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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 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-
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:
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.
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:
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:
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.
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.
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.
“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.
RBI explained that 'Foreign company' means a body corporate incorporated outside India and includes a firm or other association of individuals.
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.
Yes, under advice to Reserve Bank subject to the bank account is re-designated as a BO account.
There is slight difference between these two:
In the home country
Track record of Profit
immediately preceding 5 financial years
immediately preceding 3 financial years
> USD 100,000 or equivalent
> USD 50,000 or equivalent
Yes, Conditions for liaison office (“LO”) are given under RBI Guideline:
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
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.
Yes, you may refer https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10398&Mode=0
Applicable laws are:-
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.
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.
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.
Yes, person resident outside India for opening of a Liaison Office in India shall require prior approval of RBI in following cases:-
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.
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
Step-2: Parent Company Confirmation
Step-3: NOC from ROC
Step-3: Other details and documents
Step-4: Remittance of funds while winding up Procedure
Step-5: Intimation to the RBI
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 firstname.lastname@example.org or connect at 9988424211.