Registration of a Liaison Office

A foreign company can open Liaison Office in India after the approval of Govt. of India. A Liaison Office is permitted to do only - collection of information, promotion of exports/imports and to facilitate technical/financial collaborations. Liaison office cannot undertake any commercial activity directly or indirectly.

Liaison Office Formation:

A Liaison Office is in the nature of a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly.It is required to be run out of the inward money remittances it receives from its parent company through proper channel e.g. banks in India. The Liaison Office is permitted to undertake following activities only:

• Representative of parent company in India
• Promoting export and import from and to India
• Promoting financial and technical collaborations between parent companies and companies in India
• Acting as a communication channel between the parent company and Indian companies

Any foreign company can open its liaison office in India after the approval of Reserve Bank of India, the apex bank in India. There are set of guidelines prescribed by RBI and the permission is granted only to those companies who fulfill those guidelines. The permission is usually granted for two to three years, this can be extended later.

Necessity of a Liaison Office

The Liaison Office generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The Liaison Office can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company. The Liaison Office cannot undertake any business activity in India nor earn any income in India.

At the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company.

Since the Liaison Office is not permitted to earn any income, it should not constitute a taxable entity in India. However, the Liaison Office would be required to withhold tax from certain payments and hence is expected to comply with the requisite "tax withholding" obligations under the domestic tax law

To open a Liaison office, the parent company has to apply to the Reserve Bank of India and is normally granted permission within 2 to 4 weeks.

Restrictions or guidelines prescribed for Liaison offices

• It cannot carry out any commercial operations in India.
• It must maintain a QA22C account with the bank. This is a special account that only allows inflows from abroad.
• It can neither borrow, nor lend money
• All expenses of the office must be met through inward remittances to the office from abroad through the bank. It is not subject to tax in India.
• However, the office must file regular returns to the RBI. Such returns must include Audited Annual accounts and an activity report for the year.