WHAT IS LIAISON OFFICE?
A Liaison Office (LO) functions as a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office (also known as Representative Office) can undertake only liaison activities i.e. act as a communication channel between the Head Office abroad and Parties in India. The role of such offices is, therefore, Limited to collecting information about possible market opportunities, Source of supply, providing information about the parent company and its products to the prospective Indian customers or vice versa to its vendor. Expenses incurred for such offices are to be met entirely through inward remittances from the Head Office outside India.
A LIAISON OFFICE CAN UNDERTAKE THE FOLLOWING ACTIVITIES IN INDIA:
- 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.
- Acting as a communication channel between the parent company and Indian companies.
PROCEDURE FOR SETTING UP LIAISON OFFICE
Any foreign company intending to establish a Liaison Office in India is required to obtain prior approval from the Reserve Bank of India (RBI), which may take up to 3-4 weeks for processing of the application. Approval is usually granted for 3 years and can be renewed on expiry thereof. A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening a Liaison Office (LO) shall obtain such permission by filing an application in Form FNC with the Authorised Banker (AD) in India.
This application is required to be supported by :
- English version of the Certificate of Incorporation / Registration or MOA & AOA attested by Indian Embassy / Notary Public in the Country of Registration.
- Latest Audited Balance Sheet of the applicant entity.
- Other documents as prescribed
After proper scrutiny, AD bank shall forward the application together with their comments/ recommendations to the RBI for its approval. The applications will be considered by the RBI under two routes:
- Automatic route – Where principal business of the foreign entity falls under sectors where 100 percent FDI is permissible under the automatic route.
- Approval route – Where principal business of the foreign entity falls under the sectors where 100 percent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from non-government organizations are considered by the RBI in consultation with the Ministry of Finance, Government of India.
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.
Once approved by RBI, the Liaison office shall be allotted a Unique Identification Number (UIN). Every Liaison office registered with RBI shall get itself registered with the Ministry of Corporate Affairs ( MCA) as corporate entity. It's registration as Liaison office is in itself establishment of foreign company in India. Accordingly, the MCA will allot Corporate Identity Number (CIN) to such company. Once the CIN is alloted by MCA, then the LO is required to obtain Permanent Account Number (PAN) & Tax Deduction Number (TAN) from Revenue Authority.
ELIGIBILITY CRITERIA FOR SANCTIONING LIAISON OFFICE OF FOREIGN ENTITIES
Following are the eligibility criteria's for opening LO in India :
- It must have a profit making track record during the immediately preceding 3 financial years in the home country.
- Total net worth of the applicant foreign entity should not less than USD 50,000 or equivalent i.e. Paid-Up Capital + Free Reserves - 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.
In case applicant does not satisfy above criteria and is subsidiary of other company : Then it can submit Letter of Comfort from their parent company, subject to the condition that the parent company satisfies the eligibility criteria as prescribed.
EXTENSION OF VALIDITY OF THE APPROVAL OF LIAISON OFFICES
Permission to set up Liaison offices is initially granted for a period of 3 years and this may be extended from time to time by an AD bank. The designated AD Bank may extend the validity period of Liaison Office for a period of 3 years from the date of expiry of the original approval / extension granted by the Reserve Bank subject to following conditions:
- The LO should have submitted the Annual Activity Certificates for the previous years and
- The account of the LO maintained with the designated AD bank is being operated in accordance with the terms and conditions stipulated in the approval.
SALIENT FEATURES OF LIAISON OFFICE
- The name of Indian liaison office shall be same as parent company.
- The governing body for the Liaison office is AD banker/ Reserve Bank of India.
- Suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.
- The Liaison office does not have any ownership, It is just extension of the existing foreign company.
- All the expenses of the Liaison office are met by the head office, hence the funds shall be received from head office account only.
- The License for the Liaison office is given for three years and the same can be renewed every 3 years.
- The liaison office is not subjected to taxation in India as there is no mechanism for the income tax department to examine and ascertain as to whether the activities under taken by it result in any taxable income in India
- Liaison Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorised Dealers for opening the accounts.
RESTRICTIONS ON ACTIVITIES OF THE LIAISON OFFICE
- A Liaison Office is not permitted to undertake any commercial/trading/Industrial activity, directly or indirectly and therefore cannot earn any income in India.
- The liaison office can neither borrow, nor lend money.
- It cannot acquire, hold, (otherwise than by way of lease for a period not exceeding 5 years) transfer or dispose of any immovable property in India, without prior approval of RBI.
REPORTING BY LIAISON OFFICE
- All new entities setting up LO shall submit a report containing information, as per format provided within five working days of the LO becoming functional to the Director General of Police (DGP) of the state concerned in which LO has established its registered office. In case, there is more than one office of such a foreign entity, In such cases to each of the DGP concerned of the state where it has established office in India.
- Liaison Offices have to file Annual Activity Certificates (AAC) certified from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the LO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.
- File form 49C as per Section 285 of the Income Tax Act, 191 together with prescribed documents.
- Liaison Office may be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law
- The Liaison office may require to comply with GST obligation under reverse tax mechanism for availing certain services, if applicable.
- The liasion office may have to comply with various Labour laws of India, if there are any employees in LO.
- Filing of Various forms and certificate from Chartered Accountant at the time of closing of LO.
PKP can assist you in:
- Obtaining approval of RBI for Establishment of Liaison office in India.
- Getting Liaison office registered with Registrar of Companies.
- Obtaining CIN of Liaison Office
- Obtaining PAN / TAN and registration under Labour Laws.
- Maintenance of Financial books of Accounts of Liaison office.
- Payroll Processing of Liaison office.
- Filing of Witholding Tax Returns / GST Returns on monthly / Quarterly basis.
- Annual Audit of Books of accounts.
- Issuance of Annual Activity Certificate (AAC).
- Getting all Statutory Compliances with regard to Labour laws within timelines.
- Reporting of Liaison office on annual basis with concerned authorities like MCA, Police Department, Income Tax Department, AD Banker.
- Issuance of Various certificates as may be required by LO in regular course.
Contact Person : Mr. Prakash k Gupta
Email - email@example.com, firstname.lastname@example.org
Telephone Numbers : +91-11-23382207/ 23388753
Mobile Number : +91-9811031841