Liaison Office Registration
Liaison Office also known as LO is the first step that a foreign enterprise takes when it wishes to expand its operations in a foreign country like India but is not yet ready to start the actual business venture.
This legal form is classified as a representative office and its main activities can be identified as market intelligence, information collection and market promotion of the goods and services of its parent organization.
An LO helps in interacting with potential buyers, suppliers and other players in the market, thus helping foreign organizations understand the dynamics of the Indian market. Despite all the restrictions from engaging in business activities, an LO is central to setting up future business operations and investments.
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Hence this article written by Blacktie Legal Services India LPP is a complete reference guide outlining the liaison office registration process in India, including the legal provisions, documents required, procedure, time taken to register a liaison office, validity of its registration and annual compliances.
Legal Framework: Under Which Act ?
The registration and functioning of Liaison Offices in India are governed by the Foreign Exchange Management Act (FEMA), 1999. In detail, all registrations for Liaison Offices adhere to the FEMA Notification No. 22/2000-RB that puts forward the conditions and the necessities for a foreign entity to open an office in India. The Indian central bank, that is the Reserve Bank of India (RBI), plays the leading role in the approval and regulation of Liaison Offices within the country.
(NOTE: The Liaison Office Act was implemented only for foreign companies so that all these companies in India could reach their business inside India also.)
Key Objectives of a Liaison Office
A liaison office is a type of representative of the parent company in India and is mainly confined to communication with other Indian entities. Its main objectives include:
- – As the legal representative of the parent company of the business in India.
- – To promote exports/imports from/to India.
- – To promote technological and financial integration of the parent firm with firms in India.
- – To act as the interface of the parent company with other organizational entities in India.
It must be emphasized here that a liaison office cannot undertake any type of business, trade or industrial undertaking and must be funded only through refunds from its parent company located in the parent country.
Eligibility Criteria for Liaison Office Registration
To register an office, there are certain criteria that you must fulfill as we have mentioned below:
– The net worth of your parent company should not be less than a maximum of $50,000 (indian rupee 41,86,225.00) .
- – Your track record for the previous 3 years of parent company should be completely clean and clear.
- – Name of the Office must be same as Parent Company.
Required Documents for Liaision Office Registration
To register a Liaison Office, an individual has to submit several documents to the government which we have explained in detail in a good manner below:
- Form FNC (Annex 1): This form must be completed and signed by the legal representative of the parent company.
- Certificate of Incorporation/Registration of the Parent Company: A notarized and apostilled copy of this certificate is required.
- Memorandum and Articles of Association of the Parent Company: The original copy must be notarized and apostilled.
- Latest Audited Balance Sheet of the Parent Company: You must have the original balance sheet of the parent company, which must be copied and notarized and apostilled.
- Board Resolution: A resolution of the parent company board authorizing the establishment of the liaison office in India.
- Banker’s Report: Formal acceptance of the loan application from the parent company’s banker wherein the company is assessed in terms of its financial capacity.
- Details of Activities: A brief description of the type of activities to be carried out in India by the liaison office.
- KYC of Authorized Signatory: Passport copy, address proof and photo ID of the authorized signatory as per Know Your Customer (KYC) requirements.
Procedure for Liaison Office Registration
The process of Liaison Office Registration in India is briefly described below:
Preparation of Documents: Collect all your important documents and then ensure that all these documents are notarized and apostilled as required.
Filing of Form FNC: With the help of an authorized dealer, submit the form FNC along with all the necessary documents to the RBI.
Scrutiny by RBI: RBI will carefully examine your overall application and may ask for additional information or clarifications.
Approval by RBI: After being satisfied with the scrutiny of the application, the RBI will give you permission to set up a liaison office.
Registration with ROC: Depending on the scrutiny, the RBI will allow you to set up a liaison office after obtaining permission for the application.
Obtaining PAN: PAN is obtained from the Income Tax Department and thus Liaison Office must seek for this number.
Opening Bank Account: The Liaison Office requires to open a bank account in India for receipt of fund from the parent company.
Time Taken for Liaison Registration
The time frame for the registration of a Liaison Office in India depends with the number and accuracy of the documents that are submitted as well as the scrutiny of the RBI. In general, the entire process is expected to last within 6-8 weeks, beginning from the date when the application has been submitted. Nevertheless, any variation or any further queries from the RBI can further stretch this time period.
Validity of Liaison Office Registration
The liaison office is initially approved for a period of three years as an initial step of the Indian firm in the international market. However, when this period is completed, the liaison office can seek an extension. Notably, the extension application has to be filed with the RBI before it expires and it should include the rationale for the extension and a report of the work done by the specific office.
Annual Compliance Requirements
Maintaining a Liaison Office in India entails adhering to several annual compliance requirements:
Annual Activity Certificate (AAC): The Liaison Office also needs to file an Annual Activity Certificate (AAC) in a Chartered Accountant’s format to the RBI affirming that the office has engaged in permissible activities only and has complied with the conditions and guidelines of the approval. The AAC, therefore, has to be filed within six months from the close of the company’s financial year.
Filing with ROC: Liaison Office also have to provided annual returns and financial statements to the Registrar of Companies (ROC) under the Companies Act, 2013.
Income Tax Filing: A Liaison Office is an income tax exempted entity, it has to file an Income Tax Return (ITR) every year stating this fact and to certify that it has not earned any profit in its operations.
Form 49C: The Liaison Office needs to furnish Form 49C to the Income Tax Department with details about the activity of the office and receipt as well as expenditure incurred during the financial year.
Other Regualtory Filings: According to the nature of activities and sector of operation of the Liaison Office it may require additional regulatory filings and reporting requirement.
Conclusion
Liaison Office in India is one of the adequate ways for a foreign company to obtain a foothold in the India and seek business prospects without getting involved in economic transactions.
Nevertheless, it is quite involving and entails proper preparation of schedules and other documents as well as compliance with various rules and regulations, and meeting annual filing schedules. Thus, the matter of legal provisions, registration process, documentation and compliance helps the foreign entities to address the issue effectively.
To get dedicated support and professional advice on Liaison Office Registration in India contact Blacktie Legal Services India LLP. Our staff of professionals will strive to offer and execute duties that will make the registration process smooth and also continue to meet all the laid down requirements at all times.
What we can offer?
Its primary purpose is to act as a communication channel between the parent company abroad and businesses in India. Here’s a breakdown of what an LO can and cannot do:
Activities Permitted with Liaison Office Registration:
- Market Research & Promotion: The LO can conduct market research to understand consumer preferences and industry trends in India. It can also promote the parent company’s products and services, but not directly sell them.
- Liaison & Communication: The LO can facilitate communication between the parent company and potential Indian business partners, distributors, or customers.
- Information Gathering & Reporting: It can gather information about the Indian market, regulations, and business environment to share with the parent company.
- Supervision & Coordination: The LO can supervise and coordinate the activities of agents or representatives appointed by the parent company in India. However, these agents need separate licenses to engage in commercial activities.
Activities NOT Permitted with Liaison Office Registration:
- Direct Sales or Trading: The LO cannot directly sell or trade the parent company’s products or services in India.
- Employment of Local Staff for Commercial Activities: While the LO can employ staff for administrative and support tasks, they cannot be involved in commercial activities like sales or marketing.
- Maintaining Inventory or Warehouse: The LO cannot hold inventory or operate a warehouse for commercial purposes.
- Signing Contracts or Agreements on Behalf of Parent Company: The LO itself cannot sign legally binding contracts on behalf of the parent company.