Introduction to Liaison Office
A body incorporated outside India (including a firm or other association of individuals), desirous of opening a Liaison Office (LO) / Branch Office (BO) in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. The applications from such entities will be considered by Reserve Bank under two routes:
Reserve Bank Route
Where principal business of the foreign entity falls under sectors where 100 percent Foreign Direct Investment (FDI) is permissible under the automatic 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 Organisations / Non - Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.
The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities:
For Branch Office
a profit-making track record during the immediately preceding five financial years in the home country.
For Liaison Office
a profit-making track record during the immediately preceding three financial years in the home country.
What is the Liaison Office?
A Liaison Office (also known as Representative Office) 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 such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the 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.
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.
Extension of Validity of the Approval of Liaison Offices
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 by the Reserve Bank 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.
The following registrations (post-formation) will be required
- PAN /TAN
- Shops & Establishment
- Import Export Code
- Registrar of Company (ROC) registration
- Not a separate legal entity hence cost of compliance is less.
- Ideal if no income accrual in India.
- Easy to shut down.
- Unlimited liability
- Requires reporting of Global accounts before Indian authorities
- Indian Income-tax authorities also try to hold Indian LO as “PE” of foreign companies.