Q&A

Posted On January 2019

Setting up a Liaison Office in India is a popular choice for foreign companies looking to enter the Indian market.

Foreign corporations may set up a Liaison Office to promote business activities of the parent company without incurring the costs of registering companies of other types. 

Below is a list of commonly asked questions related to the establishing a Liaison Office (LO) in India.

What are the conditions for setting up a liaison office in India?

According to the master directions given by Reserve Bank of India, an enterprise must meet the following conditions to establish a Liaison Office in India:

• A profit-making track record of the parent company during the immediately preceding three financial years in the home country; and,
• Net worth of not less than USD 50,000 or its equivalent. This must be verified by the most recent audited balance sheet or account statement.

In case a company does not meet the above conditions, but its parent company can fulfill these requirements, then the parent company can submit a Letter of Comfort on the subsidiary’s behalf.

The company must also submit a Certificate of Incorporation of Memorandum & Articles of Association, and a copy of the parent company’s latest audited balance sheet.

What are the criteria for registering a Liaison Office (LO) in India?

The Foreign Exchange Department of the Reserve Bank of India (RBI) will assess the application for registering an LO based on three criteria: investment route, profitability, and net worth.

Foreign enterprises investing in industries where they are allowed to take up 100% of the stakes are assessed through the Automatic Route. Otherwise, they are assessed through the Government Route.

Meanwhile, the foreign investors must be able to show that they were profitable for the three years immediately preceding the application and that they also have a net worth of at least US $50,000.

What are the required steps following approval by the Reserve Bank of India to setup a Liaison Office?

Several forms and documents are required by the Indian government officials after foreign companies have received LO approval from the Reserve Bank of India (RBI). These are Form 44 for the Registrar of Companies, an Annual Activity Certificate (ACC) and an audited balance sheet to be submitted to the RBI. In addition, companies are also required to submit the ACC form to the Income Tax Department along with audited financial statements, including a receipt and payment accounts.

The liaison office must then obtain a Permanent Account Number (PAN) from the Income Tax Authorities.

What is the validity period of a Liaison Office in India?

The validity period of a Liaison Office (LO) in India is generally three years. The period may be extended by another three years from the date of approval/extension only if the following conditions are met by the LO:

• Complete submission of the Annual Activity Certificates for the previous years.
• The Liaison Office’s account with the designated AD Category – I bank is operating according to the terms and conditions given in the approval letter.

Note:

• The validity period for Non-Banking Finance Companies (NBFCs) and entities engaged in construction and development sector is of two years only. Furthermore, no extension period is provided to them.
• After expiration of the validity period, the liaison offices need to be closed or be converted into a Joint Venture / Wholly Owned Subsidiary in accordance with the current FDI policy.