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Opening of Liasion Office

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Overview

A Liaison office is a place that represents the principles of the foreign company. It works as a body that understands and explores various factors for the growth of the parent company. It includes activities such as 

1) Exploring business condition

2) Understand the motive of the parent company

3) Conduct market research for the foreign company

4) Establish a communication channel between the foreign and Indian company and many more

The Liaison office works to provide further information from potential vendors. 

Registering as a Liaison Office in India 

The primary purpose of setting up a liaison office in India is to promote the business. It includes promoting import and export, promoting technical participation of the parenting company, and communication between the parent and Indian companies. Most essentially, the Liaison offices are known for the opportunities that they provide to overseas investors. Liaison offices make way for investors to explore the markets in India. Further, it also helps the parent company to mark its presence in the evolving market with all the benefits of keeping its Financial, legal, and administrative commitments low. 

In India, the registration of the Liaison office is done by the Foreign Exchange Management Act. According to the terms of the FEMA Act, it is compulsory that any foreign entity that wishes to establish a Liaison office In India must seek the approval of foreign exchange department and the RBI.

Activities allowed to the Liaison offices in India:

 As per the FEMA Act, Any Liaison office set up India must conduct the following activities;

1) The Liaison office set up in India must establish healthy communication between the foreign head and Indian parties to create market opportunities.

2) It must promote a healthy import and export relationship with India

3) The Liaison Company must create a financial as well as technical collaboration between India and overseas company.

4) It must represent its parent company in India.

In recent times, India is rapidly experiencing growth in its market. Thus many Multi-national companies want to invest in Indian Market. They are always in search of a chance to establish a liaison office in India. 

Activities restricted to the Liaison Office:

1) A Liaison office in India cannot undertake any kind of commercial, trading, or industrial activity. Thus they cannot earn anything from India

2) A Liaison office set up in India cannot borrow or lend money 

3) They cannot acquire, hold, or dispose of any immovable property in India.

 As per the FEMA Act, 2016, to establish a liaison office in India, the foreign entities must meet the below conditions:

1) For establishing a Liaison office, it is necessary that the parent company must have a net value of more than $50,000.

2) The company must also hold a good track record of profitability in the last five years.

3) The income-generating activity must be prohibited. 

Primary features of a Liaison office in India

1) Name of the Liaison office should be similar to the name of the parent company

2) Governing body of liaison office must be AD banker or the reserve bank of India

3) It is primarily for all the foreign investors who want to set up a temporary office to liaise with its business

4) It doesn’t have any ownership; it is only an extension of the foreign company

5) All the expenses of the liaison office should be received from the head office through legal channels.

6) All the liaison office holds a license of three years after which they can renew their license if they want

7) As Liaison offices are not subjected to the taxation, hence the income tax department will not examine any account

8) All the Liaison offices can open a non-interest INR bank account. To open an account, they need to approach their dealer.

Points to consider while Liaison office registration 

Net-worth:

 To open a Liaison office in Indi, it is necessary that all the foreign companies must have a net worth of more than $50, 000. All the accounts must be verified by the auditors. Further, they should also have a good track record of profitability in the last five years.

There should be no income generating activity

 As per the FEMA Act, all the funds to the Liaison offices should be provided by the parent company. Hence, it should not involve itself in any income-generating activity.

Name and new office

 The name of the Liaison office should match with the overseas parent company. And for all new office places, the entity must seek the approval of the reserve bank of India.  

Taxation 

 The IT department holds the right to impose income tax in some cases

Drafting the forms and documents required by the government

 After receiving all the essential documents, the next part is drafting the documents for signature purposes. All the forms and documents require a signature from the authorized signatory and entity. The documents that need authorized signatory are:

1) Board resolution approval that permits the liaison office opening in India

2) Declaration from the entity that shows FDI eligibility and source of fund

3) Report that states the nature of the activity and the location of activity for the Liaison office

4) Report that states the nature of the activity and the location of the overseas parent company

5) Form FNC

6) letter of comfort from the holding company

 

Document Required

1) Essential annexures required from the parent company

  • Certificate of registration of the foreign entity
  • Memorandum of Association
  • Articles of Association
  • Details about all the directors of the company
  • Complete information about all the stakeholders of the foreign company
  • Net-worth certificate verified by a certified public accountant
  • Audited monetary statements of the last three years
  • Banker’s report from the native bank

2) Essential document required from the Authorized signatory: 

  • Five photocopies of the passport
  • Five photocopies of National Identity card
  • 5 passport size photos
  • Business visa that has immigration stamp of arrival
  • Address proof that includes bank statements, electricity bills, water bills, and phone bills
  • The resolution of the board while appointing the AR. 
  • Power of attorney in AR’s name

Time Lines

  • (10 to 25 Days)
  • Purchase the Service
  • Upload / send the Documents
  • Discussion with expert
  • Filing of application with registrar authorities
  • Receipt of Registration Certificate
  • Confirmation to client

FAQ's

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