Next in the series is the business entity, foreign liaison office. Foreign companies can open their liaison office in India, but they are not permitted to perform commercial operations like sales or purchase. They can only liaison on behalf of a foreign company. As per FEMA, liaison office means a business to act as a channel of communication between the principal place of business or a head office by whatever name called and entities in India.
a. Permitted Activities
• Develop products for the parent company.
• Provide employment to Indians.
• Procuring orders for the foreign company.
• Sharing vendor list of Indian suppliers.
• Promoting technical and financial collaboration between parent/group companies and companies in India.
• Promoting export/import from/to India.
All the activities are to be funded by the foreign company. This will be treated as reimbursement of expenses, which will be for income tax purpose treated as income with 10% to 15% of addition as margin.
b. Steps/documents required for setting up liaison office.
• Must have generated profits from operation in the home country for previous 3 years.
• Must have net worth as stipulated by RBI in the latest audited balance sheet.
• Designate a bank branch where your account will be opened (Post approval).
• This bank is treated as authorized dealer bank (AD bank) for your liaison office in India.
• Notarized apostilled copy of certification of incorporation, memorandum and article of association, copy of last 3 years balance sheet, all pertaining to parent company.
• If the above documents are in a language other than English, a translated copy is required in English.
• Complete address details of parent company.
• Brief activities of liaison office.
• Bank details of parent company.
• Certificate from parent company’s bankers, stating the commencement date and no default in the format.
• NOC from state police authorities, applicable only for specified countries.
• Letter of authorization for authorizing resident representative in India to look for operations of liaison office.
• On successful verification, if no default is found, RBI will permit liaison office with unique identification number (UIN).
• Further liaison office has to apply for PAN number with Income Tax Department.
c. Permissions required for foreign liaison office in India
• Permission to set up initially granted for3 years, which may be extended from time to time by AD Category 1 bank.
• Application to be filed in Form FNC-1 to RBI with necessary documents through AD bank.
• Approval from RBI to be obtained.
• Should apply with ROC to obtain certificate of establishment of place of business in India.
• Post this, PAN and TAN should be applied. Nowadays, ROC is giving this along with certificate of establishment.
• Further mandatory registrations required: a. Shops and Establishment. B. Professional Tax (employer). C. IEC.
d. Investment route for liaison office:
1. Automatic route.
2. Sectors where 100% FDI allowed, no need for obtaining approval. It is an automatic route.
3. Approval route: The business activities which do not fall under 100% FDI, those sectors need to take prior approval from GOI.
Conclusions: This type of business entity is suitable for foreign companies to act as an intermediary channel of communication between the principal place of business or a head office and business entities in India.
Share & Review us at :
Facebook : https://www.facebook.com/totalsols
Linkedin:https://www.linkedin.com/in/a-subramani/
Instagram: https://instagram.com/totalsols123?igshid=vhhhy4ozhh2q
Youtube Channels : https://rb.gy/q43drq / https://bit.ly/3ol827x