Setting Up a Representative Office in India: RBI Approval, Eligibility & Compliance

For foreign businesses considering market entry or FDI in India, establishing a representative office (liaison office) can provide a low-risk way to assess financial opportunities and build a local presence before undertaking commercial operations.

A representative office, commonly referred to as a liaison office (LO) in India, is one of the simplest forms of market presence available to foreign companies that wish to explore business opportunities without carrying out commercial or revenue-generating activities.

Regulated under the Foreign Exchange Management Act (FEMA), 1999, and the Reserve Bank of India’s (RBI) Master Direction on the Establishment of a Branch Office (BO), Liaison Office (LO), Project Office (PO), or any other place of business in India by foreign entities, a liaison office serves as a communication and coordination channel between the foreign parent company and Indian customers, suppliers, or business partners.

Unlike a subsidiary or branch office, a liaison office cannot undertake any commercial, trading, manufacturing, or income-generating activities in India. All operating expenses must be met through inward remittances received from the foreign parent company.

Why do foreign companies establish a representative office in India?

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Many overseas businesses use a representative office as a first step before making larger investments in India. It allows companies to study the market, establish relationships with customers and government authorities, and coordinate business activities without setting up a full-fledged commercial entity.

A representative office is particularly suitable for companies that want to:

1. Conduct preliminary market research
2. Build relationships with Indian customers, distributors, and suppliers
3. Represent the parent company in India
4. Coordinate communication between headquarters and Indian stakeholders
5. Promote exports or imports between India and the home country
6. Evaluate long-term investment opportunities before establishing a subsidiary or branch office.

What activities can a representative office undertake?

The RBI permits liaison offices to undertake only limited activities that facilitate communication and business development on behalf of the foreign parent company.

Permitted activities generally include:

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• Representing the parent company or overseas group companies in India
• Promoting export and import activities between India and the parent company’s jurisdiction
• Promoting technical or financial collaborations between Indian businesses and the parent company
• Acting as a communication channel between the foreign head office and Indian entities
• Collecting market intelligence and facilitating business relationships without entering into commercial transactions.

What activities are prohibited?

A liaison office is not permitted to conduct any business activity that generates income in India.

Accordingly, it cannot do the following:

• Undertake trading or commercial operations
• Manufacture or process goods
• Provide services for consideration
• Execute contracts on its own account
• Earn commission or other business income in India
• Borrow or lend funds in India unless specifically permitted under applicable regulations

Since it cannot earn revenue, all operating expenses, including employee salaries, office rent, and administrative costs, must be financed entirely through funds remitted by the foreign parent company.

Eligibility requirements for establishing a representative office

A foreign entity intending to establish a liaison office must satisfy prescribed financial eligibility criteria.

Generally, the applicant should:

1. Have a profitable track record during the immediately preceding three financial years in its home country
2. Have a net worth of at least US$50,000 or its equivalent, certified by a certified public accountant or registered accounts practitioner.

Where the applicant itself does not meet these criteria, the RBI framework allows consideration based on a letter of comfort from the parent company, subject to prescribed conditions.

How to set up a representative office in India

Step 1: Assess eligibility: Before filing an application, the foreign company should verify that it satisfies the RBI’s financial eligibility requirements and that the proposed activities fall within the scope permitted for liaison offices.

Step 2: Prepare the application: The foreign company must submit Form FNC through an Authorized Dealer (AD) Category-I Bank in India. The selected bank acts as the primary point of contact for processing the application.

The application is generally accompanied by documents such as the following:

• Certificate of incorporation or registration
• Memorandum and Articles of Association or equivalent constitutional documents
• Audited financial statements
• Details of the proposed Indian office and intended activities
• Board resolution approving the establishment of the liaison office
• Information required for Know Your Customer (KYC) compliance.

Step 3: Approval by the AD Bank: The AD Category-I Bank conducts due diligence on the applicant’s financial position, business background, proposed activities, funding sources, and compliance with KYC and anti-money laundering (AML) requirements.

Where 100 percent foreign direct investment (FDI) is permitted under the automatic route, the AD Bank may approve the application, subject to regulatory guidelines. However, prior RBI approval is mandatory if the applicant is a citizen of, or the parent company is incorporated in, Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau.

Step 4: Obtain a Unique Identification Number (UIN): Before issuing the approval letter, the AD Bank obtains a UIN from the RBI. The UIN is used for regulatory reporting and ongoing compliance.

Step 5: Complete post-approval registrations: Following approval, the liaison office should complete applicable registrations and compliance requirements, including:

• Permanent Account Number (PAN)
• Tax Deduction and Collection Account Number (TAN)
• Opening a designated bank account in India
• Registration with the Registrar of Companies (ROC), as a foreign company
• Registrations under labor, payroll, or other local laws

Validity of approval

Approval for a liaison office is generally granted for three years.

However, for foreign insurance companies, non-banking finance companies (NBFCs), and certain entities operating in construction and development sectors, different validity periods or sector-specific conditions may apply under applicable regulations. An extension may be sought before the approval expires, subject to fulfillment of prescribed conditions.

Foreign banks require prior approval from the RBI’s Department of Banking Regulation (DoBR), and insurance companies require prior approval from the Insurance Regulatory and Development Authority of India (IRDAI).

Ongoing compliance requirements

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After establishment, a liaison office must comply with various FEMA, tax, and corporate reporting requirements.

Key compliance obligations include the following:

• Filing an Annual Activity Certificate (AAC) certified by a chartered accountant (CA) with the designated AD Category-I Bank and the relevant tax authorities
• Maintaining proper books and records
• Reporting changes in office address, activities, or authorized signatories to the AD Bank
• Ensuring that activities remain strictly within the scope permitted by the RBI approval
• Complying with applicable ROC and tax filing requirements

Is a representative office the right entry strategy?

A representative office is well suited for foreign businesses that want to establish an initial presence in India while minimizing operational commitments. It provides an opportunity to understand the Indian market, develop commercial relationships, and coordinate with local stakeholders before making larger investments.

However, businesses intending to sell goods or services, execute contracts, invoice Indian customers, or generate revenue should instead consider establishing an Indian subsidiary or, where appropriate, a branch office, depending on their long-term business objectives and regulatory requirements.

Setting up a business in India requires navigating company registration, local approvals, and work permit processes. We help FDI companies by preparing and submitting documentation, coordinating with authorities, and ensuring compliance, so they can start operations smoothly and focus on growth.

Parul Sharma

Manager

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