Foreign companies and investors who wish to enter the Indian market need to look into all the available modes to establish a footing in the country. One of the most popular and reliable options is to set up a Liaison Office in India as a liaison office allows the foreign company to enter the Indian market without worrying about the financial, legal, and administrative aspects of the business.
What is a Liaison Office?
A Liaison officer has been defined under the Foreign Exchange Management Act (FEMA) as a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial/trading/industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.
A Liaison office is restricted to undertaking only certain activities defined by the RBI. These activities include:
- Representing in India the parent company/group companies
- Promoting export/ import from or to India
- Promoting technical/financial collaborations between parent or group companies and companies in India
- Acting as a communication channel between the parent company and Indian companies.
It is, therefore, not allowed to undertake any business activity and earn any income in India. A Liaison Office plays the role of collecting data on market opportunities and sending this information back to the parent company.
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Steps to Set Up Liaison Office in India
There are numerous formalities, approvals, and registrations required to be obtained from different government authorities in order to set up a liaison office in India. The steps to establish a liaison office includes the following:
- A Bank is designated as the Authorized Dealer Bank (AD).
- An application is filed with the Reserve Bank of India (RBI) through the AD Bank.
- The RBI evaluates the application and documents and grants its approval.
- An application with the ROC is filed to register the place of business of such liaison office in India.
- PAN and TAN are obtained.
- Other situational registrations like Shop and Establishment registration, IEC Code registration, Professional Tax registration, etc. are obtained.
Compliance Requirements of a Liaison Office in India
Once the registration and set up of a liaison office is done in India, it becomes liable to the following ongoing compliances:
- KYC with the MCA.
- Annual Activity Certificate from practicing Chartered Accountant.
- Annual Compliances with the ROC regarding the assets and liabilities of the office, Financial statement, annual receipt and payment statement, audit by a practicing local Chartered Accountant, etc.
Renewal of Registration of Liaison Office
The approval granted by the RBI is valid for 3 years and the liaison office can apply for an extension with the RBI before the expiry of this period. A further extension of approval is granted for another 3 years to the liaison office.
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