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Liaison Office Registration

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Liaison Office Registration - Overview

India has become a global business hub, attracting companies worldwide with its booming economy and vast market potential. For foreign businesses seeking to establish their presence and explore opportunities in the country, setting up a Liaison Office (LO) is a strategic first step. A Liaison Office, which functions as a non-commercial extension of the parent company, allows foreign entities to research the Indian market, create relationships, and promote their businesses without engaging in direct commerce or revenue-generating operations. The necessary steps, advantages, and prerequisites for setting up a liaison office in India are covered in full in this book. This guide guarantees that companies are knowledgeable about every facet of setting up a Liaison Office in India. It includes getting a deeper understanding of the regulatory frameworks and compliance to doable measures for seamless implementation. This resource is intended to assist international businesses in successfully navigating the Indian market and establishing a solid basis for future expansion by providing clear insights and practical guidance.

What is a Liaison Office?

A Liaison Office is set up by a foreign company in another country, like India, to represent its interests and connect with the local market. The Liaison Office helps promote the brand of the parent company. It gives the parent company an opportunity to understand the market of another country and build relationships with local businesses. It is pertinent to note that a Liaison Company cannot sell products, offer services, or earn money directly. The main purpose of the liaison office is to act as a bridge between the parent company and the host country, making it a great way to explore business opportunities without full-scale operations.

Acts and Statutes Governing Liaison Office

In India, the liaison office is governed by the following statutes:

Foreign Exchange Management Act (FEMA), 1999
Reserve Bank of India (RBI) Guidelines
Companies Act, 2013
Income Tax Act, 1961

Benefits of Setting Up a Liaison Office

Setting up a Liaison Office offers several advantages, some of which are mentioned below:

Effective Market Research: Liaison offices assist businesses in carrying out in-depth market research, comprehending demand trends, customer behaviour, and industry dynamics. To make sure its initiatives meet the demands of the market, Boeing, for example, uses its Liaison Office in India to assess prospects in the expanding aerospace and defence industries.
Relationship Building: A liaison office offers a place to establish relationships with the local trade associations, government agencies, and commercial agents & associates. Through its Liaison Office, Toyota Tsusho works closely with Indian stakeholders to establish strategic alliances and investigate new business opportunities.
Cost-Effective Entry Point: Opening a liaison office is a more affordable option for breaking into a foreign market than establishing a branch or subsidiary. It offers a foundation for investigating potential while doing away with the necessity for large capital expenditures. For instance, before committing to large-scale operations, Caterpillar tests India's market viability through its Liaison Office.
Regulatory Compliance: By working as a liaison office, you can make sure that local laws are followed, which is crucial for establishing credibility and organising long-term growth. Through their Liaison Offices, businesses such as Siemens have effectively complied with Indian regulatory frameworks, opening the door for future expansion.
Tax Efficiency: Liaison Offices are not subject to corporate taxes in India since they are not permitted to make money. This frees businesses from further financial obligations so they may concentrate on market research.
Strategic Market Entry: Before making large expenditures, businesses use liaison offices as a test site to determine the potential of the Indian market. Facebook used its Liaison Office to learn about user behaviour and spot digital growth prospects prior to completely entering the Indian market.

Difference Between Liaison Office and Subsidiary Office

Liaison Office	Subsidiary Office
It acts as a communication bridge for the parent company for its promotion and exploration business.	It operates as an independent entity engaged in the activities of the parent company for profit.
It is not allowed to engage in revenue-generating activities.	It is allowed to engage in trade, sales, and other commercial activities.
It is an extension of the parent company and is exempted from corporate tax.	It is registered as a separate legal entity and liable to corporate tax on the income earned in India.

Eligibility to Set Up a Liaison Office in India

To establish a Liaison Office in India, foreign companies must meet the following eligibility criteria:

Track Record of Parent Company: The parent company must have a profitable track record for at least three consecutive years in its home country.
Net Worth Requirement: The net worth of the parent company must be a minimum of USD 50,000, as verified by the latest audited financial statements.
Approval from RBI: Approval from the Reserve Bank of India (RBI) is mandatory before setting up the Liaison Office.
Designated Activity Scope: The Liaison Office must strictly adhere to activities permitted by the RBI, such as promoting exports/imports, building relationships, or representing the parent company.
Sector-Specific Rules: Companies operating in sectors like defence, telecom, and banking may require additional approvals from relevant authorities.
Foreign Exchange Compliance: The company must comply with the Foreign Exchange Management Act (FEMA) regulations in India.

Banned Business Activities for a Liaison Office

Liaison Offices are prohibited from engaging in the following activities:

Liaison Offices cannot sell goods, provide services, or conduct any business for profit in India.
Liaison Offices are not allowed to generate income from commissions, fees, or royalties.
Liaison Offices cannot manufacture, assemble, or trade products, either directly or indirectly.
Liaison Offices cannot enter into agreements or contracts that bind the parent company financially.
Liaison Offices are not permitted to take loans or extend credit to Indian entities or individuals.
Liaison Offices cannot make investments in shares, securities, or real estate.
Liaison Offices cannot engage in actions that might classify the office as a taxable Permanent Establishment.
Liaison Offices cannot open additional branches or offices without RBI approval, which is prohibited.
Liaison Offices cannot involve themselves in political advocacy, lobbying, or religious events.
Liaison Offices cannot accept payments in Indian Rupees.

Documents Required for Setting Up a Liaison Office in India

The following documents are essential for registering a Liaison office in India:

Certificate of Incorporation of Parent Company.
Audited financial statements for the parent company for the past three years.
The board resolution of the parent company approved the establishment of a Liaison Office in India.
Memorandum and Articles of Association (MOA and AOA) of the parent company.
A report from the parent company's bank attests to its creditworthiness.
A detailed description of the activities the Liaison Office intends to undertake in India.

It is pertinent to note that the activities of the parent company should align with the RBI guidelines.

Letter of Authorization from the parent company appointing the Authorized Representative (AR) or authorised signatory for the Liaison Office application.
Registered Office Address Proof of the proposed Liaison Office.
Form FNC
Identity Proof of Authorized Signatory (include a copy of passport or government-issued ID):
Notarized Power of Attorney (PoA)on behalf of the parent company for the Liaison Office.
Tax Identification Documents
Sector-Specific Approvals: Required in the case of sectors like defence, telecom, or finance.

Checklist for Setting Up a Liaison Office

Here is the checklist to keep in mind before you apply for registration at the Liaison Office in India. Make sure you have:

Certified copies of parent company incorporation documents.
Parent Company’s audited financial statements for the last three years.
Board resolution approving the establishment of the Liaison Office.
Banker’s report on the parent company.
Detailed activity plan of the Liaison Office.
Form FNC for RBI submission.

Procedure to Register a Liaison Office in India

A series of steps need to be followed to set up a Liaison Office in India. Make sure to follow each step to ensure compliance with Indian laws:

1. Prepare Documents

Make sure that you have all the required documents ready for the registration of a Liaison Office. The necessary documents include:

Audited financial statements for the last three years of the parent company.
Proof of incorporation of the parent company.
A formal resolution from the parent company's board approving the establishment of the Liaison Office in India.
A report from the parent company’s banker certifying its financial soundness.
A description of the proposed activities of the Liaison Office in India.

2. Submit Form FNC

The next step is to fill and submit Form FNC (Foreign Exchange Management Act application) to an Authorized Dealer (AD) Bank in India. The AD Bank acts as a mediator between the applicant and the Reserve Bank of India (RBI).

Make sure to attach all the required documents to this form and ascertain every detail matches regulatory requirements.

3. Obtain RBI Approval

After submitting the forms, the RBI reviews the application to ensure compliance with FEMA guidelines. The approval is granted if the parent company and proposed Liaison Office activities meet the required criteria.

The approval process takes 4-6 weeks but may vary depending on the application and the nature of the business.

4. Register with the Registrar of Companies (RoC)

Once you have obtained the RBI approval, it is mandatory to register the Liaison Office with the Registrar of Companies (RoC) under the Companies Act, 2013. For this purpose, you need to file the Form FC-1 with the RoC, which requires details such as:

RBI approval letter.
Information about the parent company.
Proposed Liaison Office address in India.

5. Open a Bank Account

Open a local bank account in India specifically for the Liaison Office. The bank account should be a non-interest-bearing current account, exclusively for receiving inward remittances from the parent company to cover operational expenses.

6. Obtain PAN (Permanent Account Number)

Apply for PAN from the Income Tax Department.

7. Secure Additional Approvals

If the Liaison Office operates in regulated sectors like defence, telecommunications, or finance, it must obtain additional clearances from the respective ministries or authorities. For example, Liaison Offices in the financial sector may require approval from the Ministry of Finance.

8. Set Up Office Space

After obtaining the necessary approvals, acquire or lease suitable office premises in India. You need to provide the official address of the office address during registration, as this will be used for all official communications.

9. Compliance and Post-Incorporation Formalities

Inform the local police department and other regulatory bodies within 30 days of commencing operations. After incorporation, it is mandatory to:

Annually file an activity report with the RBI detailing the Liaison Office's activities during the year.
Maintain accurate records and file necessary reports with the RoC and RBI.

Why Choose Kanakkupillai?

Kanakkupillai is a trusted service provider for Liaison Office registration in India. With years of expertise, we offer end-to-end assistance in setting up your business. Our services include:

Expert Guidance: Our team of legal and accounting professionals understands the eligibility criteria and shall help you at every step of the registration process.
Efficient Processing: We ensure you a quick and hassle-free registration process aimed at minimizing delays.
Transparent Pricing: We offer clear pricing with no hidden fees. Every fee is made clear at the beginning.

Our team understands the importance of knowing the market before a company sets up its office in India. The market and laws & regulations are vast in the country, and therefore, we keep ourselves updated with new policies and regulations that govern the registration of a liaison office in India.