Liaison Office Registration

A Liaison Office (LO) is set up with the purpose to understand and explore the investment climate, market, and business environment and provide the information to the head office. A Liaison Office is kind of a Representative Office. Liaison office is a communication channel of a company between its head office abroad and clients in India. Liaison offices are not permitted to engage in commercial activities and the role of the liaison office is limited to representing parent company in India, can stimulate import or export from/to India, promote collaborations between parent companies and companies or parties in India, collect and provide information to the parent company about market opportunities, source of supply, information of products of the parent company to Indian customers or vice versa to its vendors. All the expenses for these liaison offices shall be remitted by its head office abroad. That a liaison office is considered to be a foreign company and when these companies make profit with amount to commercial activities through a permanent establishment (PE) at higher rates, Government of India poses taxes on such transactions at a rate of 40% which is comparatively higher than 22% of tax on Indian companies. Otherwise, liaison offices are not subjected to taxation as in India there is no mechanism present that would allow the department of income tax to ascertain whether activities of liaison office are taxable in India or not.

Such liaison office will be governed by Reserve Bank of India/AD banker. These offices do not have any offices and only are extension of the existing business with clients in India. It is to be understood that the name of the liaison office shall be same as parent company. Liaison office is a boon for foreign companies in need of a temporary office in India to proceed with their business with Indian clients. Liaison offices are permitted to non-interest-bearing INR current accounts in India. For this purpose, these offices have to approach their Authorized dealers.

Any company in order to establish its office in India have to take prior approval from the Reserve Bank of India by filing an application in form FNC with the Authorized Banker (AD) in India. It may take up to 3 – 4 weeks for processing of this application.

• Copy of certificate of registration/incorporation – A certificate of incorporation/registration is required in the English language duly attested by the attest by the Notary Public.
• A declaration duly signed by the authorized representative of the parent company in regards of eligibility under Foreign Direct Investment Regulations (Net worth and profitability track record) & source of funds for the proposed liaison office.
• Attested copy of board resolution authorizing to represent the parent company in India and authorizing a person visiting India to sign on behalf of the parent company and in relation to opening of a liaison office in India. If the concerned authorized representative is not willing to travel to India, an additional fee as facilitation will be charged on case to case basis.
• Memorandum of Association (MOA) and Articles of Association (AOA) – MOA and AOA must be in the English language, if not then must be translated in English, duly attested by the notary public and Indian Embassy / Consulate in the home country. Translated as Apostle under the Hague Convention is applicable. If under a certain law of the country, MOA / AOA is not mandatory, the same must be declared by the client on its letterhead.
• An FNC form completely filled and signed by the authorized signatory of the parent company. 
• Applicant Company’s latest audited balance sheet attested by certified public accountant (CPA). This balance sheet must be in English language and if not, they must be translated to English and attested by notary public in the country of registration and attested by Indian Embassy. Apostle under the Hague convention is also applicable. Audited balance sheet should not be in a consolidated form but if it is then the certified public accountant certificate providing standalone net worth and figures of profit of the applicant company only is a requisite to establish the eligibility criteria for the liaison office. If the parent company’s country does not mandate requirement of audited balance sheet, then the CPA certified account statement or Registered Accounts practitioner by any name, mentioning the net worth should be submitted. Audited financial statements require audited financial statements of the last five preceding years.
• A letter of comfort from the parent companies mentioning that the parent company satisfies the eligibility criteria required as per regulations, for the applicants those who do not satisfy the eligibility criteria i.e. Net worth and profitability requirement.
• A Bankers Report mentioning the number of years of banking relation of the applicant with the bank. This report is required from applicant’s bank in the country of registration.
• Declaration regarding the activities and location of the proposed liaison office and of the applicant company on the applicant company’s letterhead.

Authorize Banker (AD) will scrutinize the documents and the application and will then forward its suggestions and comments to the Reserve Bank of India. RBI will consider the application under two routes namely Automatic route and approval route.  Automatic route is for the foreign entities where principal business falls under sectors where 100 percent FDI is permissible. Approval route is for the entities where business falls under the sectors where 100 percent FDI is not permissible under the automatic route. Applications falling under approval route and those from non-government organizations are considered by the Ministry of Finance, Government of India and RBI. 

A certificate of registration under the FCRA instead of FEMA, if the liaison office applying is a non-governmental/non-profit organization engaging in the activities under (FCRA) Foreign Contribution (Regulation) Act 2010.

Proceeding further if approved by the RBI, a Unique Identification Number (UIN) will be allotted to the liaison office. It is advised for liaison office that after registering with the RBI, it shall register itself with the (MCA) Ministry of Corporate Affairs as a corporate entity. As registration as liaison office is considered as the establishment of foreign company in India, MCA will provide that liaison office with (CIN) Corporate Identity Number. After CIN, liaison office must obtain (PAN) permanent account number & (TAN) Tax deduction number from revenue authority.

Liaison office is required to satisfy some criteria i.e. a profit-making track record of the three preceding years in the home country. And total net worth set more than or equivalent to USD 50,000 i.e. free reserves + Paid-up capital – intangible assets according to the audited balance sheet certified by CPA or registered accounts practitioner. 

There are some restrictions also imposed on the liaison office. It is that they are not permitted to lend or borrow money. Another is that without the approval of RBI, they cannot acquire, hold, (lease is permitted but not exceeding 5 years), transfer, or dispose of any immovable property in India. Another restriction on liaison office is that they can neither earn any income in India nor they can undertake any trading/industrial/commercial activity in India. 

After establishment

Within five working days of the liaison office becoming functional, entities establishing a liaison office shall submit a report to the Director-General of the Police of the concerned state of liaison office registered state. If there is more than one office then to each state’s DGP.

 AAC (Annual Activity Certificates) from chartered accountants along with the balance sheet at the end of March 31 or September 30 of that year. If some other date is finalized in case of annual accounts other than March 31, AAC should be submitted within the due date of the Balance sheet to the designated AD category 1 bank and a copy of the Directorate General of Income Tax (International Taxation), along with the audited financial statements.

• Filing of Form 49C as per section 285 of the Income Tax Act along with the prescribed documents.
• For availing certain services, the liaison office may require to comply with GST obligation under reverse tax mechanism, if applicable.
• Liaison office might require to withhold tax from certain payments and in order to comply with the required tax withholding under the domestic law.
• If the liaison office has employees, it will be obligated to comply with various Labour Laws of India.
• At the time of closing of liaison office, filing of various forms and certificates from CA.