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Liaison Office is set up to represent the parent company in India and work as a channel of communication between the parent company and business entities in India. It can’t undertake any business activity in India and cannot earn any income in India. Expenses of Liaison office are met by the Head Office through inward remittances received in Convertible Foreign Exchange.
It can be a good prelude for any foreign entity looking for a sourcing division in India or to test and understand the Indian market or to carry out the research and development activities or to improve the relations with the authorities and business community, etc.
Name and Permissible Activities
The name of Indian liaison office shall be same as parent company. A Liaison Office is not permitted to carry out any business activity or earn any income in India. It can only work as a channel of communication between parent company and business entities/regulatory authorities in India
Expenses of Liaison Office
Expenses of Liaison office are met by the Head Office through inward remittances received in Convertible Foreign Exchange.
Liaison Office may open current account with designated AD Category I Bank in India to receive remittances from its Head Office outside India. Liaison Office cannot maintain more than one bank account without the prior permission of Reserve Bank of India.
Closure of Liaison Office
Requests for closure of Liaison Office and for remittance of winding-up proceeds needs to be submitted to designated AD Category - I bank along with prescribed documents.
The non-resident entity applying for Liaison Office should have a profit making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent.
Application for establishment of Liaison Office
The applications for establishment of Liaison Office in a sector in which 100% FDI is allowed are routed through designated AD Category I Bank. The application is required to be submitted to AD Category-I bank (AD Bank) in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable), as per the guidelines issued by the Reserve Bank of India.
Before issuance of approval letter, AD Bank forwards a copy of Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO cell, New Delhi for allotment of Unique Identification Number (UIN) to each Liaison office.
An applicant that has received a permission for setting up of a Liaison Office shall inform the designated AD Bank as to the date on which the Liaison Office has been set up which shall not be later than 6 months from the date of the approval letter.
Permissible debits and credits from bank account
The permissible credits in bank account are:
Permissible debits include meeting the local expenses of the office.
Validity period of Liaison Office
The validity period of a Liaison Office is generally three years, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only.
Annual Activity Certificate
Liaison Office are required to submit Annual Activity Certificate (AAC) as at the end of March 31 each year along with the prescribed documents to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi.
Registration with Registrar of Companies
A foreign company establishing a liaison office in India is required to file Form FC-1 with the Registrar of Companies within 30 days of the establishment of its place of business in India.
From Foreign Entity
Foreign Individuals seeking interest to start their operations in India can open a Foreign Representation Office in the form of Liaison Office, Branch Office and Project Office in India. Further, an incorporated entity can also be formed such as Wholly Owned Subsidiary, Joint Venture and Limited Liability Partnership.
Company desirous for opening a Liaison Office in India are required to show a profit making track record during the immediately preceding 3 financial years in the home country and net worth of not less than USD 50,000 or its equivalent.
Approval of RBI for establishing Liaison Office is required in following cases:
The validity of a Liaison Office is for three years (two years for Non-Banking Finance Companies (NBFCs) and entities engaged in construction and development sectors) and may be renewed after every 3 years by AD Category I Bank with the prior approval from RBI for a further period of three years.
Liaison office are required to submit Annual Activity Certificate (AAC) as at the end of March 31 each year along with the prescribed documents to the designated AD Category -I bank as well as Director General of Income Tax (International Taxation), New Delhi.
Request for opening an additional office to be submitted to the AD Category I Bank in a fresh Form FNC. The documents mentioned in Form FNC need not be re-submitted, if there are no changes to the documents already submitted earlier. Further, if the number of offices exceeds 4 (i.e. one Liaison office in each zone viz. East, West, North and South), the applicant has to justify the need for additional offices and shall require prior approval of RBI.
An individual seeking interest to start their business operations in India as a representative of its already existing foreign company without creating a subsidiary company can open a Liaison Office in India by approaching AD Category –I Bank along with the application in Form FNC and requisite documents.
An application to be submitted to AD Category-I bank in Form FNC along with the prescribed documents mentioned in the Form and the LOC (wherever applicable). Before approval, a Unique Identification Number (UIN) is allotted by the Reserve Bank of India to the Liaison office.
UIN is a unique identification number allotted by Reserve Bank of India, before issuance of approval letter by AD Category I Bank to each Liaison Office.
Liaison office are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.
Requests for closure of Liaison office and for remittance of winding-up proceeds needs to be submitted to designated AD Category - I bank along with prescribed documents.