FAQ on Setting up of Liaison/Representative in india by Foreign Company
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
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” 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:
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 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
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?
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.
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.
DOCUMENTS
REQUIRED FOR LIAISON OFFICE SETUP
The applicant of the Branch/Liaison office has to opt for
the any of the Authorized Dealer, it is always preferable for the company to
opt for the same authorized dealer as it is dealing in the home country.
1.
Form FNC – 1 – Three copies
2.
Letter from the principal officer of the Parent company
to RBI.
3.
Letter of authority from the parent company in
favor of Local Representative.
4.
Letter of authority/ Resolution from parent
company for setting up liaison office in India.
5.
Comfort letter from the parent company intending
to support the operation in India.
6.
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.
7.
Certification of Incorporation - Translated
& Duly Notarised and Certified by Indian Consulate
8.
The Latest audited Balance sheet and annual
accounts of parent company duly Translated notarized for past Three years.
& Certified by Indian Consulate & Directors
9.
Name, Address, email ID and telephone number of
the authorized person in Home Country.
10.
Details of Bankers of the Organization the
Country of Origin along with the bank account number
11.
Commitment from the Organization to the effect
that it will be open to report / opinion sought from its banker by the
Government of India / Reserve Bank of India
12.
Expected funding level for operations in India.
13.
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
14.
Details of Activity carried out in Home Country
by the applicant organisation in brief about the product and services of
company in Brief.
15.
Bankers Certificate
16.
Latest Proof of identity of all the Directors -
Certified by Consulate and Banker in Home Country
17.
Latest Proof of address all of Directors -
Certified by Consulate and Banker in Home Country
18.
Details of the Individuals / Company holding
more 10% of Equity
19.
Structure of the Organization w.r.t Shareholding
pattern
20.
Complete KYC of Shareholders holding more than
10% Equity in the Applicant Company
21.
Resolution for Opening up Bank Account with the
Banker
22.
Duly Signed Bank Account Opening Form for Indian
Bank
Regards
CS DIVYANSHU SAHNI
(COMPANY SECRETARY)
SPICE GROUP
(COMPANY SECRETARY)
SPICE GROUP
PH: 9871027426
FAQ on Setting up of Liaison/Representative in india by Foreign Company
Reviewed by CS DIVYANSHU SAHNI
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Reviewed by CS DIVYANSHU SAHNI
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