Before you decide to start business in India through a liaison office, you have to understand what it entails and the scope of work. Basically, a liaison office acts an as an intermediary or a channel of communication between the head office, which is situated in a different country and the Indian entity. This entity cannot earn anything in India nor can it accrue money in India in the name of the office. The following points highlight the scope of setting a liaison office in India.
- The work of this office is restricted to collecting information about the opportunities in the Indian market and also convey information about the company and its products to the potential customers in India.
- The expenses of the liaison office is to be met according to the guidelines established by the RBI and it is primarily done through the inward remittances of the foreign exchange from the Head Office that is located outside India. Quite naturally, no taxes are imposed on this entity as no income is generated in this country.
- The liaison office cannot gain a permanent status as it creates the issue of tax implications, but this is usually possible when there is an establishment of direct business between the parent and the liaison office. Therefore, the transactions of the related parties must be handled properly and when the possibility of this situation arises, the company or its office must be ready to prove its dependence.
Beginning of good practice
For setting up business in India as liaison office, the corporate body must have a good establishment outside India looking for the right channel to set up a business. For the approval of applications, the following conditions are to be fulfilled.
- The principal business of the foreign company must come under the bracket of a sector where hundred percent foreign direct investment is allowed under the category of the automatic route. The application from the foreign companies for setting up liaison office in India is to be considered by an authorized dealer such as a bank according to the guidelines of the RBI.
- The application may also require special approval when the applicant comes from certain locations or if it falls in the sector of Private Security, Telecommunications, Information and Broadcasting or Defense.
- The application of a non-government organization may also require prior approval. Before planning the India entry strategy, the entities keen to do business in this country must focus on these parameters to rule out the odds.
Activities to follow
For business setup in India, the liaison office must learn about those activities that are permissible in this country.
Representation of the parent company
Although the liaison office can start the operations in India, it must only represent the foreign company and never resort to taking orders or supplying products as this becomes accountable to the business and the money or income accrued through it becomes taxable.
Promotion of export and import
The establishment of liaison office in India helps in the promotion of export and import services and the business establishments keen to function as online payment gateway service can start liaison office after seeking approval of the RBI.
- The foreign entity can also engage in the promotion of financial and technical collaborations between the parent and the group companies and the companies situated in India.
- Functions as a communication channel between the parent and the Indian companies.
Formalities to pursue
Just like setting up LLC in India requires the companies to push through a set of formalities, the same applies to those companies that are interested to operate liaison offices in India. Read the following points to know how the best practices can help the foreign entities can help a company to move ahead without any hindrance.
1.After establishing the office with the approval of the RBI, the company is allotted a Unique Identification Number.
2.They must also acquire the Permanent Account Number or PAN from the Income Tax Department for setting up office in that country.
3.It must also register itself with the ROC or the Registrar of Companies within a month of establishment via Form 44 through the online portal of the Ministry of Corporate Affairs. The following documents are to be submitted as required while setting up LLP in India.
- Copy of the liaison office Charter or MOA and AOA.
- Complete address of the location of the head office.
- Names an addresses of liaison offices in India.
- List of Directors
- Names and addresses of the official representatives of the company in India.
For establishing a liaison office in India, a special permission is to be obtained from the Insurance Regulatory and Development Authority after following the above mentioned steps diligently.
Closure of the office
To close the liaison office, the company must submit a request to the stipulated authorized dealer or the category -1 bank by the nodal or the liaison office that represent the foreign entities in India. The application must accompany all the necessary documents for the closure to complete. However, the Liaison office in India must pay the GST or the Goods and Services Tax for availing services from the top lawyers in India to aid the business. Some of the points mentioned above are considered the best practices to be followed by a foreign entity when it wants to set up a liaison office in India. The entity must not only follow the guidelines of the RBI but the provisions of the Foreign Management Act as well. Following the procedural norms is essential when a foreign entity wants to conduct business in India by way of liaison office.