Monday, June 20, 2011

Setting up a Liaison office in India – DO’s and Don’ts

Setting up  a Liaison office in India – DO’s and Dont's

Setting up of Liaison office
ü  A representative office or a liaison office of a foreign company may be set up in India chiefly to understand and explore the investment and business climate in India. Hence , a Liaison office is not authorised or allowed to engage in trading / commercial / industrial activity either indirectly or directly in India . 
Only the following activities are permitted to becarried on by a Liaison office in India.

ü  To promote financial or technical collaboration between companies in India and with that of foreign parent company.
ü  To represent foreign parent company in India
ü  To promote import or export into or out of India
ü  Providing active communication about business environment to foreign parent company .
Prior approval from RBI is necessary to open a liaison office in India to represent their foreign parent company.

Restriction of activities by a Liaison office in India

v   A liaison office cannot carry on any business activity or generate any income in India.
v  It should maintain a QA22C account with any nominated bank in India . This is a special type of account where only inflows are allowed from foreign countries.
v  A liaison office cannot lend or borrow money in India.
v  A Liaison office is not subject to taxation in India
v  From the inward remittance , all expenses of the Liaison office are to be met with.
v  Annually , the liaison office should submit its annual accounts and APR ( Annual Performance Report) with the RBI.
v  Permission for a Liaison office in India is usually granted from one to 3 years.
What are all the document to be submitted with the RBI for getting approval for setting up a liaison office in India ?
Ø  3 Copies of Form FCN 1
Ø  A letter from Foreign parent company of its intention to setup a liaison office in India
Ø  If a local representative is appointed , then authorisation letter from foreign parent company in this regard to RBI.
Ø  Two copies of Memorandum and Articles of Association of the foreign parent company in English duly attested   by a Notary public or by the Indian Embassy official in that country.

O Procedure for Renewal of Liaison Office  

      Letter should be addressed to Foreign Exchange Department, RBI, regional office (or respective regional office under which principal office of liaison office situates) sought renewal itself is sufficient. No need to apply with RBI, Mumbai. 

Application for renewal should be made before the expiry of the validity period of the Liaison office through the AD-Category 1 bank .

     Must ensure submission of APR for the first three years.

      Renewal Letter needs to be forwarded through AD Bank.of such Liaison office 

      RBI may  give permission for further one year or  three years on case to case basis.
 R RBI may not accord renewal of Liaison office who are in the field of construction and Development sectors and those involved in NBFC activities.
     These above entities after the expiry of their LO should wind-up their operations or should convert their LO into JV or WOS in pursuance to existing FDI policy of Indian Government .
     Application for renewal of LO from Insurance Companies will be under the purview of IRDA ( Insurance Regulatory and Development Authority ).


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