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Representative / Liaison Office

A foreign company planning to set up business operations in India may:

a) Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000; or

b) Incorporate a company under the Companies Act, 1956, 

In short, the different types of business vehicles that are available for doing business in India are as follows: 

1. Liaison office (LO)

2. Branch office (BO)

3. Project office (PO)

4. Limited Liability Company (LLC)

5. Limited Liability Partnership (LLP)

6. Joint venture (JV)

7. Wholly Owned Subsidiary (WOS)

Setting up a Liaison Office / Representative Office

Q.1. What is a liaison office? Who can set-up a liaison office?

Ans. Foreign companies are permitted to set-up a liaison office / representative office in India (subject to obtaining specific approvals) to undertake liaison activities on behalf of the foreign company. These offices act as a channel of communication between a foreign company (basically a head office) and parties in India.

Q.2. Who approves the setting up of a liaison office?

Ans. The Reserve Bank of India (RBI or India’s Central Bank) permits setting up of a liaison office in India. 

Foreign insurance companies can establish Liaison Office in India after obtaining prior approval from Insurance Regulatory and Development Authority (IRDA). Foreign Banks can establish a Liaison Office after obtaining prior approval from RBI under the Banking Regulation Act, 1949. Separate approval of RBI under the foreign exchange regulations is not required for such companies.

Q.3. How to set up a Liaison Office in India? 

Ans. With effect from February 1, 2010, foreign companies desirous of setting up a Liaison Office are required to fill application Form “FNC” (to download form, visit: www.rbi.org.in/upload/ECM/docs/FNC1.doc) and submit the same to:

The Chief General Manager-in-Charge, 
Reserve Bank of India, 
Foreign Exchange Department, 
Foreign Investment Division, 
Central Office, Fort, 
Mumbai-400 001

The application should be forwarded by the foreign company through a designated Authorized Dealer (AD) Category-I Bank (to access the list of AD Category-I banks, please visit: http://www.rbi.org.in/Scripts/CategoryI.aspx), along with the following documents: 

English version of the Certificate of Incorporation (Company Registration) / Registration or Memorandum & Articles of Association of the foreign company attested by Indian Embassy.

Latest Audited Balance Sheet of the applicant entity.

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company as per Annex -2 of the FNC form, subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. 

The applications submitted will be considered by the Reserve Bank under the following two routes:

 • Reserve Bank Route - Where principal business of the foreign company falls under sectors where 100% Foreign Direct Investment (FDI) is permissible under the automatic route.

 • Government Route - Where principal business of the foreign company falls under the sectors where 100% FDI is not permissible under the automatic route. Applications from foreign companies falling under this category are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison Offices of foreign companies:

 • Track Record: A profit making track record during the immediately preceding three financial years in the home country.

 • Net Worth: The total paid-up capital and free reserves, less (-) intangible assets (as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name) should not be less than US$ 50,000 or its equivalent. 

The Liaison offices established with the Reserve Bank’s approval will be allotted a Unique Identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx ). 

The Liaison Office shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.  More information on PAN can be obtained from Chapter 4 on “Taxation”, of this publication. 

Q.4. Can a Liaison Office open an Indian Rupee (INR) Account?

Ans. Liaison Offices are allowed to open non-interest bearing INR current accounts in India. Such Offices are required to approach their Authorized Dealer (AD) Category - I Bank for opening the accounts.

Q.5. What is the valid period of existence of a Liaison Office? Can the period of existence of a Liaison Office be extended? 

Ans. Permission to set up a Liaison Office is initially granted for a period of 3 years and this may be extended from time to time by the Authorized Dealer Category – I Bank in whose jurisdiction the Liaison Office is set up. Extensions are usually granted within a period of 30 working days. 

The designated Authorized Dealer Category-I Bank may extend the validity period of Liaison Office for a period of 3 years from the date of expiry of the original approval / extension granted by the Reserve Bank, if the applicant has complied with the following conditions and the application is otherwise in order. 

The LO should  have submitted the Annual Activity Certificates for the previous years  and

The account of the LO maintained with the designated AD Category–I Bank is being operated in accordance with the terms and conditions stipulated in the approval.

All applications for extension of Liaison Offices should be marked to the following person quoting the Reference Number of the original approval letter and the Unique Identification Number (UIN).

The Chief General Manager–in-Charge, 
Foreign Exchange Department, Reserve Bank of India, 
Central Office, Mumbai 400 001 

The application for extension of the validity period of the Liaison Offices of banks and entities engaged in insurance business has to be directly submitted to the Department of Banking Operations and Development, Reserve Bank and Insurance Regulatory and Development Authority (IRDA), respectively as stipulated by them, as hitherto. 

Further, no extension would be considered for Liaison Offices of entities which are Non-Banking Financial Companies (NBFCs) and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in conformity with the Foreign Direct Investment policy.

Q.6. What are the permitted activities of Liaison Office / Representative Office?

Ans. 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. 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 can undertake the following activities in India:

 • Representing in India the parent company / group companies.

 • Promoting export / import from / to India.

 • Promoting technical / financial collaborations be¬tween parent / group companies and companies in India.

 • Acting as a communication channel between the parent company and Indian companies.

A Liaison Office 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.

Q.7. Can more than one Liaison Office be set up? 

Ans. Yes. Requests for establishing additional Liaison Offices may be submitted through fresh FNC form (Annex 1), duly signed by the authorized signatory of the foreign entity in the home country to the Reserve Bank of India. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.  If the number of Offices exceeds 4 (i.e. one Liaison Office in each zone viz.; East, West, North and South), the applicant has to justify the need for additional office/s. Further, the applicant may identify one of its Offices in India as the Nodal Office, which will coordinate the activities of all Offices in India.

Q.8.
Do Liaison Offices have to submit any annual report? 

Ans. Liaison Offices have to file an Annual Activity Certificate (AACs) prepared by the Auditors to the designated Approved Dealer Category-I bank and a copy marked to the Directorate General of Income Tax (International Taxation), New Delhi as at end of March 31 along with the audited Balance Sheet on or before September 30 of that year, stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India. In case the annual accounts of the Liaison Office 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.

In case of multiple Liaison Offices, a combined Annual Activity Certificate in respect of all Offices in India by the Nodal Office of the Liaison Office. 

The designated AD Category - I Bank shall scrutinize the Annual Activity Certificate and ensure that the activities undertaken by the Liaison Office are being carried out in accordance with the terms and conditions of the approval given by the Reserve Bank. In the event of any adverse findings being reported by the Auditor or noticed by the designated AD Category -I bank, the same would be reported by the designated AD Category–I bank to the respective Regional Office of the Reserve Bank along with the copy of the Annual Activity Certificate and their comments thereon.

Q.9. How to close down or wind up a Liaison Office? 

Ans. To wind up a Liaison Office, officials of the foreign company have to approach the designated AD Category - I bank with the following documents: 

a) Copy of the Reserve Bank’s approval for establishing the Liaison Office. 

b) Auditor’s certificate: 

i. Indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; 

ii. Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and

iii. Confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India. 

c) No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s. 

d) Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance. 

e) A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the Office in India. 

f) Any other document/s, specified by the Reserve Bank while granting approval.