Bhavesh K Savla

Overview about Liaison Office Set up in India

CA Bhavesh Savla
  1. What is a Liaison Office?

A Liaison office or a representative office is one of the ways by which a foreign Company may set up a business presence in India; the other means are to open a Branch office or a Limited Liability Partnership or a Limited Company (either as a wholly owned subsidiary or as a Joint Venture)

A Liaison office, by its very features and functions, is a very unique, restrictive but a safer way of operating for a foreign Company which just intends to ‘test the waters’ before taking major business decisions.  A Liaison Office intends to establish the first presence in India by a foreign Company. Over the past few years, Liaison Office option, because of its simplistic nature and nil tax complications have, has become popular among Foreign Companies to set up base in India.

Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India.

The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.

Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.

A Liaison Office can undertake the following activities in India:

  1. Representing in India the parent company / group compa­nies.
  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.

It is not allowed to undertake any business activity in India and cannot earn any income in India.

A Liaison Office cannot solicit customers. It is not allowed to advertise.

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.

A proprietary concern or a partnership firm cannot open a Liaison Office. Only a body corporate incorporated outside India can open a Liaison Office. Permission has to be sought from the Reserve Bank of India (RBI). Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

General Criteria

Application in Form FNC (Annex-1) will be considered by Reserve Bank in two routes:

The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison Office of foreign entities:

The application for establishing Liaison Office in India should be forwarded by the foreign entity through a designated Authorised Dealer Category – I bank (AD bank) along with the prescribed documents including:

  1. English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.
  2. Audited Financials of previous 3 years of the applicant entity.
  3. Other details like the profile of the applicant, nature and location of activities and source of funds, information about Directors, shareholders and key managerial personnel, Background verifications etc.
  4. A KYC of the parent Company in a prescribed format from their bankers.
  5. Besides the above, certain Authorised Dealers may ask for certain information or documents or certifications to convince themselves of the credibility of the applicant.
  6. Certificate from Chartered Accountant in India about satisfaction or otherwise of the additional criteria by the Parent Company.

Note: Please select your AD -1 bank very very carefully because you are practically tied up with that bank even after establishment of Liaison Office. Even RBI circular says that the applicant for Liaison Office should apply via an AD bank with which it intends to maintain banking relationship.              

(Please note that while I have tried to cover as many documents as possible, the above list is not exhaustive and certain other documents or certifications or information may be required to be furnished in the entire process.)

In September 2012, RBI came out with a new circular which enlarged the reporting requirement for a Liaison Office. The Circular mandated that:

A Liaison Office shall submit a report containing information in Annex 3 within five working days of the Liaison Office becoming functional to the Director General of Police (DGP) of the state concerned in which Liaison Office/BO/PO has established its office; if there are more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India;

  1. A copy of the report as per Annex shall also be filed with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate/Annual report required to be submitted by the Liaison Office concerned, as the case may be.
  2. A copy of report thus filed as above shall also be filed with AD by the Liaison Office concerned.

Disclaimer:

Disclaimer: The author CA. Bhavesh Savla is a practicing Chartered Accountant based at Mumbai.  Please contact him at bhavesh@cabks.in or ca.bhavesh.savla@gmail.com or you can visit www.cabks.in in case of any further queries about a Liaison Office. Please note that this write-up is intended to give a general overview and under no circumstances, can be taken as actionable professional advice. While all due care has been taken to provide accurate information, readers are expected to take further professional advice before acting on above article. No liability rests or exists or is created against the author for any action taken by anyone on the basis of this article.