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.
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
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.
The rules and regulations in respect to Liaison Offices are framed under Foreign Exchange Management Act, 1999 and Circulars/Notifications issued by RBI from time to time.
ROUTES & PROCESS OF REGISTRATION
There are 2 routes to establish a Liaison Office in India:
If the industry the Foreign Entity is in, comes in the specified industries for 100% automatic route of investment as per Foreign Direct Investment Policy then the Liaison Office will be approved by the Reserve Bank of India.
If the industry the Foreign Entity is in, doesn’t come in 100% automatic route and Non Profit and Non-Government Organization, then the Liaison Office will be approved by Reserve Bank of India in consultation of the Ministry of Finance, Government of India.
- 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).
In addition to above, Reserve Bank of India has prescribed eligibility criteria for Foreign Entities to apply for Liaison Office. The application of Foreign Entities satisfying the below criteria will be processed:
- 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.
- The other prequisites of 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.
A Liaison office has to do minimal annual compliances as compared to other forms of business in India.
As annual compliance, an annual activity certificate issued by a Practicing Chartered Accountant at the end of March 31, need to be submitted to the Authorized Dealer Category-1 Bank, Directorate General of Income Tax (International Taxation), concerned Registrar of Companies and Director General of Police, on or before 30th September of each financial year (In India the Financial Year is April to March) including audited receipts and payments account.
Approval is generally given for a period of 3 years and extension is granted on the basis of
- Track record of annual activity certificates.
- Record of the account maintained with the designated bank as per the terms and conditions of original approval.
- Additional 8Activities and Offices
- 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.