18 December 2017 • Prasanna Nagure
A. What is a Liaison office?
Liaison office is an office set up by foreign entity (Parent Company) in India which acts as a channel of communication between the principal place of business or Head Office of the foreign entity (Parent Company).
Liaison office is not allowed to earn income in India; it has to meet all its expenses of Indian office through remittances from the Head office.
B. Features of Liaison Office
- The name of Liaison office shall be the same as Parent Company
- The regulatory authority is Reserve Bank of India. RBI Approval is required for setting up a Liaison Office.
- 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”.
- The liaison office is not treated to be a distinct entity from its parent company. The parent company can be held liable for liability of Liaison office.
- Permitted activities include representing parent company, Promotion of Import/export, financial and technical collaboration.
- A Liaison Office cannot acquire immovable property in India although it can take property on lease.
C. Purpose of Liaison office
- It’s a tool used by foreign companies to understand Indian market before it makes the decision to invest in India.
- Based on its research it may take decision whether to incorporate a subsidiary or not.
- It’s also easier and faster to close at any time as compared to WOS (Wholly Owned Subsidiary).
D. Pre-requisites for setting up (Parent Company)
- Parent Company shall have a profitable track record during immediately preceding three years in the home country.
- Its net worth as per latest audited Balance Sheet should not be less than USD 50,000/-.
E. How to set up a Liaison Office?
- Application to RBI can be made for Sectors in which 100% FDI is permissible. Sectors in which 100% FDI is not permissible such application are considered by RBI in consultation with Ministry of Finance.
- The applicant shall make application in form FNC to Authorized Dealer Category –I bank (a dealer having banking license) along with documents such as Charter of the Parent Company, Parent company’s banker’s report and other relevant documents as may be required.
- An authorised representative is needed as point of contact between the parent company and Indian authorities. An authorised representative can be appointed through Power of Attorney / Board Resolution.
- We suggest the applicant to have the same bank as an authorised dealer which is also the bank for parent company.
Upon registration, the RBI grants UIN (Unique Registration Number) to the Liaison Office.
F. Application to the Registrar of Companies
The Liaison Office of the foreign parent company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar of Companies for registration in form FC-1 along with copy of RBI Approval and other requisite documents.
MCA grants FCRN (Foreign Company Registration Number) to the liaison Office as an Identification upon registration.
G. Registration with State Police Authorities
A person from China, Hong Kong etc opening a liaison office in India shall have to register with the concerned State Police Authorities as well. Copy of approval letter for these ‘persons’ shall be marked by the AD Category-I bank to the Ministry of Home Affairs, Internal Security Division-I, Government of India, New Delhi.
H. Taxation and remittances of Profits
The Liaison office in India is not liable to any pay income tax as it is not allowed to earn any income. It is required to file information in Form 49C with the Income Tax Department.
I. Applicable Comliances
Upon registration the Liaison Office shall obtain PAN, TAN and such other License/registration as may be necessary.
- Maintenance of Books of Account and getting Annual Accounts audited
- Filling of Annual Activity Certificate with RBI
- Filling of Annual Return and Balance sheet with Registrar of Companies
- Intimating any change in Constitution/ Directors of Parent Company to RBI & ROC
- Intimating each and every change in the Liaison office to RBI & ROC
NOTE: Additional place of business can be started after approval is taken form RBI.
Source: Notification No. FEMA 22/2000-RB dated May 3, 2000