Liaison Office (LO) in India

Any Foreign Entity looking for an office in India as a sourcing division or to facilitate export or to test the Indian market with a prospective business venture to improve the relations with the authorities and business community or to have the presence in the country from worldwide business outlook, Liaison Office (LO) is the best option.

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”.

A Liaison Office or a Representative Office can undertake only liaison activities, which means that it can act as a channel of communication between the Head Office (out of India) and parties in India. It is not allowed to undertake any commercial activity in India. As there is no income of Liaison Office of its own, its expenses are to be met entirely through inward remittances from the parent company outside India received in Convertible Foreign Exchange.

In terms of permitted activities, a liaison office can do the following listed activities in India:

·       Act as a channel between the Head office and parties in India.

·       Collect market information and provide information about the products to Indian customers.

·       Promote exports/Import from/to India

·       Promote technical/financial collaboration between parent company and Indian customers.

·       Open Non-Interest bearing INR current account with Category-1 Banks in India

Steps taken to set up Liaison Office

Government Route

·       Profit making track record during immediate preceding 3 financial years.

·       Net worth as per latest audited balance sheet certified by CPA should not be less than US $50,000 or its equivalent amount in home country.

Tenure

·       Track record of annual activity certificates.

·       Record of the account maintained with the designated bank as per the terms and conditions of original approval.

Steps:

1.      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

2.      File an application with all necessary documents to the Reserve Bank of India (RBI) through the AD Bank

3.      Obtain approval of RBI

4.      Apply to ROC to obtain a “Certificate of Establishment of Place of Business in India ”

5.      Apply for PAN & TAN with Income Tax Authority

6.      Open account with Bank and to obtain account number

7.      Obtain registration under Shop and Establishment Act (depends on location)

8.      Obtain registration under Professional Tax (depends on location)

9.      Obtain Import Export Code (if samples have to be imported)

If the foreign entity’s perspective to enter India covers in the above listed permitted activities, then Liaison Office is the best option.

Establishment of Liaison Office/Representative Office in India is governed by Reserve Bank of India (RBI) together with Ministry of Finance, Government of India.

Liaison Office application are to have a designated manager of the proposed Liaison Office and a prospective office space of the proposed Liaison Office which can be provided by consultants who help the foreign entities in applying for LO as part of their services which is called Virtual Office or Service Office Services.

The Application has to be made to RBI through Authorized Dealer Category-1 Bank in India. RBI will allot a UIN (Unique Identification Number) on approval of application. Once approved the intimation has to be given to Registrar of Companies (ROC) and Director General of Police (DGP). An application has to be sen to the Income Tax Department to allot Permanent Account Number (PAN).

There are various ongoing reporting requirements for a LO:

1. 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 office of ROC.
2. 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)
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 certified translator before starting the process of notarization and certification. Apart from the financials, LO must also provide the list of all place of business, along with 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 LO.

For establishing additional office, a fresh application duly signed by authorized signatory of the foreign entity, is filed to Reserve Bank of India with a justification to open additional office and identify one of the offices as nodal office to co-ordinate the activities of all offices.

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 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 extension at least 1 to 2 month before the expiry of the initial time period.

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.

Closure of your LO

Closure require approval from ROC as well as RBI both:

ROC

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

RBI

1. Board Resolution passed by the parent company with intention to close the LO in India
2. Copy of original approval letter granted by RBI along with Extension letter granted if any
3. Auditor’s certificate
4. Confirmation that no legal proceedings are pending and no legal impediment to remittance
5. 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.

The Modi Government has made it clear that the primary focus of Government is on Ease of Doing Business in India and as seen from the past, most of these steps have been simplified and made more efficient, but you may still need help in Liaisoning Office in India. If you wish to know more or need any further help, you can contact us, we have great expertise in setting up all types of company and solving many problems for companies who got stuck or made errors while registering their companies.