How to set up a liaison office in India?

The Foreign Exchange Management (Establishment in India of branch or office or other place of business) Regulations, 2000 defines a Liaison Office as under:

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.

A foreign company can setup a liaison office in India to facilitate and promote business activities of the parent company. Without any permission to engage in commercial, trading, or industrial activities, a liaison office can only be sustained by private, inward remittances received from their foreign parent company.

A liaison office is only permitted to engage in the following:

  1. Facilitating communication between the overseas head company and parties in India to establish market opportunities; or
  2. Promote imports/exports between countries; or
  • Establish financial and technical cooperation between overseas and Indian companies; or
  1. Represent the overseas head company in India.

The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison or branch office. It envisages that the foreign company must receive specific approval from the RBI prior to starting and operating a liaison office in the country. Applications must be submitted through Form FNC (Application for Establishment of Branch/Liaison Office in India). The approval process generally takes 20 to 24 weeks and permission to operate a liaison office is granted for a three-year period, which can be extended further on request. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Nepal, Bhutan, China, Hong Kong and Macau are not allowed to acquire immovable property in India. These entities are allowed to lease such property for a period not exceeding five years.

A foreign company must complete the following requirements for establishing a liaison office:

  1. Three-year record of profitable operations in the home country; and
  2. Minimum net worth of US$50,000 verified by the most recent audited balance sheet or account statement.

The liaison office must also obtain a Permanent Account Number (PAN) from the Income Tax Authorities.

Within 30 days of establishment, the liaison office must register with the Registrar of Companies (RoC) by filing Form 44 through the Ministry of Corporate Affair’s online portal.