Published Thu, 31 Dec 2020 | Updated Thu, 18 Mar 2021 Income Tax
Prospective investors looking to make investment in India and to explore the India market must carefully analyze the various business structures before choosing one. Liaison office is one such alternative for foreign investors intending to explore Indian market for the first time and establishing their little footing in India. Only those foreign entities which meet the eligibility criteria are allowed to set up a Liaison Office in India.
'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 abroad 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 is permitted to carry out only the following activities:
- Representing the parent company/group companies in India
- 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
A liaison office is generally established to facilitate and promote the business activities of the parent company and to act as a channel of communication between a parent company and Indian companies. A liaison is not permitted to engage in any sort of commercial, trading, or industrial activities (directly or indirectly).
In this article, we have detailed out the complete procedure for setting up a Liaison office in India.
ELIGIBILITY CRITERIA FOR SETTING UP A LIAISON OFFICE
A person resident outside India can establish a liaison office in India provided it meets the following criteria:
- A profit-making track record during the immediately preceding three (3) financial years in the home country; and
- Net worth of the foreign company establishing the liaison office shall not be less than USD 50,000 or its equivalent.
Net Worth= [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 or any Registered Accounts Practitioner by whatever name called]
CASES IN WHICH PRIOR APPROVAL OF RBI IS REQUIRED FOR ESTABLISHMENT OF LIAISON OFFICE
An application from a foreign entity for the opening of a liaison office in India shall require prior approval of Reserve Bank of India and shall 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 in the 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 liaison office 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. However, prior approval of Reserve Bank of India shall not be required in cases where Government approval or license/permission by the concerned Ministry/Regulator has already been granted.
- The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ Department of a foreign government. However, if such entity is engaged, partly or wholly, in any of the activities covered under Foreign Contribution (Regulation) Act, 2010 (FCRA), they shall obtain a certificate of registration under the said Act and shall not seek permission under Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016.
PROCESS FOR REGISTRATION
Submission of application in Form FNC with AD Category I Bank: A foreign entity which meets the eligibility criteria as provided above may establish a liaison office in India by submitting an application in Form FNC to a designated AD Category-I bank along with the following documents:
- Copy of the Certificate of Incorporation / Registration along with Memorandum and Articles of Association attested by the Notary Public in the country of registration [If the original Certificate is in a language other than in English, the same may be translated into English and notarized as above and cross verified/attested by the Indian Embassy/ Consulate in the home country].
- Audited Balance sheet of the applicant company for the last five years [If the applicants’ home country laws/regulations do not insist on auditing of accounts, an Account Statement certified by a Certified Public Accountant (CPA) or any Registered Accounts Practitioner by any name, clearly showing the net worth may be submitted]
- 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.
- Company profile (in English translation)
- List of Directors of Parent Company (in English translation, with notarization and attestation by the Indian Embassy)
- Power of Attorney in favor of an authorized signatory of Form FNC in case the Head of the overseas entity is not signing the Form FNC
- Letter of comfort from the parent/ group company of the foreign entity establishing liaison office (required only when the applicant foreign company is not financially sound and is a subsidiary of another company that satisfies the eligibility criteria)
- Lease agreement as proof for Liaison Office
Verification of documents and allotment of UIN: AD Category – I bank on receipt of documents shall conduct due diligence in respect of applicant’s background, antecedents of promoter, nature, and location of activity of the applicant. Before issuance of the approval letter, AD Bank forwards a copy of Form FNC along with the details of the approval proposed to be granted by it to the General Manager, Reserve Bank of India, CO cell, New Delhi for allotment of Unique Identification Number (UIN) to such liaison office.
After issuance of UIN, AD Category-I bank issues the approval letter to the foreign entity for establishing its liaison office in India.
Intimation of Setting up LO with AD Bank: An applicant upon receiving the permission for setting up of a liaison office shall inform the designated AD Bank as to the date on which the Liaison Office has been set up which shall not be later than 6 months from the date of the approval letter. In case the foreign entity is not able to open its liaison office within the period of six months due to reasons beyond its control, the AD Category-I bank may consider granting an extension of time for a further period of six months for setting up the office. Any further extension of time shall require the prior approval of RBI.
Intimation of Setup to Registrar of Companies: Every foreign company establishing its LO in India is required to register itself with the Ministry of Corporate Affairs (MCA) by filing Form FC-1 within a period of thirty days of the establishment of LO. List of documents and details required to be submitted along with Form FC-1 include:
- A certified true copy of the charter, statutes or memorandum and articles of the foreign company or other instrument constituting or defining the constitution of the company (with the translation of the document in English, in case the instrument is not in the English language)
- List of directors and secretary of the foreign company duly notarised and apostilled by Indian Embassy
- Power of attorney or board resolution in favor of authorized representative in India and extracts of Board resolutions of Foreign Company
- RBI approval letter
- The declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from the formation of companies and management in India or abroad
- Complete address of registered or principal office.