Liaison Office

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Liaison Office

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Any Foreign Entity looking for an office in India as a sourcing division or to facilitate export or to test the Indian market with a prospective business venture to improve the relations with the authorities and business community or to have the presence in the country from worldwide business outlook, Liaison Office (LO) is the best option.
A Liaison Office or a Representative Office can undertake only liaison activities, which means that it can act as a channel of communication between the Head Office (out of India) and parties in India. It is not allowed to undertake any commercial activity in India. As there is no income of Liaison Office of its own, its expenses are to be met entirely through inward remittances from the parent company outside India received in Convertible Foreign Exchange.

ANALYSIS

In terms of permitted activities, a liaison office can do the following listed activities in India:

  • Act as a channel between the Head office and parties in India. Collect market information and provide information about the products to Indian customers.
  • Promote exports/Import from/to India
  • Promote technical/financial collaboration between parent company and Indian customers.
  • Open Non-Interest bearing INR current account with Category-1 Banks in India. If the foreign entity’s perspective to enter India covers in the above listed permitted activities, then Liaison Office is the best option.

ROUTES

  • RBI Route: If the industry the Foreign Entity is in comes in the specified industries for 100% automatic route of investment as per Foreign Direct Investment Policy then the Liaison Office will be approved by the Reserve Bank of India.
  • Government Route: If the industry the Foreign Entity is in doesn’t come in 100% automatic route and Non Profit and Non-Government Organization, then the Liaison Office will be approved by Reserve Bank of India in consultation of the Ministry of Finance, Government of India.

HIGHLIGHTS

  • Annual Compliance: A Liaison office has to do minimal annual compliances as compared to other forms of business in India.
  • Tenure: Approval is generally given for a period of 3 years and extension is granted on the basis of Track record of annual activity certificates. Record of the account maintained with the designated bank as per the terms and conditions of original approval.
  • Governance: Establishment of Liaison Office/Representative Office in India is governed by Reserve Bank of India (RBI) together with Ministry of Finance, Government of India. The rules and regulations in respect to Liaison Offices are framed under Foreign Exchange Management Act, 1999 and Circulars/Notifications issued by RBI from time to time.

ELIGIBILITY

  • Profit making track record during immediate 3 financial years.
  • Net worth as per latest audited balance sheet certified by CPA should not be less than US $50,000 or its equivalent amount in home country.
  • A designated manager of the proposed Liaison Office and
  • A prospective office space of the proposed Liaison Office or Virtual Office /Service Office Set up.

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