FEMA

How to set up a Liaison Office in India?

India being one of the largest and fastest-growing market, foreign entities have developed a keen interest to establish their operations here. Foreign companies aim to enter into the Indian market by setting up a Liaison office in India. Liaison offices have become a popular option for foreign investors exploring the Indian market. In this article, we shall look at the procedure and compliances to be followed to set up a Liaison office in India.

Liaison Office in India: An Overview

Setting up a liaison or a representative office is a common manner in which foreign companies enter into the Indian market. The role of these offices is limited to information collection about the possible market and to give information regarding the company and its products to future Indian customers.

However, it cannot undertake any commercial activity and can only use remittances obtained from its parent foreign company to maintain itself. 

Prior approval of RBI

Any application from a foreign entity to open a liaison office shall require prior approval from the RBI in the following circumstances:

• Where the applicant is a citizen of or the entity is registered in Pakistan;
• Where the applicant is a citizen of or is registered in Bangladesh, Sri Lanka, Iran, China, Hong Kong, Afghanistan, or Macau, and the application is to open a liaison office or branch office in the state of Jammu and Kashmir, North East or Andaman and Nicobar Islands;
•  Where the principal business activity of the applicant falls in sector such as Defence, telecom, private security, and Information and broadcasting; and
• Where the applicant is an NGO, NPO, Body/agency/department of a foreign government.

Procedure to set up Liaison Office in India

To set up this office, the applicant should submit an application in Form FNC Annex-1 (Application for the establishment of Branch/Liaison office in India).

The following documents are also required for opening of liaison office:

• Three copies of Form FNC-1;
• A letter from the principal officer of the parent company to Reserve Bank;
• A letter of authority from the parent company in favour of the local representative;
• A letter of authority/resolution from parent company;
• A comfort letter from the parent company to support the operation in India;
• Copies of the English version of the Incorporation certificate, MOA, and AOA of the parent company duly attested by the Indian embassy or notary;
• Incorporation certificate translated and notarized  and certified by the Indian consulate;
• Latest audited balance sheet and annual accounts of parent company translated and notarized and certified by Indian consulate and directors;
• Name, address, mail ID, and phone number of the authorized person in home country;
• Details of bankers of the parent company;
• Expected funding level for operations in India;
• Address details of the proposed local office, number of persons to be employed, number of foreigners among the employees, and the local office address, if decided;
• Activity details performed in the home country by the parent company regarding the product and services of company;
• A report from the parent company’s bank detailing the years the applicant had banking relations with the bank;
• Proof of identity of all directors certified by the consulate and banker in the home country;
• Address proof of all directors certified by the consulate and banker in the home country;
• Structure of the parent company with respect to shareholding pattern;
• A resolution for opening a bank account with the banker; and
• Duly signed bank account opening form for Indian bank.

The AD Category-I bank, after exercising due diligence with respect to applicant’s background and satisfying itself regarding adherence to the eligibility criteria, grant approval to the foreign entity for establishing a branch office or liaison office in India.

Time period, shifting of Office and Name Change of Liaison office in India

• Time period– Usually, it takes 45 days to register a Liaison office, and the validity to set up liaison office for companies in the business of construction and development has been set for two years.  In the rest of the cases, the validity of setting up Liaison office is three years. Renewal is needed after three years.
• Validity of Approval– After the approval, Liaison office shall establish the office in six months. The approval will elapse if the office is not established in six months. Companies desiring further extension need RBI^[1] approval.
•  Shifting of office– AD banks can grant approval to shift office to another city in India. If the office change is within the same city, no such approval will be required.
• Name change– AD bank can permit name change of Liaison office if there is no change in the foreign company ownership. In case the name change is because of merger/acquisition, then closing existing Liaison office is required. Fresh approval is also required for the same.

Permitted activities for a Liaison office in India

It may be noted that a Liaison office is permitted to undertake only the liaison activities.

Below we have mentioned the activities in which a Liaison office can engage:

• Facilitate communication between overseas head company and parties in India to build market opportunities;
• Promote imports/exports among countries;
• Establish a financial and technical co-operation among overseas and Indian companies; and
•  Represent overseas head company in India.

Compliances for Liaison office

Every year Liaison office are required to file Annual Activity Certificate to the RBI, verifying that the activities of the office are within its charter. It should also be filed with the Directorate general of Income tax within 60 days of the end of the FY.

The Liaison office should report to RBI regarding the address within six months of approval.  Further, it is also required to file annual receipt and payment statement, an assets and liability statement audited by practicing local CA to the ROC.

Conclusion

It may be noted that the initial approval to set up a Liaison office in India is granted by the Reserve Bank. If needed, the Liaison office can apply for extension of the same to its AD bank.

Read our article:Difference between Liaison Office vs. Head Office