Foreign companies interested in exploring and understanding the investment climate in India should initially incorporate a Liaison office. Relatively, quick and easy to set up, a Liaison office is incorporated for four main purposes – to represent the Parent Company in India, explore opportunities for the parent company in India (gather contacts, conduct market research), act as a communication channel between the parent company and associate in India and promote the export / import of goods and services from/ to India. In addition, Liaison offices can hire local and foreign staff, rent property and open bank accounts in India.
A liaison office, like a representative office in China is not allowed to undertake any commercial, trading or industrial activity either directly or indirectly in India and as a result cannot show revenue earned. Expenses of the firm have to be met entirely through inward remittances of foreign exchange from the head office outside India. As a result, the Liaison office needs to open a special QA22C account that only permits inflows from abroad. Since the liaison office cannot earn any income, it does not need to pay corporate tax in India. Tax returns, annual audited accounts and an activity report will however have to be calculated and presented before the regulatory authority.
The Reserve Bank of India, the apex bank grants permission to open a Liaison office. The entire process, can take anywhere from a few weeks to a few months depending on the industry and India’s relations with the nationality of the parent company. Approval is generally granted for a period of one to three years, upon expiry of which the foreign company can apply for a renewal.
An unwritten regulation based on Inchin Closer’s prior experience has shown companies without five years profitability or less than US$5,000 net-worth are generally not granted permission by the RBI to set up liaison offices.
Documents to be submitted to the RBI for permission to set up a Liaison Office:
1. Three copies of Form FNC1 obtained from the RBI need to be signed, sealed and delivered back to the RBI.
2. English version of the certificate of incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy/ Notary Public in the country of Registration.
3.Latest Audited Balance Sheet of the applicant entity.
4. Letter from the Director / CEO of the Company to the Reserve Bank of India stating its intention to set up a Liaison office in India. (English) (On the Company letterhead).
5. Bankers report from the Company’s banker showing the number of years the company has had banking relations with the bank.
6. Letter of authority from the parent company in favor of the local representative.
7. Details of activities / services proposed to be undertaken / rendered by the proposed Liaison office in India.
8. Residence proof and passport copies of the authorized personnel.
9. A covering letter to open the bank account in India.
Once the above documents are duly notarised, signed and submitted to the RBI, the apex board will send the relevant papers to the ministry of external affairs, ministry of finance and the Home ministry for their online approval. Once permission to establish a liaison office is granted by these three ministries, an approval letter will be sent to the company, allowing the foreign entity to operate as a Liaison Office in India.
Post Incorporation Formalities:
Once the foreign entity has received the no objection certificate from the RBI, tax and customs registration procedures can commence. The Liaison office will then have to apply for a permanent Account Number (PAN) and Tax deduction and Collection Account Number (TAN) as well as register with the Customs department. Visa’s for foreign staff will also need to sought at this time and company bank accounts can also be opened hereafter.
Inchin Closer helps multinational companies and SME’s looking at expanding into India and China with setting up RO’s in China and liaison offices in India. We provide foreign companies with 360 degree support services which not only include registration and incorporation of the company, but also tax filing and auditing as well as assistance with obtaining suitable office and residential premises, visa’s, and other ancillary services such as advertising and translation services. Please do write in to us at [email protected] for further details.