Liaison Office: Foreign Investor or Foreign companies can open a liaison office in India for promoting and facilitating the parent company business activities and can act as best communication channel between the foreign parent company and Indian company. With the liaison office, the foreign parent company will get help in entering into Indian market and exploring and studying the Indian market situation for their business growth. Foreign corporations are permitted to open liaison/representative offices in India (subject to obtaining specific approval from the RBI), to undertake liaison activities on their behalf. These offices act as a communication channel between the Head Office of foreign corporations and parties in India.
How can investment be done under this route and reporting required to be done with various departments
The foreign investor can invest through either:
- Automatic Route: Under this route, if the activities of the entity falls under the sectors where 100% FDI is permissible then no need of obtaining approval from government.
- Approval Route: If the business activities of the entity does not fall under sectors where 100% FDI is not permissible, then approval from government is required to be obtained.
The Approval process generally takes The approval process generally takes 20 to 24 weeks and permission to operate a liaison office is granted for a three-year period, which can be extended at a later date (maximum three year extension).
The Foreign entity before opening a liaison office must qualify the following conditions:
- Must have generated profits from operations in the home country in previous three years.
- Must have net worth as required by RBI in the latest audited balance sheet
The application for opening a liaison office is to filed in Form FNC-1 with the following attachments with AD Category-I Bank:-
a) A notarized and apostilled copy of the Certificate of Incorporation, memorandum and Article of Association and copy of last three years audited balance sheet of Parent Company. Translation copy is also required of all the documents.
b) Complete Address details of the parent company outside india
c) An brief on business activity to be done at liaison office.
d) Bank details of the parent company
e) A Certificate from Banker of the parent company stating the commencement date and no default statement as per the prescribed format.
f) NOC from state police authorities (applicable only specified countries)
g) Letter of authorization for authorizing resident representative to look after operations of Liaison Office.
After verification and submission of above mentioned documents by AD Category-I bank with RBI, if no default is found then RBI will permit the opening of liaison office and RBI will provide Unique Identification Number to Liaison Office. Then, LO needs to apply for the PAN number with Income Tax Authorities.
The LO must register with the Registrar of Companies within thirty days of setting up of establishment by filing the form prescribed by the Ministry of Corporate Affairs (MCA) Along with the following documents:
- List of Directors
- Name and address of the company’s official representative based in India (the person authorized to accept delivery of notices and documents served to the company).
- Name and address of the liaison office in India;
- Full address of the enterprise’s principal place of operation outside of India;
- A notarized and apostilled copy of the liaison office charter or Memorandum and Articles of Association in English;
Compliance to be done by Liaison Office:
The liaison office in each year must file an Annual Activity Certificate (AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter. An AAC should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year. If an LO wants to open more than one bank account in India, it has to obtain prior permission of the RBI through its AD Category – I bank justifying the reason for the additional account.
(Written by CS Shruti Mittal, you can contact me on [email protected] for further queries)
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Can a foreign company initially be registered as Liaison company for 6 months, get involved in marketing and networking. Get hold of business strategies and once we are comfortable to have a branch office, can we change registration from Liaison office to Branch Office to provide professional and consulting services .