Liaison Office’ means a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel.
By its very nature, a liaison office in India can act only as a communicative channel for the parent company to supply information on the Indian market and customers, and cannot carry on any business activities in India. As a result, the liaison office cannot generate any revenue in India and all the expenses of running and maintenance of the Indian office are required to be met out of the foreign exchange remitted from abroad.
Permitted activities for a Liaison Office in India
Representing in India the parent company/group companies.
Promoting export import from/to India.
Promoting technical/financial collaborations between parent/group companies and companies in India.
Acting as a communication channel between the parent company and Indian companies.
To promote its business interests, to spread awareness of the company's products and to explore further opportunities.
Any other activity with specific permission of the RBI.
Conditions Imposed While Granting Permission
The conditions precedents for setting a liaison office in India are as follows:
No commission / fee will be charged or any other remuneration received by the Indian office of the foreign company for its liaison activities in India.
Except the liaison work, the office will not undertake any activity of a trading, commercial or industrial nature without the prior permission of RBI
The entire expenses of the Indian office will be met exclusively by remittance from abroad through normal banking channels.
Liaison offices also have to file regular returns compromising of Annual Audited Accounts, an annual activity report on the activities of the office and some other documents with the RBI and Registrar of Companies (MCA).
Procedure to Set up a Liaison Office in India
The procedure for setting up of a liaison office by a foreign company in India involves following two stages:
Reserve Bank of India clearance
Registration with the Ministry of Corporate Affairs (MCA)
Zero Tax Liability
Since a liaison office is not allowed to earn any income, there is no tax liability of a liaison office or its parent company for this representative office.
Maintenance of Bank Accounts
A liaison office in India is permitted to maintain and operate bank accounts in India but only with authorized dealers.