PROCEDURE FOR OPENING A LIASION OFFICE OR REPRESENTATIVE OFFICE IN INDIA

How can foreign companies open Liaison /Branch office in India?

With effect from February 1, 2010, foreign companies/entities desirous of  setting up of Liaison Office / Branch Office (LO/BO) are required to submit their application in Form FNC along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai through an Authorised Dealer bank.

B. The applications from such entities in Form FNC will be considered by the Reserve Bank under two routes:

Reserve Bank Route - Where principal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.

Government Route - Where principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non - Government Organisations / Non - Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

C. The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities :

• Track Record

For Branch Office — a profit making track record during the immediately preceding five financial years in the home country.

For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.

• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].

For Branch Office — not less than USD 100,000 or its equivalent.

For Liaison Office — not less than USD 50,000 or its equivalent.

D. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Authorised Dealer in whose jurisdiction the office is set up. The Branch / Liaison offices established with the Reserve Bank's approval will be allotted a Unique Identification Number (UIN) . The BOs / LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

E. Liaison/Branch offices have to file an Annual Activity Certificate (AACs) from the Auditors, as at end of March 31, along with the audited Balance Sheet on or before September 30 of that year, stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India. In case the annual accounts of the LO/ BO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet.

 What are the permitted activities of Liaison Office/ Representative Office?

Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. A Liaison Office can undertake the following activities in India :

i. Representing in India the parent company / group compa­nies.

ii. Promoting export / import from / to India.

iii. Promoting technical/financial collaborations be­tween parent/group companies and companies in India.

iv. Acting as a communication channel between the parent company and Indian companies.

Can Foreign Insurance Companies / Banks set up Liaison Office in India?

. Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Similarly, foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), Reserve Bank of India

PROCEDURE FOR OPENING OF BRANCH OFFICE/ LIAISON OFFICE IN INDIA

PROCEDURE FOR OPENING OF BRANCH OFFICE/ LIAISON OFFICE IN INDIA

Any foreign company wants to set up a Liaison office in India should get prior approval from RBI by submitting a form namely Form FNC.

Approval for such branch office / Liaison office is being given under two routes.

Reserve Bank Route:

Where 100% FDI is allowed under automatic route. Application has to be made to RBI. Reserve Bank will look into the following additional criteria for according its approval for Branch/ Liaison office in India by foreign entities.

·         For Branch Office – The foreign entity should have a profit track record of immediately preceding five years in its home nation with a net worth of minimum of $100,000 or its equivalent.

·         For Liaison office - The foreign entity should have a profit track record of immediately preceding three years in its home nation and with a minimum net-worth of $50000 or equivalent.

Government of India Route:

The foreign companies that not fall under 100% FDI under automatic route. Application may be from foreign non-profit organisations, non-government organisations, foreign government departments, foreign government bodies.

The Application for BO / LO should be forwarded in Form FNC through a designated AD Category -1 BANK  along with the following and should be addressed to

                          

                         The Chief General Manager –in-Charge,

                          Reserve Bank of India m

                         Foreign Exchange Department,

                         Foreign Investment Division,

                         Central Office, Fort, Mumbai -400 001

Along with the following documents:

• ·         Certificate of Registration or Incorporation or Memorandum & Articles of Association duly attested by Notary Public / Indian Embassy in the country of incorporation

• ·         Latest Audited Balance Sheet of the Applicant Company or entity.

• If any applicant do not fulfill the above mentioned eligibility criteria and if they are subsidiaries of other companies, they can submit a Letter of Comfort from their parent company provided that the parent company fulfills the eligibility yardstick as mentioned above.

It should be noted that an applicant cannot directly submit his application to RBI and he should forward the same through his banker a AD-Category -1 bank

.

Once the application is approved by RBI , it will allocate a Unique Identification Number (UIN) to the applicant. PAN number should also be obtained by such LO/BO from Income-Tax authorities in India.

Liaison Office

A liaison office or a representative office is on which can undertake only liaison activities so that it can act as a channel of communication between representatives in India and Head Office in abroad. A Liaison office is not authorised to do any business activity in India and hence cannot earn any income in India.  To meet any expenses in India, funds should be remitted through normal banking channels as inward remittance.  The permission for liaison office is initially granted for three years and renewal of approval can be made from time to time by an AD Category I bank for another 3 years provided the following documents are submitted.

·         The LO should have submitted the Annual Activity Certificates for the previous three years.

·         The banking account of LO with AD Category -1 bank has been operated in tune with the conditions and terms as mentioned in the approval letter.

In normal scenarios, extension of LO is being granted within one month of receipt of application.

Branch Offices

   Foreign companies who engaged in manufacturing or trading activities can set up a branch office in India with specific approval from the Reserve Bank of India.  Such branch offices are allowed to represent the parent or group companies and to undertake the following activities in India.

• ·         Export / import of goods

• ·         Rendering any consultancy or professional service

• ·         Rendering services in information technology and development of software in India.

• ·         Carrying out any research work, in areas in which the parent company is engaged.

• ·         Representing parenting company in India and acting as selling or buying agent in India.

• ·         Promoting financial or technical collaborations between Indian companies and overseas group company or parent company.

• ·         Rendering technical support to the products supplied by group or parent companies.

• ·         Foreign airline or shipping company

Restricted Activities:

·         Branch office is not allowed to engage in retail trading activities in India .

·         No manufacturing or processing activities is permitted to carry out by a branch office in India.

·         Profits earned by the Branch office are freely remittable from India subject to payment of applicable taxes.

Annual Activity Certificate should be submitted by the Branch / Liaison Office duly certified by a Chartered Accountant either at the end of 31^st March or before 30^th April of every year to the designated AD Category I bank with a copy to the Directorate General of Income Tax (International Taxation), New Delhi.