A foreign company can register a Liaison Office for representation or marketing research by obtaining permission from the Reserve Bank of India (RBI) and registering it with the Registrar of Companies.
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A Liaison Office (LO) functions as a place in India that represents a foreign company, primarily to understand and explore the general business environment, conduct market research for the products of the parent company, and provide and seek information from potential customers or vendors. A liaison office can be set up for representing the parent company or group companies in India, promoting export or import from or to India, promoting technical or financial collaborations between parent or group companies and companies in India, and acting as a communication channel between the parent company and Indian companies. A liaison office of the foreign company cannot engage in any commercial activities, and the parent company shall meet all its expenses. However, if it generates any income by conducting activities that constitute a business connection with the parent company, such income will be taxed under the Income Tax Act of 1961. Since a liaison office is not considered a separate entity from its parent foreign company, the taxes imposed are the same as those on a foreign company. As of now, the tax on the profit of the foreign company is charged at a rate of 40% of the total income generated.
To register a Liaison Office of a foreign company in India, the following minimum requirements have to be met. These requirements deal with the net worth and profitability of the concerned foreign company and the name, business activity, and taxability of its liaison office established in India.
Documentation is a vital component of the process of liaison office registration in India. The documents required throughout the process of liaison office registration can be categorised into documents submitted to the AD bank and documents submitted to the Registrar of Companies For your reference, a comprehensive list has been provided in the table below. Make sure you have sufficient and correct documentation before the registration process starts because failing to submit any of the documents given in the list or submitting their incorrect and outdated forms can result in the rejection of your application by the concerned authority.
| S.No | Documents Required for RBI / AD Bank Approval | Documents Required for RBI / AD Bank Approval |
|---|---|---|
| 1 | Duly Filled Form FNC-1 | RBI’s/ AD Bank’s Approval Certificate |
| 2 | Letter of Principal Officer from Parent Company | Legalized Certificate of Incorporation, MOA, and AOA |
| 3. | Letter of Comfort from Parent Company intending to support the operations of its Liaison Office in India. | Proof of Authorization of the Authorized Indian Representative (Board Resolution / Letter of Authorization) |
| 4. | Legalized Certificate of Incorporation, MOA, and AOA of the parent company | A complete list of company’s directors, duly notarized |
| 5. | Audited Balance Sheet of the immediately preceding 3 financial years | KYC details of all shareholders holding more than 10% shares in the Company |
| 6. | Banker’s Report from the Banker of the Parent Company in its country of origin | Proof of Registered Address of Branch Office (Utility bills / Rent Agreement / Lease Agreement / Property Tax Receipt) |
| 7. | Company’s Resolution for opening a Bank Account in India | |
| 8. | Declaration from the Liaison Office on FDI eligibility and source of funds | |
| 9. | Proof of Authorization of the Authorized Indian Representative (Board Resolution / Letter of Authorization) |
The process of Liaison Office registration begins with application for Digital Signature Certificate. A digital signature is the equivalent of physical signature under the Information Technology Act. As per new guidelines, all applications to the Registrar of Companies are filed in digital format and are therefore required to be authenticated using a digital signature of the authorized signatory. To obtain a Digital Signature, the concerned signatory will have to file an application to a Certified Agency, with the prescribed documents and application fees. You can avail our services to apply for a DSC in India.
After the authorized representative or signatory has obtained a Digital Signature Certificate, the next step is to seek approval for opening a liaison office. For opening a liaison office, approval can be sought from the AD Category-I Bank itself if 100% FDI is allowed in the sector to which it belongs. For this, the concerned foreign company will have to submit Form-FNC to the AD Category-I Bank (AD). We are networked with many banks in India, which operate as an AD Category-I Bank for foreign companies. Contact us, (direct to the form) if you need our assistance.
After the FNC Form is filed with the AD Bank, it sends a request for verification of documents filed with the form to the banker of the foreign company in its country of origin. This process is also known as swift-based verification. Only after the documents are verified by the banker, the AD bank will be able to grant approval for setting up a liaison office.
As mentioned before, liaison offices can be set up in India, usually with the approval of AD Bank itself if 100% FDI is allowed in the sector. However, approval from RBI will be required if 100% FDI is not allowed in the sector, if the applicant is involved in sectors like telecom, defense, private security, or information and broadcasting, if the applicant entity is an NGO/NPO, or if the applicant entity belongs to countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau, or any foreign entity which wants to open a branch in the North-east Indian States, Jammu and Kashmir, or Andaman & Nicobar islands. In such circumstances, the AD bank will further the FNC application to the RBI after the documents have been verified by the foreign banker. It usually takes a week for the RBI to process the application and grant approval.
After the approval of the RBI or the AD Bank, whichever applicable, has been obtained, the concerned foreign company can set up its liaison office in India. However, such an established office will have to get registered by the Registrar of Companies. For this, an application is filed in form FC-1 within 30 days from the date on which the approval was received. The filing can be done online on the official website of the Ministry of Corporate Affairs. Once the application reaches the ROC, it is examined carefully, and if found to be correctly filed, is approved by the ROC, after which the ROC will finally register the liaison office of the foreign company.
Upon successful registration by the ROC, the liaison office of the foreign company will receive a Certificate of Incorporation from the ROC, a PAN and a TAN from the Income Tax Department to comply with the tax and TDS related provisions of the Income Tax Act of 1961. With the allotment of PAN, the liaison office can also open a bank account in the AD Bank. However, the LO cannot open more than 1 bank account without obtaining prior permission from the RBI.
Finally, the liaison office needs to register itself with the state police (in the office of the superintendent of Police). The application must be accompanied by the document showing RBI approval and KYC of all authorised persons in India and the foreign company. Registration with State Police is not mandatory but is needed only if the foreign company is based in countries like Pakistan, Afghanistan, Iran, China, Bangladesh, Sri Lanka, Hong Kong, or Macau.
Post registration, liaison offices will also have to undertake several local and state-level registrations applicable to it. These are the same as the registrations applicable for any other company incorporated in India. A few of these include Shops and Establishment Registration, GST Registration, Professional Tax Registration, EPF Registration, ESI Registration, and IEC Registration
It usually takes 3-4 months from the date of application to finally get a liaison office registered in India, including 40-60 days required for getting approval from the concerned AD Bank or RBI. You must remember that the liaison office must be registered and must become operational within 6 months from the date on which it has received such approval, because the approval will lapse after the expiry of 6 months.
A Liaison Office is established and registered for 3 years at a time, except in the case of Non-Banking Finance Companies (NBFCs) and those entities engaged in construction and development sectors, for whom the validity period is two years only. Requests for extension of validity for LOs may be submitted before the expiry of the validity of the approval, to the concerned AD Category-I bank under whose jurisdiction the LO falls. The AD bank may extend the validity period of LO for a period of 3 years from the date of expiry of the original approval or the previous extension granted, only if the applicant has complied with the following conditions and the application has been filed accurately:
Such extension has to be granted, as expeditiously as possible and in any case not later than one month from the receipt of the request of extension.
Further, entities engaged in construction and development sectors and Non-Banking Finance Companies are permitted to open a liaison office for two years only. No further extension would be considered for liaison offices of entities which are Non-Banking Finance Companies and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, the offices shall have to either close down or be converted into a Joint Venture / Wholly Owned Subsidiary of the foreign company.
Filing Annual Returns to ROC
Annual Returns have to be filed by the concerned Liaison Office within 60 days from the date on which the financial year ends, or before the 31st of May every financial year, for the previous financial year.
Filing Annual Activity Certificate to ROC
Annual Activity Certificate is a Certificate issued by a practicing CA, where he declares that the activities carried out by the liaison office in the concerned Financial Year were permitted by the RBI. The Certificate will have to be filed to the concerned AD Category-I Bank on or before the 30th of September every financial year.
Filing Annual Financial Statements
Annual Financial Statements will have to be filed within 6 months from the date of closing of the Financial Year. These must be audited by a practicing Chartered Accountant.
Filing annual Income Tax Returns
Liaison Office is liable to pay income tax on the income it generates from activities which constitute a “business connection” with its parent company. For this purpose, it is considered as a Foreign Taxpaying entity under the Income Tax Act, 1961. So, it will have to pay Income Tax and file Income Tax Returns before the 31st of July every financial year for the previous financial year.
To close a Branch Office, first a resolution will have to be passed to this effect by the parent foreign company. After this, an application has to be filed to the Registrar of Companies, along with the prescribed documents. If the documents, including the Board Resolution, have a foreign origin or execution, they will have to be legalized by the Indian Embassy or Apostille Office, as applicable. The ROC will consider and examine the application. If satisfied with the application, he will issue a No Objection Certificate, permitting the closure of the Branch Office.
After obtaining the NOC from ROC, the concerned Branch Office will have to approach its AD Category-I Bank with the prescribed application and documents for closing its bank account. The documents of foreign origin or execution will have to be legalized again before submission. Given below is a complete list of documents to be submitted to the AD bank for closure of Branch Office:
