WHAT IS LIAISON OFFICE?
A Liaison Office (LO) functions as a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office (also known as Representative Office) can undertake only liaison activities. The role of such offices is, Therefore, Limited to collecting information about possible market opportunities, Source of supply, Providing information about the parent company and its products to the prospective Indian customers or vise versa to its vendor.
Liaison Office can undertake the following activities in India :
- Representing in India the parent company/group companies.
- Promoting export/import from/to India.
- Promoting technical/financial collaborations between parent/group companies and companies in India.
- Acting as a communication channel between the parent company and Indian companies.
PROCEDURE FOR SETTING UP LIAISON OFFICE
Any foreign company intending to establish a Liaison Office in India is required to obtain prior approval from the RBI, The Supreme Bank of India, Which may take up to 3-4 weeks for processing of the application. Approval is usually granted for 3 years and can be renewed on expiry thereof.
The RBI has prescribed the following eligibility criteria for sanctioning Liaison Office of foreign entities :
It must be a profit making track record during the immediately preceding three financial years in the home country. Total net worth of the applicant foreign entity should not less than USD 50000 or equivalent i.e. paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name.
Every Liaison office registered with RBI shall get itself registered with the Ministry of Corporate Affairs as corporate entity. Its registration as Liaison office is in itself establishment of foreign company in India. Accordingly, The Registrar will allot a CIN Corporate Identity Number to such company. Entities from Nepal are allowed to establish only Liaison Offices in India. Even the NGO are allowed to open LO in India.
SILENT FEATURES OF LIAISON OFFICE
The name of Indian liaison office shall be same as parent company.
The governing body for the Liaison office is AD banker/ Reserve Bank of India.
Suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.
All the expenses of the Liaison office are met by the head office, hence the funds shall be received from head office account only. The License for the Liaison office is given for three years and the same can be renewed every 3 years. The liaison office is not subjected to taxation in India as there is no mechanism for the income tax department to examine and ascertain as to whether the activities under taken by it result in any taxable income in India The liaison office must maintain a QA22C account with the bank. This is a special account that only allows inflows from abroad. However, At the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company.
RESTRICTIONS ON ACTIVITIES OF THE LIAISON OFFICE
A Liaison Office is not permitted to undertake any commercial/trading/Industrial activity, Directly or indirectly and therefore cannot earn any income in India. The liaison office can neither borrow, Nor lend money. It cannot acquire, Hold, (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India, without prior approval of RBI.
REPORTING BY LIAISON OFFICE:
All new entities setting up LO shall submit a report containing information, as per format provided within five working days of the LO becoming functional to the Director General of Police (DGP) of the state concerned in which LO has established its registered office. In case, there is more than one office of such a foreign entity, In such cases to each of the DGP concerned of the state where it has established office in India.
Liaison Offices have to file Annual Activity Certificates (AAC) certified from Chartered Accountants, At the end of March 31, Along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the LO are finalized with reference to a date other than March 31, The AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.
File form 49C as per Section 285 of the Income Tax Act, 191 together with prescribed documents. Liaison Office may be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law The Liaison Office may require to comply with GST obligation under reverse tax mechanism for availing certain services, if applicable.
PKP can assist you in:
Obtaining approval of RBI for Establishment of Liaison office in India. Getting Liaison office registered with Registrar of Companies. Obtaining CIN of Liaison Office Maintenance of Financial books of Accounts of Liaison office. Payroll Processing of Liaison office. Annual Audit of Books of accounts Getting Statutory Compliances done in prescribed timelines. Reporting of Liaison office on annual basis with concerned authorities.