RD 1 Filing and Calendar Year Adoption for Foreign Liaison Offices

RD 1 Filing and Calendar Year Adoption for Foreign Liaison Offices – A Practical Compliance Dilemma

Foreign Liaison Offices (LOs) in India operate under the Companies Act, 2013 along with RBI and FEMA regulations, creating a dual compliance framework. While Section 2(41) requires companies to follow a financial year ending 31 March, it permits foreign-linked entities to adopt a different financial year with Regional Director approval through Form RD-1. In practice, however, technical issues on the MCA portal have prevented LOs from filing RD-1, with authorities informally indicating that the form is not applicable to foreign companies. Instead, filings made through Form FC-4 on a calendar year basis have been accepted, and such acceptance is treated as implicit recognition of the adopted financial year. This has led to uncertainty regarding statutory compliance, absence of formal clarification, and reliance on administrative practice. To mitigate risk, entities are advised to maintain internal documentation and optionally file representations to record the position until a clear regulatory direction is issued.

Background: Foreign Liaison Offices (LOs) in India are governed by Chapter XXII of the Companies Act, 2013 (Sections 380–393), alongside RBI and FEMA regulations. While Section 2(41) of the Act mandates that every company follow a financial year ending on 31st March, it allows subsidiaries/associates of foreign companies to adopt a different financial year (such as the calendar year) with approval from the Regional Director (RD) via Form RD‑1.

Case Study: Liaison Office in South Delhi was established vide RBI approval dated 30 September 2024, with MCA approval in January 2025 and operational activity beginning in April 2025. To maintain consistency with the parent company’s global reporting cycle, the LO adopted the calendar year (January–December) as its financial year, with the first reporting period extended to 15 months (Sep 2024 – Dec 2025) to cover the establishment phase.

Audited accounts and Annual Return in Form FC‑4 were filed on this basis and duly accepted by MCA. The Annual Activity Certificate (AAC) was also filed with the AD Bank and Income Tax authorities. However, repeated attempts to file RD‑1 online failed due to portal not accepting the FCRN and maintaining that “the CIN is not active for e-filing or Master Data Changes”, and the ROC/ RD office in Delhi, when contacted for physical submission, verbally confirmed that:

1. RD‑1 is not being accepted for foreign companies, it is to be filed only for domestic companies.
2. Acceptance of FC‑4 filed on calendar year basis is treated as deemed approval by MCA.
3. Foreign companies are governed by Section 381, which requires filing of financial statements within six months of the close of their chosen financial year. (thus, indicating that adoption of a different financial year does not require an approval from RD)

Issues Raised

1. Is MCA’s stance (RD‑1 not applicable to foreign companies) consistent with Section 2(41)?
2. Can acceptance of FC‑4 alone be relied upon as sufficient evidence of MCA’s recognition of calendar year adoption?
3. Are there precedents or circulars supporting this practice for foreign companies?
4. Should foreign LOs file a representation (via GNL‑2 or letter) documenting technical inability to file RD‑1 and reliance on FC‑4 acceptance?

Practical Position: In practice, MCA has consistently treated FC‑4 acceptance on calendar year basis as tacit approval for foreign Liaison Offices. While no formal circular exempts foreign companies from RD‑1, the administrative precedent is clear: foreign LOs are outside the RD‑1 framework, and FC‑4 acceptance suffices. For audit defense, it is advisable to maintain an internal compliance memo and optionally file a GNL‑2 representation to document the position.

Conclusion: Foreign Liaison Offices face a dual compliance framework, calendar year for MCA/RBI filings and financial year for Income Tax filings. Until MCA issues a written clarification, reliance on FC‑4 acceptance, supported by internal documentation and optional GNL‑2 filing, remains a defensible compliance strategy