What Is a Liaison Office?
The Foreign Exchange Management Act (FEMA) defines Liaison Office as “a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial / trading / industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel”.
The master circular of RBI states that a Liaison Office (“LO”) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of a Liaison Office should be met entirely through foreign exchange from your Head Office outside India. Therefore, the role of a Liaison Office is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an “AD Category I bank”.
Setting Up a Liaison office in India:
Foreign companies can open a liaison office in India to facilitate and promote the parent company’s business activities, and act as a communications channel between the foreign parent company and Indian companies. Unable to engage in commercial, trading, or industrial activities; liaison offices must be sustained by private, inward remittances received from their foreign parent company.
Cases Which Requires Prior Approval of RBI:
Any application from a foreign entity for opening a liaison office in India shall require prior approval of Reserve Bank in the following cases;
- The applicant is a citizen of or the entity is registered/incorporated in Pakistan;
- the applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a liaison or branch office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
- The principal business activity of the applicant falls in the four sectors; namely Defence, Telecom, Private Security and Information and Broadcasting:
- The applicant is a Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government.
Such applications shall be forwarded to the Reserve Bank, Foreign Exchange Department, Central Office Cell, New Delhi by the Authorized Dealer Category-I bank and be considered in consultation with the Government of India.
A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. A liaison office is permitted to engage in the following activities;
- Facilitate communication between the overseas head company and parties in India to establish market opportunities;
- Promote imports/exports between countries;
- Establish financial and technical cooperation between overseas and Indian companies; and,
- Represent the overseas head company in India.
The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison office or branch office in India. Under the Act, foreign enterprises must receive specific approval from the Reserve Bank of India’s (RBI) Foreign Exchange Department to operate a liaison office in the country. Foreign insurance companies can establish Liaison Office in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Foreign banks can establish Liaison Office only after obtaining approval from the Department of Banking Regulation (DBR), RBI.
Applications are to be submitted through Form FNC Annex-1 (Application for Establishment of Branch/Liaison Office in India). Following documents are required for opening of liaison office:
- Form FNC – 1 – Three copies
- Letter from the principal officer of the Parent company to RBI.
- Letter of authority from the parent company in favor of Local Representative.
- Letter of authority/ Resolution from parent company for setting up liaison office in India.
- Comfort letter from the parent company intending to support the operation in India.
- Two copies of the English version of the Certificate of Incorporation, Memorandum & Articles of association (Charter Document) of the parent company duly attested by the Indian embassy or notary public in the country of registration.
- Certification of Incorporation – Translated & Duly Notarized and Certified by Indian Consulate
- The Latest audited Balance sheet and annual accounts of parent company duly Translated notarized for past Three years. & Certified by Indian Consulate & Directors
- Name, Address, email ID and telephone number of the authorized person in Home Country.
- Details of Bankers of the parent company along with the bank account number
- Expected funding level for operations in India.
- Details Relating to address of the proposed local office, number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided
- Details of Activity carried out in Home Country by the parent company in brief about the product and services of company in Brief.
- Report from the bank of parent company showing the number of years the applicant has had banking relations with that bank.
- Latest Proof of identity of all the Directors – Certified by Consulate and Banker in Home Country
- Latest Proof of address all of Directors – Certified by Consulate and Banker in Home Country
- Structure of the parent company w.r.t Shareholding pattern
- Resolution for Opening up Bank Account with the Banker
- Duly Signed Bank Account Opening Form for Indian Bank