Establish a representative presence in India without undertaking commercial operations

Foreign companies seeking to explore the Indian market, coordinate with local businesses or maintain communication with their overseas head office may consider setting up a Liaison Office (LO) in India. A Liaison Office acts as a representative office and provides a communication channel between the foreign parent company and parties in India.

The establishment and functioning of a Liaison Office are regulated primarily under the Foreign Exchange Management Act, 1999 (FEMA), applicable RBI regulations and directions and the Companies Act, 2013. The proposed activities, eligibility of the foreign entity and applicable approval requirements must be assessed before initiating the setup process.

Challenges in Setting Up a Liaison Office in India

Setting up a Liaison Office involves the regulatory and procedural requirements that must be addressed before commencing operations. Foreign companies may face challenges such as: -

• Understanding the eligibility criteria relating to the foreign company's financial track record and net worth.
• Determining whether the proposed activities are permitted for a Liaison Office.
• Preparing overseas corporate documents and obtaining the required authentication.
• Completing the application and due diligence process through an authorised dealer bank.
• Understanding the applicable RBI, ROC and tax compliance requirements.

Failure to assess these requirements may result in delays, additional documentation requests or difficulties in maintaining the office's regulatory status.

Get Liaison Office Setup Assistance

Avoid documentation errors and understand the regulatory requirements applicable to your proposed Indian representative office. Remind Legal can assist with the eligibility assessment, application documentation, regulatory coordination and applicable post-setup compliance.

Quick Facts

What Is a Liaison Office in India?

A Liaison Office, also known as a Representative Office, is an office established in India by a foreign company to represent its overseas head office and facilitate the communication with Indian parties.

It does not operate as an independent commercial establishment. It cannot undertake trading, commercial or industrial activities in India or earn income from Indian operations. Its expenses must be met entirely through inward remittances received from the head office outside India through normal banking channels.

A Liaison Office is therefore suitable for foreign companies that require a representative presence in India without directly carrying on business activities through that office.

Who Can Set Up a Liaison Office in India?

A foreign company or other eligible non-resident entity incorporated outside India may apply to establish a Liaison Office in India, subject to the applicable FEMA framework and RBI requirements.

The proposed office must carry out only the activities permitted under the approval. The applicant must also satisfy the prescribed financial eligibility criteria or qualify through an applicable Letter of Comfort arrangement.

Eligibility Requirements for Liaison Office Setup

Under the RBI Master Direction, a foreign entity applying to establish a Liaison Office is normally required to satisfy the following financial criteria: -

Profit-Making Track Record

The applicant should have a profit-making track record during the immediately preceding three financial years in its home country.

Minimum Net Worth

The applicant should have a net worth of at least USD 50,000 or its equivalent.

For this purpose, net worth is calculated as paid-up capital plus free reserves, less intangible assets, based on the latest audited balance sheet or an account statement certified by an appropriately qualified accounting professional.

Letter of Comfort

If the applicant does not satisfy the prescribed financial criteria and is a subsidiary of another company, it may submit a Letter of Comfort from its parent or group company. The parent or group company must satisfy the applicable profit and net-worth criteria.

Meeting these financial conditions does not by itself guarantee the approval. The designated AD Category-I bank also examines the applicant's background, proposed activities, sources of funds and other applicable requirements.

Legal Requirements for Liaison Office Setup

The establishment of a Liaison Office involves compliance with the following legal and regulatory framework: -

Foreign Exchange Management Act, 1999

FEMA governs the establishment and operation of a Liaison Office by a foreign entity in India. The applicable regulations and RBI directions prescribe the eligibility, permitted activities, funding arrangements and reporting requirements.

RBI Regulations and Directions

The RBI Master Direction on the establishment of Branch Offices, Liaison Offices and Project Offices provides the procedural framework. Applications are generally submitted through a designated AD Category-I bank, which conducts due diligence and grants approval under the applicable framework.

Companies Act, 2013

Under Section 380 of the Companies Act, 2013, a foreign company establishing a place of business in India must deliver the prescribed documents and particulars to the Registrar of Companies (ROC) within 30 days of establishing that place of business.

Tax and Other Registrations

A Liaison Office must obtain a Permanent Account Number (PAN) from the Income Tax Department. Other registrations, such as GST or TAN, may be required depending on the applicable tax provisions and activities or transactions undertaken.

Permitted and Prohibited Activities of a Liaison Office

A Liaison Office must operate within the activities permitted under the RBI framework and its approval.

A Liaison Office must not receive business income in India. Its operational expenses must be funded through inward remittances from its overseas head office.

Documents Required for Liaison Office Setup in India

The foreign company must prepare and organise the prescribed application documents and supporting corporate and various financial records. The requirements may vary depending on the applicant's structure and the designated AD bank's due diligence.

Commonly required documents include: -

• Certificate of Incorporation or Registration of the foreign company.
• Memorandum and Articles of Association or equivalent constitutional documents.
• Audited financial statements for the preceding three financial years.
• Banker’s report or reference from the foreign company's banker.
• Board resolution authorising the establishment of a Liaison Office in India.
• Details of directors, key managerial personnel and shareholders, as applicable.
• Business profile and description of the proposed activities in India.
• Proposed Indian office address and details of the authorised representative.
• Letter of Comfort from the parent or group company, where applicable.
• Power of Attorney or authorisation in favour of the person signing the application, where required.

Documents issued outside India may require notarisation, apostille, consular attestation or certified translation, depending on the country of origin and the applicable filing requirements.

Liaison Office Setup Process in India

The setup process generally involves the following steps: - 

Step 1: Eligibility Assessment

The foreign company's financial track record, net worth, business activities and proposed Indian operations are examined to determine whether it meets the applicable requirements.

Step 2: Selection of AD Category-I Bank

The applicant identifies a designated AD Category-I bank in India through which the application and subsequent banking and regulatory matters will be handled.

Step 3: Preparation of Form FNC and Supporting Documents

The prescribed Form FNC is completed along with the required corporate, financial and other supporting documents. A Letter of Comfort is also prepared where applicable.

Step 4: Application Submission and Due Diligence

The application is submitted to the designated AD Category-I bank. The bank examines and verifies the applicant's background, promoters, proposed activities, source of funds and compliance with applicable KYC requirements.

Step 5: UIN Allotment and Approval

Before issuing the approval letter, the AD Category-I bank forwards the various relevant details to the RBI for the allotment of a Unique Identification Number (UIN). After receiving the UIN, the bank issues the approval letter.

Step 6: Establishment of the Liaison Office

After receiving the approval, the foreign company can proceed with setting up its Indian office in accordance with the various approved particulars. The office should usually be established within six months from the approval letter, failing which the approval may lapse, subject to the various applicable extension provisions.

Step 7: ROC Registration

Where required under the Companies Act, 2013, the foreign company must file the prescribed documents and particulars with the ROC under Section 380 within 30 days of establishing its place of business in India.

Step 8: PAN, Banking and Operational Compliance

The Liaison Office must obtain PAN and arrange its designated bank account for receiving funds from the overseas head office and meeting permitted local expenses. Applicable tax and other regulatory requirements must also be addressed before commencing operations.

Government Fees and Professional Charges

The overall cost of establishing a Liaison Office depends on the applicable regulatory filings, documentation requirements, authentication of overseas documents and professional assistance required.

Government fees, where applicable, depend on the relevant statutory filings and fee rules. Professional charges vary according to the complexity of the application, the foreign company's corporate structure and the scope of services involved.

Liaison Office Registration Timeline

There is no such single fixed timeline for completing the entire Liaison Office setup process. The duration depends on the completeness of the application, the time taken by the designated AD Category-I bank for due diligence, the nature of the proposed activities and any additional regulatory approvals required.

The applicant should also account for the prescribed six-month period for establishing the office after the approval letter, subject to the applicable extension provisions.

Validity and Renewal of Liaison Office

A Liaison Office is generally granted approval for a period of three years. However, a shorter validity period of two years applies to Liaison Offices of Non-Banking Financial Companies (NBFCs) and entities engaged in the construction and development sectors, subject to the applicable exception for infrastructure development companies.

For the eligible Liaison Offices, an extension may be requested through the designated AD Category-I bank before the existing approval expires. The bank may grant an extension of three years where the office has submitted the required Annual Activity Certificates and operated its bank account in accordance with the various approval conditions.

No further extension is permitted for Liaison Offices of NBFCs and entities engaged in construction and development sectors, except infrastructure development companies. On expiry, the office must be closed or converted into a Joint Venture or Wholly Owned Subsidiary in accordance with the applicable Foreign Direct Investment policy.

Exceptions and Special Cases

Certain applicants may be subject to the additional regulatory requirements or a different approval process.

• Restricted Countries and Locations: Applications involving entities from specified countries or proposed locations may require prior RBI approval and additional scrutiny. Applicants from certain countries may also be required to register with the relevant State Police authorities.
• Regulated Sectors: Applicants operating in sectors such as defence, telecom, private security and information and broadcasting may require the various additional approvals, subject to the applicable regulatory framework.
• Foreign Banks and Insurance Companies: Applications for representative offices of foreign banks and insurance companies are examined through their respective sectoral regulators.
• Foreign NGOs and Non-Profit Organisations: Entities falling within the relevant NGO or non-profit categories must assess the applicable FEMA and Foreign Contribution (Regulation) Act, 2010 (FCRA) requirements before proceeding.

Post-Registration Compliance for Liaison Office

After establishing the Liaison Office, the foreign company must maintain compliance with the applicable FEMA, RBI, Companies Act and tax requirements.

Key ongoing obligations include: -

• Annual Activity Certificate (AAC): Obtain the certificate from a practising Chartered Accountant as at March 31 each year and submit it to the designated AD Category-I bank and the Director General of Income Tax (International Taxation), New Delhi.
• ROC Filings: Complete applicable filings and document submissions under the Companies Act, 2013, including the requirements relating to financial statements and annual returns, as applicable.
• PAN and Tax Compliance: Maintain PAN and fulfil applicable income-tax and other tax obligations.
• Banking Compliance: Operate the designated bank account in accordance with the various RBI directions. A Liaison Office cannot maintain more than one bank account at a time without prior RBI permission.
• Funding and Expense Records: Maintain records of inward remittances from the head office and local expenses to demonstrate compliance with the permitted funding arrangements.
• Change in Particulars: Inform the designated AD Category-I bank about relevant changes in the office's particulars, management or approved activities and obtain prior approval wherever required.

Common Mistakes to Avoid

Foreign companies should take care to avoid the following mistakes while setting up and operating a Liaison Office: -

• Assuming that a Liaison Office can undertake commercial or revenue-generating activities.
• Applying without checking the financial eligibility criteria.
• Submitting incomplete or improperly authenticated overseas documents.
• Treating the Liaison Office as a Branch Office or an Indian subsidiary.
• Failing to complete ROC registration within the prescribed period.
• Missing Annual Activity Certificate and other applicable compliance requirements.
• Using funds from sources other than permitted inward remittances for office expenses.

Why Choose Remind Legal?

Setting up a Liaison Office requires coordination between the foreign parent company, the designated AD Category-I bank and the applicable Indian regulatory authorities. Remind Legal provides assistance with: -

• Preliminary eligibility and regulatory applicability assessment.
• Review of foreign corporate and financial documents.
• Preparation and review of Form FNC and supporting documentation.
• Assistance with the application and regulatory coordination.
• ROC registration and applicable post-setup compliance support.
• Guidance on PAN and other relevant registrations.

What Information Do We Need From You?

To assess the requirements for establishing a Liaison Office in India, the following information may be required: -

• Name, country of incorporation and business profile of the foreign company.
• Certificate of Incorporation and constitutional documents.
• Financial statements and net-worth details.
• Details of directors and authorised representatives.
• Proposed activities and purpose of establishing the Indian office.
• Proposed Indian office location.
• Details of any existing business presence or representative arrangement in India.

Get Started with Liaison Office Setup in India

Planning to establish a representative office in India? Begin with an assessment of your company's eligibility, proposed activities and various applicable regulatory requirements.

Remind Legal can assist with the documentation, application process and relevant compliance formalities.

Legal Disclaimer

The information provided on this page is for general informational purposes and should not be treated as legal advice. The eligibility, approval and compliance requirements for establishing a Liaison Office depend on the applicant's circumstances and the applicable laws and regulatory directions. Professional advice should be obtained before proceeding with the application.