PROCEDURE TO ESTABLISH A LIAISON
OFFICE IN INDIA
How to Establish a Liaison Office in India?
Author: HARISH KUMAR S
Company Secretary, Bangalore
What is a Liaison Office?
A
Liaison office or a representative office is one of the ways by which a foreign
Company may set up a business presence in India; the other means are to open a
Branch office or a Limited Liability Partnership or a Limited Company (either
as a wholly owned subsidiary or as a Joint Venture)
Brief
write-up on Establishing Liaison Office in
India
1.
Permission from RBI and opening
of bank a/c with AD-Category-1 Bank,
2.
Registration with Registrar of Companies,
3.
Obtaining PAN/TAN from income tax department.
Time Period for
Above Acivities/ Approvals of Liaison Office in India
A.
For
RBI Approval within three months from the date of submission of all the
documents with AD- Category-1 Bank in India.
B. For Approval of form by
Registrar of Companies within 15 days after filing the documents. Documents
will be filed after getting approval from Reserve Bank Of India.
C.
For
PAN and TAN within 15 days after submitting the applications. Applications will
be filed after getting registration with
Registrar of Companies.
1. Procedure for Approval From Reserve Bank of
India under FEMA
(A)
GENERAL
A body
corporate incorporated outside India (including a firm or other association of
individuals), desirous of opening a Liaison Office (LO) in India have to obtain
permission from the Reserve Bank under provisions of FEMA 1999. The
applications from such entities in Form FNC will be considered by Reserve Bank
under two routes:
·
Reserve
Bank Route — Where principal business of the foreign entity falls under sectors
where 100 per cent Foreign Direct Investment (FDI) is permissible under the
automatic route.
 |
· Government
Route — Where principal business of the foreign entity falls under the sectors
where 100 per cent FDI is not permissible under the automatic route.
Applications from entities falling under this category and those from Non -
Government Organisations / Non - Profit Organisations / Government Bodies /
Departments are considered by the Reserve Bank in consultation with the
Ministry of Finance, Government of India.
The following
additional criteria are also considered by the Reserve Bank while sanctioning
Liaison Offices of foreign entities:
· Track Record
- For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.
- · Net Worth [total of 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].
- · For Liaison Office — not less than USD 50,000 or its equivalent.
The
application for establishing LO in India should be forwarded by the foreign
entity through a designated AD Category - I bank to the Chief General
Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign
Investment Division, Central Office, Fort, Mumbai-400 001, along with the
prescribed documents including
·
English
version of the Certificate of Incorporation / Registration or Memorandum &
Articles of Association attested by Indian Embassy / Notary Public in the
Country of Registration.
·
Latest
Audited Balance Sheet of the applicant entity.
Applicants
who do not satisfy the eligibility criteria and are subsidiaries of other
companies can submit a Letter of Comfort from their parent company subject to
the condition that the parent company satisfies the eligibility criteria as
prescribed above. The designated AD Category - I bank should exercise due
diligence in respect of the applicant’s background, antecedents of the
promoter, nature and location of activity, sources of funds, etc. and also
ensure compliance with the KYC norms before forwarding the application together
with their comments/ recommendations to the Reserve Bank.
The
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 LOs shall also obtain Permanent Account Number (PAN)
from the Income Tax Authorities on setting up the offices in India.
(B)
LIAISON OFFICE
b.1 Permissible
Activities for a Liaison Office
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.
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.
b.2 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 Operations and Development (DBOD),
Reserve Bank of India.
b.3 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.
·
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 concerned of the Reserve Bank and to the Chief General
Manager–in-Charge, Foreign Exchange Department,
Reserve
Bank of India, Central Office, Mumbai 400 001, quoting the reference number of
the original approval letter and the UIN.
The
application for extension of the validity period of the LOs of banks and
entities engaged in insurance business has to be directly submitted to the
Department of Banking Operations and Development, Reserve Bank and Insurance
Regulatory and Development Authority (IRDA), respectively as stipulated by
them, as hitherto. Further, no extension would be considered for LOs of
entities which are NBFCs and those engaged in construction and development
sectors (excluding infrastructure development companies). Upon expiry of the
validity period, these entities have to either close down or be converted into
a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in conformity with the
extant Foreign Direct Investment policy.
C) Application
for Undertaking Additional Liaison Offices
Requests
for undertaking activities in addition to what has been permitted initially by
the Reserve Bank may be submitted through the designated AD Category -I bank to
the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange
Department, Foreign Investment Division, Central Office, Mumbai, justifying the
need with comments of the designated AD Category - I bank.
Requests
for establishing additional LOs may be submitted through fresh FNC form duly
signed by the authorized signatory of the foreign entity in the home country to
the Reserve Bank of India as explained above. However, the documents mentioned
in form FNC need not be resubmitted, if there are no changes to the documents
already submitted earlier.
·
If
the number of Offices exceeds 4 (i.e. LO in each zone viz; East, West, North
and South), the applicant has to justify the need for additional office/s.
·
The applicant may identify one of its Offices
in India as the Nodal Office, which will coordinate the activities of all
Offices in India.
(D)
Annual Activity Certificates to be Submitted by Liaison Offices
Branch
Offices / Liaison Offices have to file Annual Activity Certificates from
Chartered Accountants, at the end of March 31, on or before Sept. 30, to the
designated AD Category I bank and a copy to the Directorate General of Income
Tax (International Taxation), New Delhi within two months from the year ended
March 31.
The
certificates are to be filed by the following offices as applicable:
(a) In
case of a sole LO, by the LO concerned;
(b) In case of multiple LO, a
combined Annual Activity Certificate in respect of all Offices in India by the
Nodal Office of the LOs.
The
designated AD Category - I bank shall scrutinize the Annual Activity
Certificate and ensure that the activities undertaken by the LO are being
carried out in accordance with the terms and conditions of the approval given
by the Reserve Bank. In the event of any adverse findings being reported by the
Auditor or noticed by the designated AD Category -I bank, the same should be
reported immediately by the designated AD Category–I bank to the respective
Regional Office of the Reserve Bank in respect of LOs along with the copy of
the Annual Activity Certificate and their comments thereon.
(E)
Closure of Liaison Offices
At the
time of winding up of Liaison offices the company has to approach the
designated AD Category - I bank with the following documents:
a)
Copy
of the Reserve Bank's permission/ approval from the sectoral regulator(s) for
establishing the LO.
b)
Auditor’s
certificate- i) indicating the manner in which the remittable amount has been
arrived at and supported by a statement of assets and liabilities of the
applicant, and indicating the manner of disposal of assets; ii) confirming that
all liabilities in India including arrears of gratuity and other benefits to
employees, etc., of the Office have been either fully met or adequately
provided for; and iii) confirming that no income accruing from sources outside
India (including proceeds of exports) has remained un-repatriated to India.
c)
No-objection
/ Tax Clearance Certificate from Income-Tax authority for the remittance/s.
d)
Confirmation
from the applicant/parent company that no legal proceedings in any Court in
India are pending and there is no legal impediment to the remittance.
e)
A
report from the Registrar of Companies regarding compliance with the provisions
of the Companies Act, 1956, in case of winding up of the Office in India.
f)
Any
other document/s, specified by the Reserve Bank while granting approval.
The
designated AD Category - I banks has to ensure that the LOs had filed their
respective Annual Activity Certificates with the Reserve Bank for the previous
years, in respect of the existing Liaison Offices. Confirmation about the same
can be obtained from the Regional Office concerned of Reserve Bank of India in
the case of LOs.
Closure of
such LO has to be reported by the designated AD Category - I bank to the
Reserve Bank (the Regional Office concerned for LOs, along with a declaration
stating that all the necessary documents submitted by the LO have been
scrutinized and found to be in order. If the documents are not found in order
or cases are not covered under delegated powers, the AD Category - I bank may
forward the application to the Reserve Bank, with their observations, for
necessary action. All the documents relating to the LO operations may be
retained by the AD Category - I bank for verification by the internal auditors
of the AD / inspecting officers of the Reserve Bank.
2. Procedure
for establishing place of business in India by a foreign company with Registrar
of Companies:
1.
A
Liaison office in India will comply with Foreign Exchange Management
(Establishment in India of Office) Regulations,2000 as prescribed above.
2.
The
office/offices will be established. Letter-heads etc., will be printed.
3.
The
name of the company and the country in which the company is incorporated will
be –
(a) conspicuously exhibited on
the outside of every office or place where it carries on business in India in
easily legible English characters and also in the characters of the language or
one or the languages in general use in the locality in which the office or
place of business is situated.
(b) stated in legible English
characters in all business letters, bill-heads and letter paper and in all
notices and other official publications of the
company.
4.
Where
the liability of the members is limited, the notice of that fact will be
indicated in the places and papers of the company mentioned above.
5.
Within
30 days of establishing a place of business in India e-Form FC-1 will be filed
with the Registrar of Companies. Exemption from filing e-Form FC-1 is available
in case of companies incorporated outside India by a Royal Charter or by an Act
of Parliament.
6. E-form FC-1 will be
accompanied by the following documents:
- Charter, statutes or memorandum and articles of association or other instrument constituting or defining the constitution of the company is to be attatched. If the same is not in English language then it should be translated copy in English language.
- Detalis of individuals directors are to be attatched. Details should contain name, surname, former name, if any, residential address, occupation and other directorship-if any.
- Approval letter from Reserve Bank of India for the setting up of business in India is to be attatched.
- Power of attorney or board resolution in favour of the authorized representatives is to be attatched.
- Directors details, in case of body corporate, details containing name and complete address of body corporate.
- Secretary details, if any.
7.
If
the instrument is not in the English language, a certified translation thereof.
Where any such translation is made outside India, it shall be authenticated by
the signature and the seal, if any-
(a) of the official having
custody of the original; or
(b)
of
a Notary(Public) of the country(or part of the country) where the company is
incorporated.
8.
Where
such translation is made within India, it shall be authenticated-
(a) by an advocate, attorney or
pleader entitled to appear before any High Court; or
(b) by an affidavit, of some
person having, in the opinion of the registrar, an adequate knowledge of the
language of the original and of English.
3.
Procedure for compliance of Income Tax Act By Liaison Office
A.
PAN
NO:- Liaison office shall obtain PAN no. after approval of form filed with
Registrar of Companies
B.
TAN
No.:- Liaison office shall obtain TAX Deduction Account No after approval of
form filed with Registrar of Companies.
C.
Filing
of annual activities certificate within Two Months of year ended March 31.
DOCUMENTS
REQUIRED FOR LIAISON OFFICE SETUP:
- Form FNC – Three copies
- Letter from the principal officer of the Parent company to RBI.
- Letter of authority from the parent company in favor of Local Representative.
- Letter of authority/ Resolution from parent company for setting up Liaison office in India.
- Comfort letter from the parent company intending to support the operation in India.
- Two copies of the English version of the Certificate of Incorporation, Memorandum & Articles of association (Charter Document) of the parent company translated & duly attested by the Indian embassy or notary public in the country of registration.
- The Latest audited Balance sheet and annual accounts of parent company duly Translated notarized for past Three years. & Certified by Indian Consulate & Directors.
- Name, Address, email ID and telephone number of the authorized person in Home Country.
- Details of Bankers of the Organization the Country of Origin along with the bank account number.
- Expected funding level for operations in India.
- Details Relating to address of the proposed local office, number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided
- Details of Activity carried out in Home Country by the applicant organization in brief about the product and services of company in Brief.
- Bankers Certificate
- Latest Proof of identity of all the Directors – Certified by Consulate and Banker in Home Country
- Latest Proof of address all of Directors – Certified by Consulate and Banker in Home Country
- Details of the Individuals / Company holding more 10% of Equity
- Structure of the Organization w.r.t Shareholding pattern
Thank you
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Ravi Garg
Company Secretary
91-7838204665,
csravi2014@gmail.com
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