Establishing a Liaison Office to Reach the Indian Market
DELHI – Establishing a liaison office is typically the first exploratory step foreign companies take towards selling to the Indian market. Liaison offices are permitted to facilitate and promote the parent company’s business activities and act as a communications channel between the foreign parent company and Indian companies and consumers. While unable to engage in commercial, trading, or industrial activities, liaison offices can promote imports/exports and establish market opportunities for the parent company.
A liaison office can be an especially effective option when coupled with either direct or indirect export activities. The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison or branch office. Under the Act, foreign enterprises must receive specific approval from the Reserve Bank of India (RBI) to operate a liaison office in the country. Applications are to be submitted through Form FNC (Application for Establishment of Branch/Liaison Office in India).
The approval process generally takes 20 to 24 weeks and permission to operate a liaison office is granted for a three-year period, which can be extended at a later date. An enterprise must also meet the following conditions before qualifying for the establishment of a liaison office:
- Must have a three-year record of profitable operations in the home country
- Must have a minimum net worth of US$50,000 verified by the most recent audited balance sheet or account statement
If a company does not meet these requirements, but is a subsidiary of a company that does, the parent company may submit a Letter of Comfort on the subsidiary’s behalf. A company must submit a Certificate of Incorporation or Memorandum & Articles of Association, and a copy of the parent company’s latest audited balance sheet. The liaison office must also obtain a Permanent Account Number (PAN) from the Income Tax Authorities. Within 30 days of establishment, the liaison office must register with the Registrar of Companies (RoC) by filing Form 44 through the Ministry of Corporate Affair’s online portal. The following documents must also be provided:
- A copy of the liaison office charter or Memorandum & Articles of Association in English
- Full address of the enterprise’s principal place of operation outside of India
- Name and address of the liaison office in India
- List of directors
- Name and address of the company’s official representative based in India
Each year, the liaison office must file an Annual Activity Certificate (AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter. An AAC should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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