Liaison Office: How to start liaison office in India

How to start Liaison Office in india ?

A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India.

It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

Requirements to Establish Liaison Office:

A} a profit making track record during the immediately preceding three financial years in the home country
B} Net Worth not less than USD 50,000 or its equivalent.

Process

English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.

The application for establishing BO / LO in India should be forwarded by the foreign entity through a designated AD Category - I bank to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India, along with the prescribed documents including

The Branch / Liaison offices established with the Reserve Bank's approval will be allotted a Unique Identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx). The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India

A Liaison Office can undertake the following activities in India:

i. Representing in India the parent company / group companies.
ii. Promoting export / import from / to India.
iii. Promoting technical/financial collaborations between parent/group companies and companies in India.
iv. Acting as a communication channel between the parent company and Indian companies.

Liaison Office of Foreign Insurance Companies / Banks

Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).

Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Regulation (DBR), RBI.

Extension of Validity of the Approval of Liaison Offices

The designated AD Category - I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted by the Reserve Bank, if the applicant has complied with the following conditions and the application is otherwise in order.

LO is only a cost center and outward remittance is not allowed, except upon closure of LO.
Remittance outside India

The LO should have submitted the Annual Activity Certificates for the previous years and
 The account of the LO maintained with the designated AD Category – I bank is being operated in accordance with the terms and conditions stipulated in the approval.

Such extension has to be granted, as expeditiously as possible, within a period of one month from the receipt of the request under intimation to the Regional Office
Indian Taxation

Since LOs are not meant to earn income, the Indian government does not tax them. However, where an LO becomes a Permanent Establishment in India, it will be taxed as a foreign entity at the rate of 40% plus applicable surcharge and cess.

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