When the Foreign Company desires to invest in India by opening an office in India which represent the Foreign Company in India in order to capture the Indian Market then the Liaison office is the right choice.
What is Foreign Company?
Foreign Company is a Company incorporated outside India. Foreign Company can enter in India through different prescribed methods which include Branch Office, Liaison Office, Project Office and Subsidiary Company.
What is Liaison Office?
Liaison Office is an office of the foreign company situated in India and it act as a channel of communication between the head office of the Foreign Company and the business in India.
It only represents the foreign company in India. Thus, it neither commercially trades nor in any way undertakes any industrial activity directly or indirectly. It is absolutely maintained out of the remittances received from the parent company.
What are the benefits of Liaison Office?
- It helps the parent company to understand and explore the business environment of India.
- Liaison Office conducts the Indian market research for the products of the Foreign Company.
- It is the best suitable to set up a temporary office in India for Indian Customers.
- The Liaison Office helps to intimate about the potential vendors and customers in India to the Parent Company.
- It promotes the foreign business in India and to promote the financial collaborations of foreign company with Indian Companies.
- Liaison Office promotes export and import from/to India.
- The name of the parent company Liaison Company is same.
- It is not required to pay any Income Tax in India as it does not undertake any commercial activity in India.
What are the Routes available for establishing Liaison Office in India?
The Foreign Exchange management Act, 1999 has prescribed two routes for establishing Liaison Office in India –
1. Reserve Bank Route
- When the principal business of the foreign company falls under the purview of Sectors where 100% Foreign Direct Investment (FDI) is permissible under the Automatic Route.
- No need to obtain prior consent from Government
2. Government Route
- When the principal business of the foreign company falls under the purview of Sectors where 100% Foreign Direct Investment (FDI) is not permissible under the Automatic Route.
- Mandatory to obtain prior consent from Government
What are the permitted activities for Liaison Office in India?
Permitted Activities for Liaison Office in India are as follows –
- Representing the Parent Company in India
- Encouraging and promoting Export from India
- Encouraging and promoting Import to India
- Acting as Communication channel
- Undertaking Insurance Activities (after IRDA Approval)
- Promoting the Financial Collaborations or Technical Collaborations of Foreign Company with Indian Companies or of Overseas Group Company
What are the pre-requisites for establishing Liaison Office?
- The parent company of Liaison office shall have profitable operations for last 3 years, and
- The Parent Company must have minimum net worth of US$50,000 (as per the recent audited Account Statement or Balance Sheet).
What are the documents required for Liaison Registration in India?
From Parent Company –
- Incorporation Certificate
- Memorandum of Association
- Article of Association
- Complete details of Directors
- Complete details of the shareholders of the applicant Liaison Office
- Audited Financial Statements (immediately preceding 3 years)
- Banker’s Report of the applicant
- Certificate of the net worth (attested by Certified Public Accountant)
From Authorized Signatory –
- 5 Passport Size Photographs
- 5 Copies of the Passport
- Business Visa
- 5 Copies of the National Identity Card
- Address Proof
- Board Resolution of appointing Authorized Signatory
- Power of Attorney in the favor of Authorized Signatory
What is the process of Liaison Registration?
1. To Obtain DSC for Authorized Signatory
The first step to register a Liaison Office is to get the Digital Signature Certificate for the Authorized Signatory.
2. File application with RBI – Form FNC
Thereafter, the applicant shall file an application in Form FNC with the Reserve Bank of India through Authorized Dealer Bank.
Authorized Dealer Bank represents the applicant before the RBI.
3. KYC Verification
Subsequently, the applicant shall request the Foreign Company’s Banker for scrutinizing the documents and this process is called as Swift Based Verification.
When the Foreign Company’s Banker approves the documents then the applicant shall make an application before the RBI for the approval of documents. The RBI is authorized to ask for additional documents if required.
4. RBI’s Approval
In case 100% FDI is not permitted then it is mandatory to obtain the consent of RBI in accordance with the Prescribed Policies.
5. Obtain PAN and TAN
Thereafter, The Liaison Office shall obtain PAN and TAN from Income Tax Authority.
6. Apply for Incorporation Certificate from MCA
Once the Liaison Office is established then the office shall register with the Registrar of Companies in e-Form FC-1 within 30 days from the date of establishment.
7. Allotment of CIN
When the office is registered with the ROC then the ROC shall allot Corporate Identity Number to Liaison Office.
What are the Annual Compliances for Liaison Office in India?
- Maintenance of Books of Account of Liaison Office in India.
- Auditing of Annual Accounts and to get Annual Activity Certificates from the Auditors.
- Filing of Annual Activity Certificate with the Reserve Bank of India.
- Filing of Audited Financial Statements with the Directorate of Income tax.
- To File the Balance Sheet and Annual Return compliances with ROC.
- In case of any change in Liaison Office including change in Constitution ort change in Directors then it shall be intimated to the ROC.
Liaison Office is a special business set-up which primarily allows a foreign company to set up its office in India to promote its business in India and to do market study in India.
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