Liaison-branch-office-setup in India allows a foreign company to establish a presence for communication and coordination purposes.
Liaison or representative office is generally set up by foreign companies or MNC’s in India Who are interested to enter the Indian market. Liaison offices are generally opened to study the possible market scenario of their products or services in India and to provide information about the company and its products to prospective customers in India. Its parent foreign company has to send funds to maintain liaison office in India.
Any foreign company intending to establish a Liaison Office in India is required to obtain prior approval from the Reserve Bank of India (RBI) through Authorized Bankers(AD), which may take up to 3-6 weeks. Approval is usually granted for 3 years and has to be renewed on expiry. The name must be the same as that of the foreign parent company. The Indian Income Tax authority can impose Income Tax on the liaison office if they find any transaction of commercial nature through PE in India.
A foreign company must fulfill two primary conditions before qualifying for the establishment of a liaison office:
They must have a three-year record of profitable business in the home country; and,
They must have a minimum net worth of US$50,000 verified by the most recent audited balance sheet.
After proper scrutiny, AD Category – I bank shall forward the application in form FNC together with their comments/ recommendations to the RBI for its approval and allotment of Unique Identification Number (UIN) to LO. After receipt of the UIN from the Reserve Bank, the AD Category-I bank shall issue the approval for establishing LO in India.
If the LO applicant is a non-governmental/non-profit organization engaged in any of the activities mentioned under the Foreign Contribution (Regulation) Act 2010 (FCRA), they will have to obtain a certificate of registration under the FCRA instead of seeking permission through FEMA.
Every Liaison office registered with RBI shall have to get itself registered with the Ministry of Corporate Affairs. The MCA will allot Corporate Identity Number (CIN) to such a company. Nowadays CIN is allotted along with Permanent Account Number (PAN) & Tax Deduction Number (TAN). Once PAN is allotted, it should open the bank account as well.
After the approval, LO has to establish its office within six months. The approval shall elapse, in case the office is not set up in six months. Companies looking for any further extension of time shall require prior approval of RBI.
Finally, after the approval from RBI, the liaison office needs to register it with the state police office. The application must be accompanied by the RBI approval copy and KYC of all authorized persons in India and the foreign company.
Once the Liaison office Bank Account is opened and the checkbook is received, it would need a copy of the check for making an application for the GST Registration and Import Export Code for the Liaison Office of the foreign Company in India.
Once the validity period expires, the liaison office has to either close down or to be converted into a joint venture/wholly-owned subsidiary in conformity with the FDI policy.
A. Liaison Offices have to file Annual Activity Certificates (AAC) certified from Chartered Accountants, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case the annual accounts of the LO are finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six months from the due date of the Balance Sheet to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation), New Delhi along with the audited financial statements including receipt and payment account.
B. File form 49C as per Section 285 of the Income Tax Act, 191 together with prescribed documents.
C. Liaison Office may be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law
D. The Liaison office may require to comply with GST obligation under reverse tax mechanism for availing certain services, if applicable.
E. The liasion office may have to comply with various Labour laws of India, if there are any employees in LO.
F. Filing of Various forms and certificate from Chartered Accountant at the time of closing of LO.
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