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Liaison Office

Liaison Office is a 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.

Details About Liason Office

The set up and regulation of Liaison office are governed by Foreign Exchange Management Act, 1999 and guidelines issued by Reserve Bank of India time to time. Liaison office are generally set up by foreign entities as channel of communication between parent company and business entities/regulatory authorities in India. 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. An applicant that is not financially sound and is a subsidiary of another company may submit a Letter of Comfort (LOC) (Annex A) from its parent/ group company, subject to the condition that the parent/ group company satisfies the prescribed criteria for net worth and profit. Permitted activities for a liaison office in India of a person resident outside India are given below:

  1. Representing the parent company / group companies in India.
  2. Promoting export / import from / to India.
  3. Promoting technical/ financial collaborations between parent / group companies and companies in India.
  4. Acting as a communication channel between the parent company and Indian companies.

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 are submitted to AD Category-I 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 by AD Category-I, Reserve Bank of India also allot a Unique Identification Number (UIN) to each liaison office. The validity of license is for 3 years and can be renewed thereafter. LO are not permitted to maintain more than one bank account at any given time without the prior permission of Reserve Bank of India. The permissible credits in bank account are generally fund received from head office, refund of taxes, sales proceeds of assets etc. While the permissible debits, are the local expenses of the office only.

Features

  • Name & 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.

  • Track record

    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.

  • Expenses of Liaison office

    Liaison office are only a representative of foreign parent company, therefore all its expenses are met by the Head Office through inward remittances received in Convertible Foreign Exchange.

  • Application for set up

    The application are 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.

  • Validity of license

    The validity of an LO 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.

  • Bank Account

    Liaison Office may open current account with designated AD Category I Bank in India to receive remittances from its Head Office outside India. LO can’t maintain more than one bank account without the prior permission of Reserve Bank of India.

  • Permissible debits and credits in bank

    The permissible credits in bank account are generally fund received from head office, refund of taxes, sales proceeds of assets etc. While the permissible debits, are the local expenses of the office 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.

  • Closure of Liaison office

    Requests for closure of Liaison office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

Pros & Cons

Pros

  • It is easy to start a liaison office in India as compared to other forms thus the cost and formalities involved in formation are comparatively less.
  • Best suitable form for the foreign entities desirous to open a representative office in India and no commercial activity is intended to be undertaken.
  • Transfer Pricing Regulations are not applicable on liaison offices.
  • Formalities for closure of Liaison office is comparatively lesser comparing to other business entities.

Cons

  • Liaison office can only open one current bank account and for any additional account permission need to be obtained from RBI.
  • Liaison office is not permitted to do any income generating activity in India though not able to make any profit.
  • In India, they are not allowed to acquire or hold any immovable property they can only take property on lease that too for a period not exceeding 5 yrs.

Applicable Taxes & Compliances

Income Tax is a direct tax levied by Central Government on income of the assesse as per the provisions of Income Tax Act, 1961. As Liaison office are not permitted to carry out any commercial activity in India, hence no question arises of income tax liability in India. The legal position may change if it constituents both a ‘permanent establishment’ as well as a ‘business connection’ for the foreign company in India, in such case income tax liability may arise as applicable to foreign companies in India.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. As Liaison office are not engaged in any commercial activity in India, hence generally no service tax liability arises on output services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level tax, which is payable on sale of goods in India. It is a type of consumption tax which is imposed on the value of goods on each stage of its production and at final sale, however input credit of VAT paid on purchase of goods is also allowed subject to certain conditions. The rate of Vat/Sales tax varies from state to state. As Liaison office are not engaged in any commercial activity in India, hence no liability of sales tax/VAT arises.
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.
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, statutory audit etc. as may be applicable.

FAQ

  • What are the various forms of business structures available for doing business in India?

    Foreign Individuals seeking interest to start their operations in India can open a Foreign Representations in the form of Liaison Office, Branch Office and Project Office in India. Furthur, an incorporated entity can also be formed such as Wholly Owned Subsidiary, Joint Venture and Limited Liability Partnership etc.

  • What are the Conditions for establishing a Liaison Office in India?

    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.

  • What are the Conditions in which approval of RBI is required?

    Application who is a citizen of or is registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau required prior approval from RBI. Applications relating to Jammu and Kashmir, North East Region and Andaman and Nicobar Islands are routed through Reserve Bank of India. Where the principal business of the applicant falls in the sectors namely, Defense, Telecom, Private Security and Information and Broadcasting are also to be considered by Reserve Bank of India. An Applicant is an NGO/ Non- Profit Organisation, Body/Agency/Department of a foreign government.

  • How long office of the Liaison office is valid?

    The validity of an LO 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.

  • Who all need to submit 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.

  • What are the procedure criteria to be met for setting up additional office?

    Request for opening an additional office to be submitted before the AD Category I Bank in a fresh Form FNC-I there is no need to resubmit the documents mentioned in the form. However, an applicant is allowed to open only 4 LO Office in each Zone otherwise prior approval from the RBI is required.

  • Who can register a Liaison Office?

    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 and requisite documents.

  • What are the procedure for opening a Liaison Office in India?

    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.

  • What are the activities permitted for a liaison Office in India?

    Permitted activities for a liaison office in India of a person resident outside India are given below: i. Representing the parent company / group companies in India. ii. Promoting export / import from / to India. iii. Promoting technical/ financial collaborations between parent / group companies and companies in India. iv. Acting as a communication channel between the parent company and Indian companies.

  • What do you mean by issuance of UIN?

    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.

  • Is there any additional Compliances also applicable on 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.

  • What is the procedure for closing a Liaison Office?

    Requests for closure of Liaison office and for remittance of winding-up proceeds are need to be submitted to designated AD Category - I bank along with prescribed documents.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

  • 3 copies of Form FNC-1
  • Attested and Notarised english version of the Certificate of Incorporation or Memorandum & Article of Association in the country of registration.
  • Last 3 years details of export/ Import from/to India (On letter head, signed with stamp, five copies)
  • Last 3 years latest Audited Balance-sheet of the applicant entity.
  • Details of existing Indian Clients, if any
  • Details of activities proposed to be undertaken in India.
  • Power of Attorney in favour of signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC.
  • Bankers\' Report from the applicant’s banker in the host country / country of registration showing the number of years the applicant has had banking relations with that bank.
  • The above list is not exhaustive and may differ depending upon the requirement from the authorised dealer.