India's economy is rising rapidly, creating tremendous market potential that's just waiting to be tapped into by foreign companies. One of the best ways to get a foothold in this dynamic market is by establishing a liaison office. This office allows you to build relationships, conduct market research, and explore business opportunities. With powerful economic growth, flourishing businesses across various sectors, and a government that encourages foreign investment, India offers a promising environment for business expansion. Additionally, the country boasts a pool of competent and skilled labor, ensuring your operations will run smoothly. So, get ready as we guide you through the concept of a liaison office, the steps to set it up, insights into the registration process, and the required documents you'll need to get started.
What is Liaison Office?
A liaison office, commonly called a representative office, primarily exists to explore business opportunities in India. By establishing a liaison office, foreign investors or corporations can efficiently support and streamline their parent company's commercial operations. This office serves as a vital communication link between clients in India, including customers and vendors, and the parent company's overseas location. Its core responsibilities are conducting market research, gathering valuable information on opportunities, and presenting this crucial data to the parent firm.
Also, Liaison offices play a crucial role in providing information about products to prospective Indian customers and vendors. It's important to note that all expenses of the liaison office should be covered by inbound transfers from the parent firm outside of India. Additionally, international businesses need permission from the Reserve Bank of India (RBI) before opening a liaison office in India.
It is also important to note that a liaison office in India is restricted from engaging in commercial activities or generating invoices for customers. These responsibilities fall under the purview of the overseas parent company. However, the liaison office is granted permission to hire personnel, lease office space, and acquire computers.
Steps to set up a Liaison office in India:
1. Determine the Route:
When you decide to establish a Liaison Office in India, it's essential to carefully determine the route you will take. You have two choices: the Reserve Bank of India (RBI) or the Government approach.
2. Obtain Prior Approval:
For your financial endeavors, it is essential to request the Reserve Bank of India's (RBI) prior approval. This process generally spans over 3-4 weeks, ensuring a thorough review of your application. Furthermore, you have the option to renew the approval for another three years after its expiration.
3. File Application:
Before proceeding, submit the prescribed application form with all necessary documentation and information to the Indian Authorised Banker (AD).
4. Approval Routes:
Under FEMA, 1999, two routes are available:
· Automatic Route: If the foreign entity's primary business is allowed to get 100% FDI using the automatic route.
· Route for approval: If the foreign entity's main line of business falls into a category not covered by the automatic route.
5. RBI Approval:
After consulting with the Ministry of Finance of the Government of India, the RBI issues approval based on the chosen route and sector, upon acceptance of the application, the Liaison Office is allocated a Unique Identification Number (UIN) to facilitate its operations.
6. Liaison Office registration:
To establish your Liaison Office's legitimacy, complete the registration process with essential agencies like the Ministry of Corporate Affairs (MCA) and the Registrar of Companies (ROC). Once registered, apply for the official Certificate of Establishment of Place of Business, issued by the ROC.
7. Compliance & Tax Registration:
To ensure full compliance with legal obligations, diligently complete all required annual reports and maintain precise financial records. Obtain both a Tax Deduction Number (TAN) and a Permanent Account Number (PAN) to facilitate seamless tax proceedings.
Kindly find below the detailed list of documents necessary for the establishment of a Liaison Office in India:
1. Board Resolution
2. Covering letter
3. Draft prescribed Form Part 1
4. Draft prescribed Form part 2 (Declaration)
5. LO Application
6. Foreign direct investment eligibility and Source of Fund
7. RBI format as per KYC
8. 3 years of audited financial statements for the year ended December 2018, December 2019, and December 2020
9. Copy of Certificate of Incorporation (COI)
10. Copy of Memorandum of Association (MOA)
11. Articles of Association (AOA)
12. Applicants background details
13. List of Shareholders (Approval not required but for ROC registration)
14. List of Directors (Approval not required but for ROC registration)
15. Declaration u/s 380 (Approval not required but for ROC registration)
Conclusion:
For international businesses looking to test the Indian market, explore commercial opportunities, and expand their market share in India, establishing a liaison office could prove to be a prudent strategic decision. It is important to carefully follow step-by-step instructions and work with a chartered accountant firm such as KDP Accountants, who are knowledgeable with Indian laws and procedures, and can help you through the registration process easily and ensure compliance. KDP Accountants has a long record of offering professional advice and assistance to foreign businesses wishing to open a liaison office in India.
The above note is subject to further study and clarifications. This note does not form an opinion from our end and before taking any decision based on above, it is recommended to consult our experts on the subject.Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort or otherwise from the use of or inability to use this article, or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.