A Liaison office works as a place in India which represents foreign company principally with the motive to understand and explore the business conditions, environment of business, understanding nature of market and conducting market research for the product of the parent company in order to provide and look for further information from prospective customers or vendors.
The purpose of setting up a liaison office is to represent in India the parent company, group companies, promotion of import or export from/to India, promotion of technical and financial participation of parent/group companies and to act as a communicative bridge between the parent company and Indian companies.
Liaison offices are known for the opportunities they provide to the foreign investors. It paves the way for foreign investors to explore the Indian market and set their footprint in the growing market place with the benefit of keeping their financial, legal, and administrative commitments low.
The application and approval process for the formation of the liaison office in India is regulated by the Foreign Exchange Management Act (FEMA). Under the FEMA Act it is necessary for the foreign enterprises to take the approval of RBI’s Foreign Exchange Department in order to oprerate a liaison office in India.
A liaison office can indulge in the following activities
- Establish a health communication between the foreign head company and the parties in India with the motive to create market opportunities
- Promote healthy import/export relationship between countries
- Form a financial and technical collaboration between Indian and overseas companies
- Represent the foreign parent company in India
As India is rapidly growing and progressing economies of the world, there are many multinational companies who are willing to invest in the Indian market and are always looking forward to establish their liaison office in India.
Important points to consider before registering Liaison office in India
Net Worth Requirement
It is necessary for a parent company to have a beneficial track record of the past three years in a row and they should own a net worth of more than $50,000 attested by their auditors.
No Income Generating Activity
Parent company provides financial aid to all the operations of liaison office since liaison office are not allowed to earn any income in India.
Name & New Office
The name must be similar to that of the foreign parent company, and for each new liaison office a new approval is needed from the Reserve Bank of India with complete justification.
Taxation In India
Income tax authorities have the right to impose income tax on a liaison office.
List of Documents for Liaison Office Registration
Documents Required From Parent Company
- Certificate of Incorporation/Registration of Foreign Company
- Memorandum of Association
- Article of Association
- Complete details of Directors
- Complete details of shareholders of the applicant company
- Net worth certificate attested by Certified Public Accountant (CPA)
- Audited financial statement of the last three years
- Applicant’s banker’s report
Documents Required From The Authorised Signatory
- 5 Passport size photos
- 5 copies of passport
- Business visa with immigration stamp of arrival
- 5 copies of national identity card
- Address Proof (Bank Statement/ Electricity / Water Bill / Phone Bill)
- Board resolution while appointing the AR
- Power of attorney in the name of AR
Eligibility Criteria for Liaison Office Registration in India
Foreign Exchange Management Regulations, 2016 governs the establishment of place of business for a foreign company. It is important to fall under the criteria of below mentioned qualifications in order to set up a liaison office in India:
- Income generating activity is prohibited
- It is necessary for the foreign head office to own a net worth of above $50,000
- Beneficial track record of the past three years of the applicant company is required
Drafting of Government Forms and Documents
On receiving the complete set of documents the next step is to draft the following documents for the signature purpose by the applicant company and from the authorised signatory
- Approval from the Board Resolution for opening the liaison office in India.
- A declaration from the applicant regarding the FDI eligibility and source of fund
- A declaration stating the nature of activity , location of the activity of proposed Liaison office
- A declaration stating the nature of activity and the location of activity of the applicant company
- Form FNC
- A letter of comfort from holding company
Liaison Office Registration Process in India
Application For Digital Signature Of Authorized Signatory
A digital signature is equally valued as a paper signature under the information technology act. New process has made it mandatory to file all applications to the registrar of companies in digital format. The authentication of the application is proved through digital signature of the proposed shareholders and directors.
Filling Of Application With RBI Through AD Bank
Liaison office application for a foreign company is filed in FNC. The application is filed to the Reserve Bank of India via AD Bank (Authorised Dealer). The AD bank has an important role since all the communication to the RBI is dispelled through them.
Verification Of KYC From Banker Of Parent Company
A request pertaining to the scrutiny of documents is sent to the foreign company’s banker. This process of sending request for the purpose of verification is also called swift based verification. Once the documents are confirmed from the foreign banker the application is presented to the RBI for the approval purpose. The RBI can also ask for the additional documents as the case may be.
Approval Of RBI For Liaison Office Registration In India
A particular policy is followed for approving the liaison office in India by the AD Banker. Priority is given to the cases where automatic route is not available.
Registration Of Liaison Office With ROC
Once the company is formed its bank account is opened wherein the FDI should reach within 180 days of forming the company with advance announcement to Banker.
PAN Card, Tax Deduction Number And Bank Account Opening
Income Tax department of India issues a unique 10 digit number, known as PAN number. Once the PAN number is obtained, the liaison office is eligible to open its bank account. And it is necessary for every taxpayer to obtain Tax Deduction Account Number to obey all the TDS norms.
GST Registration & IEC
On obtaining Bank Account and cheque book the need arises for a copy of the check for making application for GST registration and Import Export Code.