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Liaison Office-An Overview

 

‘Liaison Office’ means a place of business to act as a channel of communication between the principal place of business or Head Office or by whatever name called and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.

A Liaison Office (LO) functions as a representative office of its parent Company and can undertake only Liasoning Activities on behalf of its parent. The role of such offices is, therefore limited only to collection of information about possible market opportunities, source of supply, and providing information about the parent company and its products to the prospective Indian customers or vice versa to its vendor. It is set up primarily to explore and understand the business and investment climate in India.

Activities that can be undertaken by Liaison Office

Representing in India its 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.

Any foreign company intending to establish a Liaison Office in India is required to obtain prior approval from the RBI, The Supreme Bank of India, through AD Category-1 Bank, which may take up to 3-4 weeks for processing the application and grant the approval. The Approval for Liaison office is granted for 3 Years and it has to renew its registration after the expiry of 3 years.

What is AD Category-1 Bank?

 Authorized Dealer Category -I Banks are the banks which are authorized by the Reserve Bank to deal in foreign exchange for specified purposes. The conversion of currency notes, coins or travelers’ cheques designated in foreign currency into Indian Rupees and vice versa.

Requisites for a Foreign Entity to establish a Liaison Office in India

To have one qualified Legal Representative resident in India having a permanent Account Number (PAN)

To have one physical office Address in India for setting-up the office

Documents Required

Request letter from the applicant, detailing the line of activity and proposed activities in India as a Liaison Office (LO)

Form FNC

Certified Copy of Passport to verify the signatures of the signatory signing the documents

Power of Attorney in favor of signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC, attested by the Notary Public in the country of registration

Board Resolution of the applicant company to open LO in India

Copy of the Certificate of Incorporation / Registration attested by the Notary Public in the country of registration

Copy of Memorandum & Articles of Association attested by Notary Public in the Country of Registration

Copies of Audited Balance sheet for preceding 3 years of the applicant company. [If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA)

CA certificate confirming the Profit/ Loss Track Record of the applicant for preceding 3 years along with the Net Worth (in USD) [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant

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

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per Annex A of FED Master Direction No.10/2015-16 dated January 01, 2016 as amended from time to time, subject to the condition that the parent company satisfies the eligibility criteria as prescribed by RBI

Salient Features of Liaison Office

The name of Indian liaison office shall be same as parent company.

The governing body for the Liaison office is AD banker/ Reserve Bank of India.

Suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.

The Liaison office does not have any ownership, It is just extension of the existing foreign company.

All the expenses of the Liaison office are met by the head office, hence the funds shall be received from head office account only.

The License for the Liaison office is given for three years and the same can be renewed every 3 years.

The liaison office is not subjected to taxation in India as there is no mechanism for the income tax department to examine and ascertain as to whether the activities under taken by it result in any taxable income in India.

Restriction on Activities of the Liaison Office

A Liaison Office is not permitted to undertake any commercial/trading/Industrial activity, Directly or indirectly and therefore cannot earn any income in India.

The liaison office can neither borrow nor lend money.

It cannot acquire, Hold, (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India, without prior approval of RBI.

Reporting by Liaison Office

All new entities setting up LO shall submit a report containing information, as per format provided within five working days of the LO becoming functional to the Director General of Police (DGP) of the state concerned in which LO has established its registered office. In case, there is 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.

Liaison Offices have to file Annual Activity Certificates (AAC) certified from Chartered Accountants, At the end of March 31, Along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the LO are finalized with reference to a date other than March 31, The AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.

File form 49C as per Section 285 of the Income Tax Act, 191 together with prescribed documents.

Liaison Office may be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law.

File form 49C as per Section 285 of the Income Tax Act, 191 together with prescribed documents.

The Liaison Office may require to comply with GST obligation under reverse tax mechanism for availing certain services, if applicable.

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