Foreign Liaison Office

Since Inception of Liberalization in the year 1991, Global Investors prefer Indian marketplace for choosing a place of business. Foreign entities are permitted to establish a liaison office in India with permission of the Reserve Bank of India and LO is governed by Foreign Exchange Management Regulations, 2000. A Liaison office is not permitted to carry on any business in India, while a Branch office is permitted for doing business from India in terms of imports and exports. Through Liaison Office, Foreign Companies or Entities cannot undertake local trading or manufacturing activities except software development.

Foreign Liaison Office Setup in India by Foreign Investors/Entities

A foreign company planning to set up business operations in India having the following modes for Establishment: -

First: Incorporation of Company at MCA (As a wholly owned subsidiary company or joint venture company or LLP); and

Second: Unincorporated Mode Through branch office (“BO”) or liaison office (“LO”) or project office (“PO”).

Liaison office (“LO”)

Liaison Office or LO is one of the easiest option available to the Foreign Company or Entities which is also called Representative office in India.

This mode of doing business in India is to undertake only liaison activities and it can act as a channel of communication between Head Office Outside India and Parties in India. Liaison Office cannot acquire immovable property. However, it can take property by way of lease not exceeding 5 years. Liaison Office cannot earn any income in India.

Why Parent Company opt open a liaison office (“LO”) in India?

To represent the parent company in various fields in India like-

Acting as a communication channel between the parent company and Indian Parties and develop a network;
Representing in India the parent company or group companies;
Promoting export import from/to India;
Research activity in the field where parent company is engaged;
Promotion of export and import activities and trading on wholesale basis;
Help in Promoting technical and financial collaborations between the Indian companies and overseas companies;
Development of software in India; and
Allocating information related to possible market opportunities and providing information about the Parent Company and its products to the prospective Indian customers.

Documents Required for Foreign Liaison Office

The documents required for registration of a Liaison Office (LO) in India depend on the mode of approval chosen by the parent company. Here are the basic documents required for registration of LO in India:

Automatic Route:

A letter from the parent company authorizing the setting up of the LO in India.
A certificate of incorporation of the parent company.
A memorandum of association and articles of association of the parent company.
A statement of account of the parent company for the last three years, audited by a certified public accountant.
A board resolution of the parent company approving the establishment of the LO in India and authorizing a representative to act on behalf of the parent company.
A declaration that the LO will not undertake any commercial activity in India and will not earn any income in India.
A power of attorney in favor of the representative authorized to act on behalf of the parent company.

Approval Route:

A completed application form in Form FNC (Annexure 1) for approval from the Reserve Bank of India.
A certificate of incorporation of the parent company.
A memorandum of association and articles of association of the parent company.
A board resolution of the parent company approving the establishment of the LO in India and authorizing a representative to act on behalf of the parent company.
A statement of account of the parent company for the last three years, audited by a certified public accountant.
A declaration that the LO will not undertake any commercial activity in India and will not earn any income in India.
A power of attorney in favor of the representative authorized to act on behalf of the parent company.

Additionally, the RBI may require any other documents or information as deemed necessary during the approval process. It is advisable to consult with a professional to ensure all necessary documents are in order for registration of LO in India.

Legal Procedures of Foreign Liaison Office

In India, the approval for setting up a Liaison Office (LO) is governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999.

There are two modes for approval of LO in India:

Automatic Route: Under this mode, the RBI grants approval for setting up an LO in India without any prior approval. However, the LO must comply with certain conditions, such as:

The parent company must have a track record of at least three years of profitable operations.
The proposed activities of the LO must be in the nature of representing the parent company in India, promoting export/import from/to India, and promoting technical/financial collaborations between the parent company and Indian companies.
The LO cannot undertake any commercial activity in India and cannot earn any income in India. All expenses of the LO must be met through inward remittances from the parent company.

Approval Route: Under this mode, the LO must obtain prior approval from the RBI before setting up an LO in India. The approval must be obtained through an application in Form FNC (Annexure 1) submitted to the RBI along with the required documents. The RBI evaluates the application based on the following criteria:

The track record of the parent company.
The purpose of setting up the LO in India.
The source of funding for the LO.
The feasibility of the proposed activities of the LO.

Once the RBI is satisfied with the application, it may grant approval subject to certain conditions. The LO must comply with these conditions while operating in India.

Bonus Points: It is important to note that the mode of approval depends on the proposed activities of the LO and the track record of the parent company. It is advisable to consult with a professional before setting up an LO in India.

Features & Benefits of Foreign Liaison Office

Here are the features of Liaison Office (LO) registration in India:

Limited Scope: A LO in India has limited scope and can only engage in certain activities, such as representing the parent company in India, promoting export/import from/to India, and promoting technical/financial collaborations between the parent company and Indian companies. The LO cannot undertake any commercial activity in India and cannot earn any income in India.

No Profit-Making: Since the LO is not allowed to undertake any commercial activity in India, it cannot make any profits in India. All expenses of the LO must be met through inward remittances from the parent company.

Approval Required: The establishment of a LO in India requires prior approval from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. The approval can be obtained through either the Automatic or Approval Route.

Parent Company Liability: The parent company is fully liable for all the activities of the LO in India. Any liabilities arising out of the LO’s operations in India must be met by the parent company.

Annual Filing: The LO must file an annual activity report with the RBI, detailing the activities undertaken by the LO in India during the year. The report must be submitted within six months of the close of the financial year.

Taxation: The LO is not subject to Indian taxation as it cannot earn any income in India. However, it must comply with certain tax requirements, such as obtaining a Permanent Account Number (PAN) and filing tax returns for any payments made to employees or vendors in India.

Time-bound: The approval for setting up a LO in India is typically valid for three years and can be renewed for another three years at a time.

It is important to note that the features of LO registration in India may be subject to change as per the laws and regulations applicable at the time of registration. It is advisable to consult with a professional before setting up an LO in India.

What is a Liasion Office?

Liaison Office or LO is acts as a Representative for Principal place of business or Head Office outside India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from outside India through normal banking channel route.

As per RBI: A 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. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside 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. 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.

Who can setup a liaison Office in India?

“Foreign Company” as a body corporate incorporated outside India, and includes a Firm or other association of individuals can setup a liaison Office in India.

Who is called Foreign Company?

RBI explained that 'Foreign company' means a body corporate incorporated outside India and includes a firm or other association of individuals.

How to Establish A liaison office (“LO”) in India by foreign entities?

Any Person resident outside India want to do the business from India through open a liaison office (“LO”) in India subject to the some legal formalities with AD Bank. No person resident outside India shall without prior approval of the RBI open a liaison office (“LO”) or Representative office by whatever name called except as some Direct Establishment allowed which are laid down in the RBI Regulations.

Branch Office can be converted into liaison office (“LO”)?

Yes, under advice to Reserve Bank subject to the bank account is re-designated as a BO account.

What is the Difference between Branch Office & Liaison Office?

There is slight difference between these two:

In the home country	Branch Office	Liaison Office
Track record of Profit	immediately preceding 5 financial years	immediately preceding 3 financial years
Net Worth	> USD 100,000 or equivalent	> USD 50,000 or equivalent

Any Pre-Conditions prescribed by RBI for opening for liaison office (“LO”) in India?

Yes, Conditions for liaison office (“LO”) are given under RBI Guideline:

A profit making track record during the immediately preceding 3 financial years in the home country and net-worth shall not be less than USD 50,000 or its equivalent.
But, if a person resident outside India that is not financially sound and are subsidiaries of other companies may submit a Letter of Comfort from their parent company subject to the condition that parent company fulfilling the prescribed criterion of net worth and profit.

Liaison Office can be opened for Foreign Insurance Companies and Banks?

The answer is yes.

Foreign Insurance companies: Only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA) in India

Foreign Banks: Only after obtaining approval from the Department of Banking Regulation (DBR), RBI in India

Who can be the Authorised Representative of the parent company?

As per company law, a resident having PAN to be authorised for receiving documents/notices/orders/etc. in India for on behalf of foreign Parent company.

Any specific RBI guidelines regarding establishment of LO (Liaison Office)?

Yes, you may refer https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10398&Mode=0

What are the Laws governing LO (Liaison Office)?

Applicable laws are:-

Companies Act, 2013;
- Chapter XXII of the Companies Act, 2013
- Companies (Registration of Foreign Companies) Rules, 2014
Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000; and
Guidelines, Circulars and Notifications Issued by RBI

Any Timelines granted by AD Bank for the opening of LO (Liaison Office)?

Yes, after approval from AD Bank application within 6 months office shall be opened. In case no office is opened by the person resident outside India within six months from the date of approval letter, the approval for establishing the office in India shall be cancelled by the AD Bank and need to apply for Extension. Liaison office valid for a period of 3 years.

How to apply for Extension of the validity period for LO (Liaison Office)?

AD Category-I bank concerned may extend the validity period of approval for a period of 3 years from the date of expiry of the original approval / extension granted by AD Bank, subject to directions issued by the RBI in this regard.

More than one LO (Liaison Office) can be opened in India?

Yes, A person resident outside India desiring to establish additional branch office or liaison office may submit to the AD Category-I bank a fresh FNC-1 Form along with the justification for the need for additional office(s) place in India.

Any Prior approval required from RBI for opening of LO (Liaison Office)?

Yes, person resident outside India for opening of a Liaison Office in India shall require prior approval of RBI in following cases:-

the applicant is a citizen of or is registered/incorporated in Pakistan;
the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a BO/LO/PO in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private Security and Information and Broadcasting. In the case of proposal for opening a PO relating to defence sector, no separate reference or approval of Government of India shall be required if the said non-resident applicant has been awarded a contract by/ entered into an agreement with Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings. There shall be no requirement of any approval from RBI also only for such cases;
The applicant is a Non-Government Organisation (NGO), a Non-Profit Organisation, or a Body/ Agency/ Department of a foreign government.

Such applications may be forwarded by the AD Category-I bank to the General Manager, Reserve Bank of India, Central Office Cell, Foreign Exchange Department, 6, Sansad Marg, New Delhi-110 001 who shall process the applications in consultation with the Government of India.

How to close a LO (Liaison Office) in India?

Closure of LO (Liaison Office) and remittance of winding can be done by a Professional who is good at liaisoning with the Govt Dept. Compliance Calendar have multiple experiences in closing Liaison Offices.

Step-1: Application to AD Bank along with supporting documents

Company need to approach the designated AD Category - I bank with an Application Requests for closure of the LO (Liaison Office) and for remittance of winding-up;
Following documents need to be furnish along with an Application:
- Copy of the RBI Granted permission/ approval letter from the sectoral regulator(s) for establishing the Liaison office;
- Latest Audited Balance Sheet of the Parent company along with Auditor’s certificate-
  - i) Indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
  - ii) Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and
  - iii) Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.

Step-2: Parent Company Confirmation

Confirmation from the applicant or parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance;

Step-3: NOC from ROC

A ROC report needs to be taken from the Registrar of Companies in which jurisdiction liaison office is situated in relation to compliance with the provisions of the Companies Act, 2013, in case of closure of the LO (Liaison Office) in India;

Step-3: Other details and documents

Any other document/s, specified by the RBI while granting approval. The designated AD Category - I banks has to ensure that the LO (Liaison Office) had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years, in respect of the existing office;
Confirmation about the same may be required from the Central Office of the Reserve Bank.

Step-4: Remittance of funds while winding up Procedure

The designated AD Category - I bank may permit the remittance subject to the directions issued by the RBI in this regard from time to time and payment of applicable taxes in India, if any;

Step-5: Intimation to the RBI

Closure of Liaison Office shall be reported by the designated AD Category - I bank to the RBI (the Central Office for BOs);
A declaration needs to submit stating that all the necessary documents submitted by the Liaison office have been scrutinized and found to be in order.
If the documents are not found in order or cases are not covered under delegated powers, the AD Category - I bank may forward the application to the Reserve Bank, with their observations, for necessary action; and
All the documents relating to the Liaison Office operations may be retained by the AD Category - I bank for verification by the internal auditors of the AD / inspecting officers of the Reserve Bank.

Opening/ Closing a liaison office (“LO”): Can Compliance Calendar you?

Compliance Calendar facilitate opening and closure of foreign entity through liaison office (“LO”) having place of business in India including handholding support to foreign entities through the entire compliance cycle, from making up mind to day-to-day decision-making to aftercare for post Registration compliances including approval if any required from time to time. You can reach out to us at info@ccoffice.in or connect at 9988424211.