Process to Incorporate a Liaison Office in India

India is one of the high paces growing economies in the world, which will managed to get the popularity in the foreign market businesses at a huge level and now it try to explore new opportunities for economic revolution. One of the most common ways for foreign companies to establish their presence in India without engaging in direct commercial activities is through a Liaison Office (LO). A Liaison Office is an officially designated office of a particular cooperation that acts as a representative of the parent company and facilitates communication between the foreign company and Indian entities, which helps them grow in parallel. However, setting up an LO in India requires regulatory approvals and compliance with specific legal requirements.

This article will deal and discuss a comprehensive guide on the process of incorporating a Liaison Office in India, covering its purpose, eligibility criteria, approval procedures, documentation, compliance requirements, and post-incorporation obligations.

What is a Liaison Office?

A Liaison Office is a business entity set up by a foreign company in India to establish a communication channel with Indian businesses to make communication easy and transparent. It is not allowed to engage in commercial, trading, or industrial activities. The primary and major objective of an LO is to promote and assist the parent company’s business, act as a representative, and explore potential market opportunities.

Permitted Activities of a Liaison Office

1. Facilitating Communication – It basically act as a communicators channel between the parent designated company and Indian businesses, which helps them to grow parallelly.
2. Market Research – To conduct the deep market-oriented research to understand the Indian market and assess potential business opportunities.
3. Promoting the Parent Company’s Business – Representing the foreign company and promoting its products or services in India.
4. Providing Information – Offering relevant information about the company and its business to potential Indian customers or partners.

Restrictions on Liaison Office

A Liaison Office cannot:

• Engage in commercial, trading, or manufacturing activities.
• Earn any income in India.
• Enter into the contracts on behalf of the foreign company.
• Carry out direct business operations.

All expenses of the LO must be funded by inward remittances from the parent company.

Eligibility Criteria for Setting Up a Liaison Office in India

1. Profitable Track Record – The parent company must have a profit-making track record for at least the past three years.
2. Minimum Net Worth – The foreign company must have a minimum net worth of USD 50,000 or equivalent.
3. Approval from RBI and Government Authorities – The foreign company must need to obtain approval from the Reserve Bank of India (RBI) and the Department for Promotion of Industry and Internal Trade.

Step-by-Step Process to Incorporate a Liaison Office in India

Step 1: Preparing Documentation

1. Application in Form FNC – The company must submit Form FNC to the RBI through an Authorized Dealer (AD) Bank.
2. Certificate of Incorporation – A notarized and apostilled copy of the foreign company’s Certificate of Incorporation or Registration.
3. Memorandum & Articles of Association (MOA & AOA) – The company’s constitution documents, notarized and apostilled.
4. Financial Statements – Audited financial statements and data of the parent company for the last three years.
5. Net Worth Certificate – A certificate from a Chartered Accountant (CA) confirming the company’s net worth of at least USD 50,000.
6. Board Resolution – A resolution from the parent company’s Board of Directors approving the establishment of an LO in India.
7. Power of Attorney – POA is a very much legal verified document which authorises a local representative to act on behalf of the company.
8. KYC of Directors – Passport and address proof of directors of the foreign company.

Step 2: Approval from the Reserve Bank of India (RBI)

After submitting the required documents, the application is reviewed by the Foreign Exchange Department of the RBI.

• The financial stability of the foreign entity.
• Whether the company’s activities align with India’s Foreign Exchange Management Act (FEMA).
• Any sectoral restrictions or prohibitions.

The RBI approval usually takes 6-8 weeks.

Step 3: Register with the Registrar of Companies (ROC)

When the RBI approves the company, then the company must register the Liaison Office with the designated Registrar of Companies (ROC) by filing Form FC-1 within 30 days. The following documents must be submitted:

• RBI approval letter.
• Proof of registered office address in India.
• Board resolution and Power of Attorney.

Step 4: Obtaining Permanent Account Number (PAN) and Tax Registration

Though a Liaison Office does not generate any revenue for the company, it must obtain a Permanent Account Number (PAN) from the Income Tax Department from the authorized authority. Because it is required by the tax regulations to do so for the purpose of official records.

Step 5: Opening a Bank Account

A Non-Resident Ordinary (NRO) Bank Account must need to be opened in India to manage expenses as prescribed. The account is basically funded through remittances from the parent company.

Step 6: Registering with the Police Authorities (If required)

If, in any case, the foreign company is from China, Pakistan, Bangladesh, Afghanistan, Sri Lanka, Iran, or Hong Kong, it must obtain additional approval from the Ministry of Home Affairs from authorised authorities and also need to register with the local police department.

Post-Incorporation Compliance Requirements

1. Annual Compliance with RBI
   • File an Annual Activity Certificate (AAC) from a Chartered Accountant to confirm that the LO has conducted only permitted activities.
   • Submit an Annual Return to the RBI through the Authorized Dealer Bank.
2. Tax and Financial Reporting
   • Maintain proper account books.
   • File tax returns, even though LOs are exempt from income tax since they do not generate revenue.
3. ROC Compliance
   • File financial statements and other related data and Form FC-3 annually with the ROC.
4. Other Regulatory Filings
   • If the Liaison hires employees for the company office, then it must need to comply with labour laws, Provident Fund (PF), and Employee State Insurance (ESI) requirements.

Closure of a Liaison Office in India

If the parent company decides to shut down its Liaison Office, it must follow these steps:

1. Apply for Closure with RBI – Submit an application to the RBI along with audited financials, a closure report, and a tax clearance certificate.
2. Notify ROC – File a closure request with the ROC.
3. Close Bank Accounts – Obtain a No Objection Certificate (NOC) from the bank and close all accounts.
4. Settle Liabilities—You need to ensure that all liabilities, including tax and employee dues, are settled properly.

Conclusion

Establishing a Liaison Office in India is a very efficient and effective way for foreign companies to explore and grow their business opportunities without directly engaging in commercial and business activities. This entire process requires meticulous planning, regulatory approvals, and ongoing compliance with RBI, ROC, tax authorities, and other appropriate authorities.

By following the step-by-step incorporation process and adhering to compliance requirements, foreign companies can establish and operate their Liaison offices smoothly in India. Getting professional assistance from legal and financial advisors can further ensure compliance with Indian regulations.