There are quite a few foreign companies who want to first study the Indian markets and obtain relevant information before they expand their operations inIndia. Some foreign companies establish a liaison office as an intermediate step before entering into a Joint Venture (JV) or setting up a Wholly Owned Subsidiary (WOS). The establishment of liaison offices is governed by the Reserve Bank of India (RBI). By its very nature, a liaison office inIndiacan act only as a communicative channel for the parent company to supply information on the Indian market and customers, and cannot carry on any business activities inIndia. As a result, the liaison office cannot generate any revenue inIndiaand all the expenses of running and maintenance of the Indian office are required to be met out of the foreign exchange remitted from abroad.
‘Liaison Office’ means a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called 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;
Permitted activities for a Liaison Office in India
i) Representing inIndiathe parent company/group companies.
ii) Promoting export import from/toIndia.
iii) Promoting technical/financial collaborations between parent/group companies and companies inIndia.
iv) Acting as a communication channel between the parent company and Indian companies.
Procedure to Set up a Liaison Office in India.
Foreign companies intending to set up a liaison office inIndiafor undertaking liaison activities on behalf of the parent company or foreign trading companies intending to set up liaison offices inIndiafor promotion of exports fromIndiashould submit their application in Form FNC 1 to the Central office of RBI, Mumbai (Foreign Investment Division). In approved cases, permission is granted initially for a period of 3 years. However, application for renewal of application should be made to the concerned regional office of the RBI under whose jurisdiction the office is situated.
Conditions Imposed While Granting Permission
The conditions precedent for setting a liaison office inIndiaare as follows :
- No commission / fee will be charged or any other remuneration received by the Indian office of the foreign company for its liaison activities inIndia.
- Except the liaison work, the office will not undertake any activity of a trading, commercial or industrial nature without the prior permission of RBI
1. The entire expenses of the Indian office will be met exclusively by remittance from abroad through normal banking channels.
Zero Tax Liability:
Since a liaison office is not allowed to earn any income, there is no tax liability of a liaison office or its parent company for this representative office.
Maintenance of Bank Accounts
A liaison office inIndiais permitted to maintain and operate bank accounts inIndiabut only with authorised dealers. While opening such rupee accounts in the name of office, bank obtains an undertaking in prescribed form QA22 duly signed by all the persons who are authorised to operate on the accounts.
Required Documents:
- English version of the certificate of incorporation/registration or Memorandum & Articles of Association attested by Indian Embassy/Notary Public in the country of registration.
- Latest Audited Balance Sheet of the applicant company/firm.
- Other Details like:
i) Value of goods imported from and / or exported toIndia by the applicant during each of the last three years:
a) Imports details fromIndia
b) Exports details toIndia
ii) Particulars of existing arrangements if any, for representing the company inIndia.
iii) Particulars of the proposed Branch/Liaison Office
a) Details of the activities/services proposed to be undertaken/ rendered by the office.
b) Place where the office will be located.
Advantages:
- Fewer ongoing formalities although there are set-up costs.
- No separate legal entity but does provide a formal presence for UKCo in India.
Disadvantages:
- Cannot trade or generate revenue in India.
- UKCo may be exposed to claims and liabilities in India.
To start a Liaison office in India just fill this form: