Liaison Office or Representative Office is one of the ways in which a foreign company can set up a business presence in India. In fact, it is considered to be the most tax-friendly method to set up a business presence in India since Liaison Office does not earn revenues, hence is not required to undergo the rigorous income tax and transfer pricing requirements. All its expenses have to be from money remitted by its Head Quarters or Parent company
As such, a Liaison Office is an extension or a representative of its foreign parent office. It acts as a liaison front between the parent company and the customers in India. However, it is not supposed to solicit customers or engage in concluding Sales contracts. It can be a good front office for its parent company and also to test waters in India i.e. to understand if the market in India is viable enough before committing a full-fledged business presence in India in the form of a wholly owned subsidiary in India. Liaison Office can only carry on liaison work in India; more specifically only those activities which are mentioned in the license approval letter by RBI.
A Liaison Office can undertake the following activities in India:
- Representing in India the parent company/group companies.
- Promoting export / import from / to India.
- Promoting technical/financial collaborations between parent/group companies and companies in India.
- Acting as a communication channel between the parent company and Indian companies.
However, A Liaison Office is not allowed to make investments in India. A Liaison Office cannot purchase any immovable property like land or even an office.
Broadly speaking, the Liaison Offices can be set up in India if the foreign business carries on a business which is allowed as per the Foreign Direct Investment (FDI) Rules in India. Additionally, the parent company is also required to have a minimum net worth of 50,000 USD and a minimum 3 years of net worth.