How to set up a Liaison/Branch Office in India?

Recently, India has become a hot spot for various foreign entities who are showing keen interest in establishing their business operations in India by tapping the growing Indian economy as well as getting access to the best human resources in the world. RBI in this matter has issued various guidelines regarding establishing Liaison Office/Branch Office in India which helps in facilitating ease of doing business in India. In this blog, we will study about establishing a Liaison/Branch Office in India.

Brief Overview about Liaison and Branch Office in India

• • Liaison Office: A Liaison office is set up by a foreign company in India to explore the Indian Market and carry out the liaison activity for its business. A Liaison Office works as a representative office which is established to explore the business and investment climate in India. Hence, Liaison Office is also sometimes known as Representative Office. In simple words, the main motive of establishing a Liaison office is to collect information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. A Liaison office supports the foreign entities and businesses to develop a business plan and continuously try to tap the vast number of present business opportunities in India. Expenses of the Liaison Office in India are met through remittances provided by the Head Office outside India. Further, a Liaison Office can act as a link between the Head Office abroad and parties in India.

• Branch Office: On the other hand, Branch Offices of foreign entities in India are allowed to carry full fledged commercial business in India. They are allowed to carry on the same kind of trading activities or business which their parent company is carrying outside India. However, a Branch Office is not allowed to directly carry on any manufacturing activities, but they can do such activities through a sub-contract  with an Indian manufacturer.

Eligibility Criteria for establishing Liaison/Branch Office in India

A Liaison/Branch Office can adhere to the following requirements to establish in India:

Governing Authority of Liaison/Branch Office in India

Establishment of Liaison Office/Branch/Representative Office in India is governed by Reserve Bank of India (RBI) along with the Ministry of Finance, Government of India. The rules and regulations in regard to Liaison Offices are governed under the Foreign Exchange Management Act, 1999,and various other Circulars/Notifications which are issued by RBI from time to time.

List of Activities that can be undertaken by the Liaison Office

Following activities can be undertaken by Liaison Office in India:

1. A Liaison Office can represent in India its parent company / group companies situated abroad.
2. It can help in Promoting export / import from / to India.
3. A Liaison Office can promote technical/financial collaborations between parent/group companies and companies in India.
4. It can act as a communication channel between the parent company and Indian companies.

However, a Liaison Office is not allowed to undertake any business activity in India and are not allowed to earn any income in India.

List of Activities that can be undertaken by the Branch Office

A Foreign entity through its Branch Office in India can carry out following activities:

1. Export and Import of goods
2. Providing professional or consultancy services
3. Carrying out research related activities of such work in which parent company is engaged
4. Promotion of technical or financial collaboration between Indian companies and parent or overseas group company
5. Acting as buying/selling agent or representative in India on behalf of the parent Company
6. Providing services in the field of Information Technology and help in development of software in India
7. Providing technical assistance to the products which are supplied by the parent or its group companies

Representing a shipping or foreign airline company

Purpose of Establishing Liaison/Branch Office in India

The following are the major reasons for establishing liaison Office in India.

• To justify the business of Parent Company in India,
• Help in exploring various business opportunities in India
• A parent company is able to get a number of contacts which can help it to undertake a survey and target the Indian audience
• Liaison/Branch offices can hire local and foreign staff, rent property, and open bank accounts in India at a very cheaper price.
• Liaison/Branch Office helps in promoting the export/import of goods and services from/ to India.

Documents for setting up Liaison/Branch Office in India

Following documents need to be kept ready for setting up a liaison office in India:

1. Documents from Parent Company
   • Certificate of Incorporation of Foreign Company which must be in the English Language
   • Memorandum of Association (MOA) and Articles of Association (AOA) of the Company
   • Duly filed Form FNC-1
   • Details of all the Directors and Key Executives
   • Details of shareholders
   • A Net worth certificate which must be attested by Certified Public Accountant (CPA)
   • Audited financial statement of the last three years
   • Banker’s Report from the applicant’s banker in the parent country

2. Documents Required from the Authorized Signatory
   • 5 Colour Photo
   • 5 copies of Passport
   • Business Visa Copy with Immigration Stamp of arrival
   • 5 copies of National Identity Card
   • Latest Address Proof (Bank Statement/ Electricity/ Water Bill/ Phone Bill)
   • Board Resolution Appointing the Authorized Representative
   • Power of Attorney in the name of Authorized Representative

The application to set up Liaison/Branch Office Licenses in India used to be directly approved by the RBI. But as per the latest changes and notifications, the applications for Liaison/Branch office are routed through the A.D i.e. Authorized Dealers. Due to this the timeline for setting up the liaison office has increased massively. Moreover, the documentation required for the same has also increased vastly.

Registration Process of Liaison/Branch Office in India

The following is the step by step procedure to set up Liaison Office in India:

• Application to the Reserve Bank of India: An application in Form FNC is required to be submitted to the RBI through AD Category-1 Bank supported with the required documents and Letter of Comfort (if applicable).
  Facing difficulties in submitting the application to RBI? Contact Legal Window for hassle free process.

• Verification of application by AD Category-1 Bank: The AD Category-I bank shall after verifying each and every aspect in relation to the applicant’s background needs to satisfy itself regarding the eligibility criteria for establishing Liaison/Branch Office, and compliance with the extant KYC norms. If all the information is found to be true and correct, it may grant approval to the foreign entity for establishing the Liaison/Branch Office in India.

• Forwarding the request of application by AD Category-1 Bank to RBI: Now AD Category-1 Bank will forward one copy of the Form FNC of the applicant along with the details of the proposed approval to be granted by it to the Reserve Bank of India before issuing the approval letter to the applicant. Post this, Reserve Bank of India will issue Unique Identification Number (UIN) to the proposed Liaison/Branch Office. 
  After receiving the UIN from the RBI, the AD Category-I bank will issue the approval letter to the non-resident entity to establish its Liaison/Branch Office in India.

• Intimation of approval to AD Category-1 Bank: An applicant that gets consent for setting up a Liaison/Branch Office shall intimate the designated AD Category I bank regarding the date on which LO/BO will start its operations. The AD Category I bank on the other hand will inform RBI accordingly. In case an approval granted by the AD bank has been surrendered by the applicant or has expired without any LO/BO being set up, the AD Category I bank has to inform about the same to Reserve Bank of India.

• Bank Account Opening by LO/BO: An LO/BO has to coordinate with the designated AD Category I Bank in India to open an account so that it can receive remittances from its Head Office which is located outside India. Please note that an LO/BO shall not maintain more than one bank account at any given time without the prior permission of the Reserve Bank of India.

• Registration with ROC and police authorities: The applicant needs to apply to ROC to obtain a “Certificate of Establishment of Place of Business in India” along with PAN and TAN. Also, Applicants which have their origin in  Afghanistan, Iran, China, Hong Kong, Bangladesh, Sri Lanka, Macau, or Pakistan and have a desire of opening LO/BO in India need to register with the state police authorities.

Regulatory Compliance by Liaison/Branch Office

• A liaison/branch office has to file annual audited financial statements with the RBI and with the registrar of companies. Further, an LO/BO is also required to file tax returns. However, no tax returns will get due.
• A LO/BO will also be governed by the provisions of Companies (Registration of Foreign Companies) Rules, 2014
• A LO/BO needs to file e-form FC-1 to Ministry of Corporate Affairs within 30 days of establishing its place of business in India

In case you require any assistance in setting up your liaison office in India, contact the team of experts at Legal Window.