Liaison office Registration
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Liaison Office Registration in India
What is Liaison Office Registration?
A liaison office, also known as a representative office, serves as a communication bridge between a foreign company and its Indian subsidiaries. Liaison office registration in India is conducted by foreign companies to research and support their business prospects in the country.
Why Incorporate a Liaison Office?
Liaison offices are valuable resources for international investors. They allow foreign investors to research the Indian sector and build a fast-growing market while reducing financial, legal, and administrative duties. Expenses for such offices must be covered by inward remittances from the head office outside India.
A liaison office (LO) can help in promoting import and export from and to India, technical and financial participation, market research, and gathering input from international parent/group businesses.
Benefits of Liaison Office Registration
- The cost of compliance is minimal since the liaison office is not a separate legal entity.
- It’s easy to shut down the office if any major problem arises.
- The liaison office generates no income, so there are no complications related to taxes.
Features of Liaison Office Registration
- The name of the liaison office in India should be similar to that of the foreign parent established outside India.
- The Reserve Bank of India (RBI) acts as a governing body for the liaison office in India.
- The license for the liaison office is approved for three years but can be renewed every three years.
- The liaison office is an extension of the foreign company and cannot claim any ownership.
- Liaison offices can open non-interest bearing INR (Indian Rupees) current accounts in India by approaching their AD banks.
- Since the liaison office does not engage in any income-generating activity within India, it is not subject to any taxation in India.
Activities Allowed for Liaison Office in India
The activities that a liaison office in India can undertake include:
- Promoting smooth communication between the parent company and clients (dealers or business parties) in India to assess market opportunities.
- Facilitating technical and financial collaboration between parent/group companies and Indian companies.
- Enhancing import and export relationships between overseas parties and Indian entities.
- Representing the foreign parent company in India.
- Extending insurance services in India, after obtaining IRDA approval.
Eligibility for Liaison Office Registration
Fulfilling the following criteria is a prerequisite for establishing a liaison office in India:
Net Worth Requirement: The net worth of the foreign parent company must be more than $50,000, attested by their auditors. They must also have a proper track record of their profits for the previous three years.
No Activity That Generates Income: Since the liaison office is not allowed to earn income in India, the parent company must fund its operational expenses.
Documents Needed From Parent Company:
- Copy of latest financial statements attested by a Certified Public Accountant (CPA) in the English language. If not, the sheet is translated to English and then attested by a Notary Public in the country of registration.
- A filled FNC form (FNC- liaison office registration form in India) signed by the authorized signatory of the foreign company.
- A banker’s report of the applicant from the country of registration.
- A letter of comfort stating that the foreign company satisfies the eligibility criteria as per the regulations.
- Foreign company’s certificate of incorporation/registration in the English language attested by a notary public.
- Attested copies of the Memorandum of Association (MOA) and Articles of Association (AOA) in the English language.
- Complete information of directors along with identity and latest address proof, certified by the Consulate and banker in the parent office.
- A complete list of the applicant company’s shareholders.
- Declaration statement regarding the activities and location of the proposed liaison office and the applicant company on the applicant company’s letterhead.
Documents Required From the Authorized Signatory:
- Five passport size photographs
- Five copies of passport business visa with entry stamp
- Five copies of national identity cards with proof of address (bank statement, electricity bill, water bill, phone bill, mobile numbers, and email ID of the authorized signatory)
- Board Resolution for appointing authorized signatory
- Power of attorney in the name of the authorized signatory
- Business VISA with immigration stamp of arrival
Liaison Office Registration Process
Application for Digital Signature Certificate (DSC) of Authorized Signatory
As per the Information Technology Act, a digital signature is equivalent to a normal signature. It has been made compulsory to digitize all the applications to the Registrar of Companies (RoC). So, the first step in registration is to get a DSC for the authorized signatory.
Digital Signature Certificate is given by Certifying Authorities that are approved by the government. One can apply for (DSC) by following a few steps:
- Select your entity type by logging on to the website of a certifying authority.
- Fill in all the details including proof of identity and address.
- Initiate payment of fees for DSC.
- There will be a video verification, and the application for your DSC will be complete. Using the DSC, the authorized signatory can authenticate the registration of the application.
Filling Out an Application With Reserve Bank of India Through AD Bank
A liaison office application form (FNC) is filed by a foreign company. The RBI receives this application through AD bank, through which all the communication with RBI is routed.
KYC Verification by the Banker of the Foreign Company
The documents are submitted to the banker of the foreign company as a request to examine them, which is termed as swift-based verification. After this process, the application is sent to the Reserve Bank of India for approval. RBI can claim the documents later if the need arises. (KYC check is the process of verifying the client’s identity when establishing an account and periodically thereafter).
Approval of RBI for Liaison Office Registration
AD bankers follow a specific policy for approving the liaison office in India. If the automatic route (foreign entity’s principal business falls under sectors where 100% foreign direct investment is permitted) is not available, cases are forwarded to the RBI for prior approval, which will be a one-week process.
Liaison Office Registration With RoC
Once the company is formed, a bank account is opened, and the Foreign Direct Investments (FDI) must be received within 180 days with the banker being announced early. The new company cannot start its business activities unless the capital has been collected in India.
Tax Deduction Number, PAN Card, Opening a Bank Account
The income tax department of India provides a 10-digit number as a Permanent Account Number (PAN). If the liaison office receives that number, it is eligible to open a bank account. Tax Deduction Numbers are required for every taxpayer to comply with Tax Deducted Norms (TDS).
Registration With State Police
As an important step, the liaison office must register with the state police. The application includes RBI approval, KYC of all authorized persons in India and the parent company.
GST Registration and Import and Export Code (IEC)
Once the bank account is created and the cheque book is issued, the liaison office claims for a copy of the cheque book to apply for the import and export code and GST registration.
Compliance
- Liaison offices must file an Annual Activity Certificate (AAC) as of 31st March certified by a Chartered Accountant along with an audited balance sheet by September 30 of a given year.
- Under section 285 of the Income Tax Act, form 49C must be filed along with 191 and the relevant documentation with the Directorate General of Income Tax.
- Under domestic tax laws, the liaison office may be able to deduct a tax from certain payments to comply with withholding requirements.
- To obtain certain services, the liaison office may be required to meet GST (Goods and Services Tax) obligations under the reverse tax system.
- If there are any employees in the liaison office, the LO should follow different Indian labour rules.
- At the time of LO closing, specific forms and a certificate from a chartered accountant must be filed accordingly.
FAQs
A liaison office of a parent organization is not treated as a separate, distinct entity in India. Hence, the Indian government applies higher rates for all tax purposes. The income tax rate for a foreign organization is 40%, in contrast to the 30% tax rate for an Indian company.
Any foreign resident, including a remote organization, group organization, association, or individual, can open a liaison office in India.
The branch office must submit an Annual Activity Certificate (AAC) to the RBI every year, which is prepared by a chartered accountant. Within 60 days of the fiscal year’s end, an AAC shall be filed with the Directorate General of Income Tax.
Both offices are similar in terms of document verification and processing approval. However, they differ in their operations. The branch office mirrors the foreign company, whereas the liaison office acts as a representative and has restrictions on performing certain operations.
Swift-based verification is the process of sending the requested documents to the foreign company’s banker for evaluation. This involves a secure communication system used for transmitting financial information and instructions.
