What is meaning of liaison activities?
It means communication and cooperation which facilitates a close working relationship between the foreign company and its Indian clients/ markets. It does not include any business activity.
Who is eligible to open a liaison office in India?
A company registered in a foreign country can open a liaison office in India for carrying out permitted activities. Further, the foreign company should have a profit making track record during immediately preceding three (3) financial years in its home country and minimum net worth of USD 50,000 or its equivalent.
Whether companies in all foreign countries are allowed to open branch office in India?
All foreign companies are allowed to open liaison office in India except companies registered in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong kong or Macau. Companies registered in these countries need prior approval of RBI.
Who is the approving authority for a liaison office in India?
Reserve Bank of India is the approving authority for liaison offices in India. Applications for opening a liaison office are considered by RBI under two routes-
a. Automatic route- Where principal business of the foreign entity falls under any sector where 100% Foreign Direct Investment (FDI) is permitted under automatic route, approval is granted by RBI.
b. Government route- Where principal business of the foreign entity falls under any sector where 100% Foreign Direct Investment (FDI) is not permitted under automatic route and application is from non-government/ non-profit organizations/ government bodies, approval is granted by RBI with clearance from Ministry of Finance, Government of India.
What is an Authorized dealer?
Authorized dealer is a bank/ entity authorized by the Reserve Bank of India to deal in foreign exchange/ currency or any other transaction as may be allowed. An application to open a liaison office is required to be made to Reserve Bank of India through an Authorized dealer. Usually, an authorized dealer is a bank.
Whether companies which do not fulfil eligibility criteria can make an application?
Companies which 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.
Can a liaison office make a request for undertaking any additional activity?
Yes, a liaison office can make a request for undertaking activities in addition to what has been permitted initially by the Reserve Bank by making an application to RBI through an authorized dealer.
What is the role of authorized dealer bank in scrutiny of application?
The authorized dealer bank exercises due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensures compliance with the KYC norms before forwarding the application together with its comments/ recommendations to the RBI.
Can a liaison office acquire property in India?
Liaison offices of a foreign entity are not permitted to acquire immovable property in India. They can carry permitted activities from leased premises.
Can a foreign company establish more than one liaison offices in India?
Yes, a foreign company can establish more than one liaison office in India subject to approval of RBI. In case the number of offices exceeds 4, the applicant has to justify the need for additional office.
Can a liaison office open a bank account in India?
Yes, a liaison office is allowed to open non-interest bearing INR current account with authorized dealer bank.
What is a UIN number?
UIN- Unique Identification Number is allotted by RBI to liaison office once it is approved. This number is used for all correspondence, compliance and filings of liaison office in India.
How are the expenses of a liaison office taken care of?
Since a liaison office is not allowed to earn any income in India and hence it cannot have any funds of its own to run the office. Expenses of a liaison office are met entirely through inward remittance of foreign exchange from the Head Office of foreign company situated outside India.
Whether there is any additional requirement for foreign companies engaged in insurance and banking function and desirous of opening a liaison office in India?
Apart from routine approvals, these companies are required to take additional approvals as under-
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.
Whether Liaison office is also required to be registered with Ministry of Corporate Affairs?
Yes, liaison office is required to be registered with MCA through concerned Registrar of Companies (ROC). Once liaison office is registered with RBI, it is required to get itself registered with Ministry of Corporate Affairs as an establishment of foreign company in India.
What are other business license/ registrations applicable to a liaison office?
Apart from registrations stated above, a liaison office is required to obtain following registrations-
Permanent Account Number (PAN)
Tax Deduction Number, if required
Shops & Establishment registration
What is the procedure regarding closure of liaison office?
The liaison office is required to approach the authorized dealer along with prescribed documents, the authorized dealer after detailed verification of the documents and subject to prescribed process will forward the application for closure to Reserve Bank of India for approval.
What are the compliances/ returns that are applicable to a liaison office?
Information report to DGP of concerned state within 5 days of LO becoming functional and then on a yearly basis
Information report to AD on yearly basis
Annual Activity certificate to RBI & DGP on yearly basis
Annual Activity certificate & Annual audited accounts to AD & Directorate General of Income Tax on yearly basis
annual return and accounts with ROC