offices can hire local and foreign staff, rent property and open bank accounts in India.
The Reserve Bank of India, the apex bank grants permission to open a Liaison office. The entire process, can take anywhere from a few weeks to a few months depending on the industry and India's relations with the nationality of the parent company. Approval is generally granted for a period of one to three years, upon expiry of which the foreign company can apply for a renewal.
Documents to be submitted to the RBI for permission to set up a Liaison Office:
- Three copies of Form FNC1 obtained from the RBI need to be signed, sealed and delivered back to the RBI.
- English version of the certificate of incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy/ Notary Public in the country of Registration.
- Latest Audited Balance Sheet of the applicant entity.
- Letter from the Director / CEO of the Company to the Reserve Bank of India stating its intention to set up a Liaison office in India. (English) (On the Company letterhead).
- Bankers report from the Company's banker showing the number of years the company has had banking relations with the bank.
- Letter of authority from the parent company in favor of the local representative.
- Details of activities / services proposed to be undertaken / rendered by the proposed Liaison office in India.
- Residence proof and passport copies of the authorized personnel.
- A covering letter to open the bank account in India.
Once the above documents are duly notarised, signed and submitted to the RBI, the apex board will send the relevant papers to the ministry of external affairs, ministry of finance and the Home ministry for their approval. Once permission to establish a liaison office is granted by these three ministries, an approval letter will be sent to the company, allowing the foreign entity to operate as a Liaison Office in India.
Post Incorporation Formalities
Once the foreign entity has received the no objection certificate from the RBI, tax and customs registration procedures can commence. The Liaison office will then have to apply for a permanent Account Number (PAN) and Tax deduction and Collection Account Number (TAN) as well as register with the Customs department. Visa for foreign staff will also need to sought at this time and company bank accounts can also be opened hereafter.