Liaison office in India for a foreign company

What is a liaison office?

A liaison office, also called a representative office, is a place of business in India that speaks for your foreign company but does not trade. Like a branch office, it is part of the foreign company and not a separate Indian company.

The operative law is the FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations 2016 and the related RBI Master Direction. A foreign company that establishes a place of business in India also registers with the Registrar of Companies on Form FC-1.

What can and cannot a liaison office do?

It may:

• Represent the parent in India.
• Promote exports from and imports into India.
• Facilitate technical or financial collaboration between the parent and Indian companies.
• Act as a communication channel between the parent and Indian customers.

It may not undertake commercial, trading or industrial activity, and it earns no income in India. It must be funded by inward remittances from the head office. If your Indian team will negotiate prices, sign contracts, issue invoices or receive payment, you have moved beyond what a liaison office may do.

How does approval work?

Your company applies through an Authorised Dealer Category-I bank on Form FNC. The bank decides under general permission, and prior RBI or government approval is needed only for specified cases. Those include entities or nationals of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong and Macau, non-governmental organisations, government bodies, and the defence, telecom, security and broadcasting sectors.

Under the 2016 rules, your company needs a profit-making record in the last three financial years and net worth of at least USD 50,000, with a parent or group letter of comfort accepted for subsidiaries.

How long does a liaison office last?

Under the 2016 rules, approval is for three years, and the AD bank can extend it in three-year blocks. Construction and development entities and NBFCs are capped at two years with no extension. Liaison and branch offices submit an Annual Activity Certificate with audited accounts through the AD bank by 30 September.

What should you prepare before applying?

Have the parent’s recent accounts ready to show the profit record and net worth, or a letter of comfort from the parent or group if a subsidiary is applying. Agree how the head office will remit funds to cover the office’s costs, because those remittances are its only source of funding. Then apply on Form FNC through the AD bank, and register the place of business with the Registrar of Companies on Form FC-1. Ask the bank which documents it wants before you start, because banks apply the rules in their own way.

Who does a liaison office suit?

A liaison office suits a foreign company that wants a presence to explore the Indian market, build relationships with customers or partners, and coordinate with head office before it commits to trading. It also suits companies whose Indian role is purely to promote and connect.

It does not suit a company that wants to earn revenue, hire a delivery team, or hold assets in India. For those aims, use a wholly owned subsidiary. If you need staff on the ground for a limited period without setting up an office at all, compare it with an Employer of Record. Many companies begin with a liaison office and then incorporate a subsidiary once the market is proven.

Note: Rules and forms change often. This page is general information, not legal or tax advice. Check the current position with a practising Chartered Accountant or Company Secretary before you act.

General information only, not legal or tax advice. Rules and forms change, so confirm the current position with a practising Chartered Accountant or Company Secretary before you act. See our disclaimer.