Liaison Office Registration in India

What is a Liaison Office in India?

A Liaison Office (LO) is an extension of a foreign company established in India to represent its parent company. Its primary purpose is to explore and understand the Indian market, conduct market research, promote the parent company’s business, and act as a communication channel between the parent company and Indian entities. However, a Liaison Office is prohibited from engaging in any commercial, trading, or industrial activities in India. The parent company bears all expenses of the Liaison Office, and any income generated through activities that create a “business connection” with the parent company is taxed under the Income Tax Act, 1961, at a rate of 40%.

Benefits of Setting Up a Liaison Office

Market Research

Helps foreign companies explore the Indian market without incurring high costs.

Brand Promotion

Increases visibility of the parent company’s brand in India.

Collaboration Facilitation

Promotes technical and financial collaborations with Indian businesses.

Regulatory Simplicity

Involves simpler compliance than other business structures like branch offices or subsidiaries.

Cost-Effective Entry

Enables businesses to enter the Indian market with limited financial risk.

Permitted Activities for a Liaison Office

– Represent the parent company or group companies in India.
– Promote export/import from or to India.
– Facilitate technical and financial collaborations between parent/group companies and Indian companies.
– Act as a communication channel between the parent company and Indian businesses.

Minimum Requirements for Liaison Office Registration

– Net Worth of the Parent Company: Minimum USD 50,000.
– Profitability: The parent company must have made consistent profits for the last 3 financial years.
– Name Consistency: The Liaison Office’s name must match the parent company’s name.
– Prohibition on Income-Generating Activities: The Liaison Office must not conduct any commercial or profit-generating activities.

Documents Required for Liaison Office Registration

For RBI/AD Bank Approval:

– Duly filled Form FNC-1.
– Letter from the parent company’s principal officer.
– Letter of comfort from the parent company to support the Liaison Office’s operations.
– Legalized Certificate of Incorporation, MOA, and AOA of the parent company.
– Audited financial statements of the last 3 financial years.
– Banker’s report from the parent company’s banker.
– Declaration from the Liaison Office on FDI eligibility and source of funds.

For ROC Registration:

– RBI/AD Bank’s approval certificate.
– Proof of authorization of the Indian representative.
– Complete list of the company’s directors, duly notarized.
– KYC details of all shareholders holding more than 10% shares.
– Proof of the registered address of the Liaison Office (utility bills/rent agreement).

Step-by-Step Process for Liaison Office Registration

1-Digital Signature Application:

Apply for a Digital Signature Certificate (DSC) for the authorized signatory to file forms digitally with the ROC.

2-Filing Application with AD Bank:

Submit Form FNC to the Authorized Dealer (AD) Category-I Bank for approval if the sector allows 100% FDI.

3-KYC Verification:

The AD Bank verifies the parent company’s documents and seeks confirmation from its banker through swift-based verification.

4-RBI Approval:

Required for sectors where 100% FDI is not allowed or for applicants in restricted sectors/countries.

5-ROC Registration:

File Form FC-1 with the ROC within 30 days of receiving RBI/AD Bank approval.

6-Certificate of Incorporation and PAN/TAN:

Upon registration, receive a Certificate of Incorporation, PAN, TAN, and open a bank account.

7-Police Registration (if applicable):

Required for foreign companies from specified countries like Pakistan, China, and Bangladesh.

8-Local Registrations:

Obtain GST, Shops & Establishments, Professional Tax, and other registrations as required.

Annual Compliance Requirements

Filing Annual Returns to ROC:

Submit annual returns within 60 days of the financial year-end.

Annual Activity Certificate (AAC):

Certified by a Chartered Accountant, confirming activities align with RBI approval, submitted to the AD Bank by September 30th every year.

Filing Annual Financial Statements:

File audited financial statements with the ROC within 6 months of the financial year-end.

Income Tax Return Filing:

File annual income tax returns by July 31st for the preceding financial year, even if no income is generated.

Taxation of Liaison Offices

Liaison Offices are generally not taxed as they cannot generate income in India. However, if income arises from a “business connection” with the parent company, it is taxed at 40% under the Income Tax Act.

Comparison: Subsidiary, Branch Office, Liaison Office

Feature	Subsidiary	Branch Office	Liaison Office
Legal Status	Separate legal entity	Extension of parent company	Extension of parent company
Activities Allowed	Broad range, including manufacturing	Limited to specified activities	Restricted to liaison activities
Taxation	Taxed as an Indian company	Taxed as a foreign entity	Not taxable (no income generation
Control	Parent company retains control	Full control by parent company	No operational control
Compliance Level	High (annual filings, audits, etc.)	Medium	Low
FDI Approval	Automatic route (most sectors)	RBI approval required	RBI approval required
Best For	Long-term presence, local operations	Short-term specific projects	Initial market entry