Liaison Office Registration

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A foreign company can register a Liaison Office for representation or marketing research by obtaining permission from the Reserve Bank of India (RBI) and registering it with the Registrar of Companies.
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Liaison Office Registration

A Liaison Office (LO) functions as a place in India that represents a foreign company, primarily to understand and explore the general business environment, conduct market research for the products of the parent company, and provide and seek information from potential customers or vendors. A liaison office can be set up for representing the parent company or group companies in India, promoting export or import from or to India, promoting technical or financial collaborations between parent or group companies and companies in India, and acting as a communication channel between the parent company and Indian companies. A liaison office of the foreign company cannot engage in any commercial activities, and the parent company shall meet all its expenses. However, if it generates any income by conducting activities that constitute a business connection with the parent company, such income will be taxed under the Income Tax Act of 1961. Since a liaison office is not considered a separate entity from its parent foreign company, the taxes imposed are the same as those on a foreign company. As of now, the tax on the profit of the foreign company is charged at a rate of 40% of the total income generated.
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Minimum Requirements for Liaison Office Registration

To register a Liaison Office of a foreign company in India, the following minimum requirements have to be met. These requirements deal with the net worth and profitability of the concerned foreign company and the name, business activity, and taxability of its liaison office established in India.
1. Net Worth of the Foreign Company is $50,000
The foreign parent company must have a net worth of more than $50,000/- supported by duly audited financial statements.
2. Foreign Company has made consistent profit for the last 3 Financial Years
The Foreign company must have a track-record of profit-making for 3 years immediately preceding the date of application for RBI/ AD Bank approval.
3. Name of the Office must be same as Parent Company
The name of the branch office must be the same as that of the parent foreign company, and such name must be reserved before the branch office registration process begins. Also, for each new office of such a liaison office, a new approval is required from RBI with justification.
4. Liaison Office must not conduct any Income Generating Activity
The liaison office can not generate any income in India, and the parent company must finance all its operations. An undertaking from the parent company is required in this regard. Moreover, the liaison office is permitted to undertake liaison activities only, which include acting as a communication channel between the foreign company and its stakeholders in India, promoting export and import activities, establishing financial and technical cooperation between the foreign company and its Indian counterparts, conducting market research and analysis for the future business prospects of the foreign company in India, and representing the concerned foreign company in India.
5. Liaison Office is taxed as a Foreign Company in India
Liaison Office would be liable to pay income tax under the Income Tax Act for the income it generates from activities which constitute a “business connection” with its parent company based in a foreign land. The tax rate applicable is akin to that of a foreign company i.e. 40% of the income, exclusive of surcharges.

Documents required for Liaison office Registration

Documentation is a vital component of the process of liaison office registration in India. The documents required throughout the process of liaison office registration can be categorised into documents submitted to the AD bank and documents submitted to the Registrar of Companies For your reference, a comprehensive list has been provided in the table below. Make sure you have sufficient and correct documentation before the registration process starts because failing to submit any of the documents given in the list or submitting their incorrect and outdated forms can result in the rejection of your application by the concerned authority.
S.No

Documents Required for RBI / AD Bank Approval

Documents required for Registration by the ROC

1.
Duly Filled Form FNC-1
RBI’s/ AD Bank’s Approval Certificate
2.
Letter of Principal Officer from Parent Company
Legalized Certificate of Incorporation, MOA, and AOA
3.
Letter of Comfort from Parent Company intending to support the operations of its Liaison Office in India.
Proof of Authorization of the Authorized Indian Representative (Board Resolution / Letter of Authorization)
4.
Legalized Certificate of Incorporation, MOA, and AOA of the parent company
A complete list of company’s directors, duly notarized
5.
Audited Balance Sheet of the immediately preceding 3 financial years
KYC details of all shareholders holding more than 10% shares in the Company
6.
Banker’s Report from the Banker of the Parent Company in its country of origin
Proof of Registered Address of Branch Office (Utility bills / Rent Agreement / Lease Agreement / Property Tax Receipt)
7.
Company’s Resolution for opening a Bank Account in India
8.
Declaration from the Liaison Office on FDI eligibility and source of funds
9.
Proof of Authorization of the Authorized Indian Representative (Board Resolution / Letter of Authorization)

Process for Liaison office Registration in India

STEP 1 – Application for Digital Signature of Authorised Signatory

The process of Liaison Office registration begins with application for Digital Signature Certificate. A digital signature is the equivalent of physical signature under the Information Technology Act. As per new guidelines, all applications to the Registrar of Companies are filed in digital format and are therefore required to be authenticated using a digital signature of the authorized signatory. To obtain a Digital Signature, the concerned signatory will have to file an application to a Certified Agency, with the prescribed documents and application fees. You can avail our services to apply for a DSC in India.

STEP 2 – Filing Application for AD Bank’s approval
After the authorized representative or signatory has obtained a Digital Signature Certificate, the next step is to seek approval for opening a liaison office. For opening a liaison office, approval can be sought from the AD Category-I Bank itself if 100% FDI is allowed in the sector to which it belongs. For this, the concerned foreign company will have to submit Form-FNC to the AD Category-I Bank (AD). We are networked with many banks in India, which operate as an AD Category-I Bank for foreign companies. Contact us, (direct to the form) if you need our assistance.

STEP 3 – Verification of KYC from Banker of Parent Company

After the FNC Form is filed with the AD Bank, it sends a request for verification of documents filed with the form to the banker of the foreign company in its country of origin. This process is also known as swift-based verification. Only after the documents are verified by the banker, the AD bank will be able to grant approval for setting up a liaison office.

STEP 4 – Approval of RBI for Liaison Office Registration in India

As mentioned before, liaison offices can be set up in India, usually with the approval of AD Bank itself if 100% FDI is allowed in the sector. However, approval from RBI will be required if 100% FDI is not allowed in the sector, if the applicant is involved in sectors like telecom, defense, private security, or information and broadcasting, if the applicant entity is an NGO/NPO, or if the applicant entity belongs to countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau, or any foreign entity which wants to open a branch in the North-east Indian States, Jammu and Kashmir, or Andaman & Nicobar islands. In such circumstances, the AD bank will further the FNC application to the RBI after the documents have been verified by the foreign banker. It usually takes a week for the RBI to process the application and grant approval.

STEP 5 – Registration of Liaison Office with the ROC

After the approval of the RBI or the AD Bank, whichever applicable, has been obtained, the concerned foreign company can set up its liaison office in India. However, such an established office will have to get registered by the Registrar of Companies. For this, an application is filed in form FC-1 within 30 days from the date on which the approval was received. The filing can be done online on the official website of the Ministry of Corporate Affairs. Once the application reaches the ROC, it is examined carefully, and if found to be correctly filed, is approved by the ROC, after which the ROC will finally register the liaison office of the foreign company.

STEP 6 – Receive Certificate of Incorporation, PAN Card, Tax Deduction Number & Bank A/c Opening

Upon successful registration by the ROC, the liaison office of the foreign company will receive a Certificate of Incorporation from the ROC, a PAN and a TAN from the Income Tax Department to comply with the tax and TDS related provisions of the Income Tax Act of 1961. With the allotment of PAN, the liaison office can also open a bank account in the AD Bank. However, the LO cannot open more than 1 bank account without obtaining prior permission from the RBI.

STEP 7 – Registration with State Police

Finally, the liaison office needs to register itself with the state police (in the office of the superintendent of Police). The application must be accompanied by the document showing RBI approval and KYC of all authorised persons in India and the foreign company. Registration with State Police is not mandatory but is needed only if the foreign company is based in countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau.

STEP 8 – Other Local level Registrations

Post registration, liaison offices will also have to undertake several local and state-level registrations applicable to it. These are the same as the registrations applicable for any other company incorporated in India. A few of these include Shops and Establishment Registration, GST Registration, Professional Tax Registration, EPF Registration, ESI Registration, and IEC Registration.

What is time taken for Liaison Office Registration?

It usually takes 3-4 months from the date of application to finally get a liaison office registered in India, including 40-60 days required for getting approval from the concerned AD Bank or RBI. You must remember that the liaison office must be registered and must become operational within 6 months from the date on which it has received such approval, because the approval will lapse after the expiry of 6 months.

What is the validity of a Liaison Office?

A Liaison Office is established and registered for 3 years at a time, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only. Requests for extension of validity for LOs may be submitted before the expiry of the validity of the approval, to the concerned AD Category-I bank under whose jurisdiction the LO falls. The AD bank may extend the validity period of LO for a period of 3 years from the date of expiry of the original approval or the previous extension granted, only if the applicant has complied with the following conditions and the application has been filed accurately:
  1. The LO should have submitted the Annual Activity Certificates for the previous years, and
  2. The account of the LO maintained with the concerned AD Category – I bank is being operated in accordance with the terms and conditions mentioned in the approval letter.
Such extension has to be granted, as expeditiously as possible and in any case not later than one month from the receipt of the request of extension.
Further, entities engaged in construction and development sectors and Non-Banking Finance Companies are permitted to open a liaison office for two years only. No further extension would be considered for liaison offices of entities which are Non-Banking Finance Companies and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, the offices shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary of the foreign company.

What are the Annual Compliances of Liaison Office in India?

S.No List of Annual Compliances
1.
Filing Annual Returns to ROC
Annual Returns have to be filed by the concerned Liaison Office within 60 days from the date on which the financial year ends, or before the 31st of May every financial year, for the previous financial year.
2.
Filing Annual Activity Certificate to ROC
Annual Activity Certificate is a Certificate issued by a practicing CA, where he declares that the activities carried out by the liaison office in the concerned Financial Year were permitted by the RBI. The Certificate will have to be filed to the concerned AD Category-I Bank on or before the 30th of September every financial year.
3.

Filing Annual Financial Statements

Annual Financial Statements will have to be filed within 6 months from the date of closing of the Financial Year. These must be audited by a practicing Chartered Accountant.

4.
Filing annual Income Tax Returns 
Liaison Office is liable to pay income tax on the income it generates from activities which constitute a “business connection” with its parent company.  For this purpose, it is considered as a Foreign Taxpaying entity under the Income Tax Act, 1961. So, it will have to pay Income Tax and file Income Tax Returns before the 31st of July every financial year for the previous financial year.

How to Close a Branch Office of Foreign Company?

To close a Branch Office, first a resolution will have to be passed to this effect by the parent foreign company. After this, an application has to be filed to the Registrar of Companies, along with the prescribed documents. If the documents, including the Board Resolution, have a foreign origin or execution, they will have to be legalized by the Indian Embassy or Apostille Office, as applicable. The ROC will consider and examine the application. If satisfied with the application, he will issue a No Objection Certificate, permitting the closure of the Branch Office.
After obtaining the NOC from ROC, the concerned Branch Office will have to approach its AD Category-I Bank with the prescribed application and documents for closing its bank account. The documents of foreign origin or execution will have to be legalized again before submission. Given below is a complete list of documents to be submitted to the AD bank for closure of Branch Office:
  1. Copy of the Reserve Bank’s/AD Category-I bank’s approval for establishing the BO
  2. Auditor’s certificate
    • indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant,
    • indicating the manner of disposal of assets
    • confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been either fully or adequately been paid off, and
    • confirming that no income accruing from sources outside India (including proceeds of exports) has remained unrepatriated to India.
  3. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending against the BO and there is no legal impediment to the remittance.
  4. No Objection Certificate from the Registrar of Companies
  5. The designated AD Category – I bank has to ensure that the BO has filed its respective AACs in all the previous years.

Frequently Asked Questions on Liaison Office Registration

To set up a liaison office first check the eligibility of being financially sound in terms of the network not being less than USD 50,000 or its equivalent. Then call setindiabiz representative to discuss documentation and stepwise process. That’s it, rest shall be taken care by the professionally qualified CA, CS and Advocates.
A foreign company before entering the Indian market may intend to conduct some preliminary research or representation before the potential customers or partners, for that limited purpose a foreign company normally establishes a representative office also known as a Liaison Office in India. Any person resident outside including a foreign company, group company, association of person can establish a liaison office in India.
A liaison office of a foreign company is allowed to do only Liaison activities in India, which include acting as a communication channel between the foreign company and its stakeholders in India, promoting export and import activities, establishing financial and technical cooperation between the foreign company and its Indian counterparts, conducting market research and analysis for the future business prospects of the foreign company in India, and representing the concerned foreign company in India. None of the activities conducted by a Liaison Office can be targeted at profit-making or income generation.
A Liaison office of a foreign parent company is not treated as a separate and distinct entity in India and for tax purposes, the Indian government taxes such entities with tax rates applicable to a foreign company, viz. 40%, exclusive of surcharges, on income generated by conducting activities which constitute a “business connection” with the parent company.
The liaison or representative office of a foreign company can be opened if the applicant foreign corporation has a track record of profit generation for the past 3 years and it is financially sound. When we say financially sound in the context of a representative or liaison office establishment in India of a foreign company, we mean net-worth of at least USD 50,000 or its equivalent. The financial statement duly attested by the statutory auditor of the parent company is required for the purpose.

The foreign companies native to the following countries cannot open a liaison office in India without the prior approval of the RBI:

  1. Pakistan
  2. Bangladesh
  3. Sri Lanka
  4. Afghanistan
  5. Iran
  6. China
  7. Hong Kong
  8. Macau
  9. Or any foreign entity which wants to open a liaison office in Jammu & Kashmir, North East Region and Andaman and the Nicobar Islands.
Yes, Liaison Offices can open a non-interest bearing, INR current account in its AD Category-1 bank in India.
Yes, but a prior approval of the RBI will be required.

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