Liaison Office In India: Eligibility Criteria, Permitted Activities & Approval Process

“Explore the process of establishing a Liaison Office (LO) in India for foreign entities. Learn about the eligibility criteria, permitted activities, and the approval process, including cases requiring prior approval from the Reserve Bank of India (RBI). Understand the detailed procedure, documentation requirements, and the role of Authorized Dealer (AD) banks in obtaining approval. Ensure compliance with regulations while fostering collaboration between foreign companies and Indian entities.”

FOREIGN ENTITY’S LIAISON OFFICE

Establishing a Liaison Office (LO) is a common approach for foreign companies looking to enter the Indian market. A LO enables close collaboration between the foreign company and Indian business entities, allowing them to explore and understand the Indian business landscape, customers, and investment climate.

Eligibility Criteria for LO:

a) The foreign company should have a minimum net worth of USD 50,000 or its equivalent.

and

b) The company should have a profit-making track record during the immediately preceding three financial years in its home country.

If an applicant does not meet the eligibility criteria but is a subsidiary of another company, they can submit a Letter of Comfort (LOC) from their parent company in the prescribed format. However, the parent company must satisfy the aforementioned eligibility criteria.

Permitted Activities for LO:

1. Representing the foreign company in India.
2. Promoting export/import between India and other countries.
3. Facilitating technical/financial collaborations between the parent company and Indian entities.
4. Acting as a communication channel between the parent company and Indian entities.
5. Note that LOs are not allowed to engage in any business activities in India.

Cases Requiring Prior Approval from Reserve Bank of India (RBI):

An application for opening a LO in India by a person resident outside India requires prior approval from RBI in the following cases:

1. The applicant is a citizen of or registered/incorporated in Pakistan.
2. The applicant is a citizen of or registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau, and intends to open a LO in Jammu and Kashmir, the North East region, or Andaman and Nicobar Islands.
3. The principal business of the applicant falls within the defense, telecom, private security, or information and broadcasting sectors. However, prior approval from RBI is not required if the concerned ministry/regulator or the government has already granted approval or license/permission.
4. The applicant is a Non-Government Organization (NGO), Non-Profit Organization, or a body/agency/department of a foreign government. If such an entity is engaged in activities covered under the Foreign Contribution (Regulation) Act, 2010 (FCRA), they must obtain a registration certificate under FCRA and should not seek permission under the Foreign Exchange Management Act (FEMA).

Procedure to Establish LO in India:

(a) A person resident outside India who wishes to establish an LO in India must submit an application in Form FNC (Annex B) to an Authorized Dealer (AD) Category-I bank. The application should be accompanied by the following documents:

(i) Copies of the Certificate of Incorporation/Registration, Memorandum of Association, and Articles of Association, duly apostilled. If the original certificate is not in English, it should be translated into English and attested by the embassy in the home country.

(ii) Audited balance sheets of the applicant company for the past three years. If the applicant’s home country laws/regulations do not require auditing of accounts, a certified account statement showing the net worth by a Certified Public Accountant (CPA) or a registered accounts practitioner may be submitted.

(iii) Bankers’ Report from the applicant’s banker in the host country/country of registration, demonstrating the duration of banking relations with that bank.

(iv) Power of Attorney in favor of the signatory of Form FNC, if the head of the overseas entity is not signing the form.

(b) After verifying the documents, the AD bank will forward a copy of the application to RBI, CO Cell, New Delhi, for allotment of a Unique Identification Number (UIN) for the LO. The AD bank will issue the approval letter only after receiving the UIN from RBI.

(c) Once the approval letter is issued by the AD Bank, the applicant must file the requisite form (Form FC-1) with the Registrar of Companies (ROC) within 30 days from the date of approval. This is necessary to obtain the Certificate of Establishment (COE) and register the LO in the records of ROC.