Liaison Offices

FUNCTIONS

• Can undertake only liaison activities.
• Can only act as a channel of communication between head office abroad and parties in India.
• Not allowed to undertake any business activity in India and cannot earn any income in India.

PERMITTED ACTIVITIES

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

ELIGIBILITY FOR AN ENTERPRISE FOR ESTABLISHMENT OF LIASION OFFICE

• A three-year record of profitable operations in the home country;
• A minimum net worth of US$50,000 verified by the most recently audited balance sheet or account statement.
• If a company does not meet these requirements, but is a subsidiary of a company that does, the parent company may submit a Letter of Comfort on the subsidiary's behalf subject to the condition that the parent/ group company satisfies the prescribed criteria.

BENEFITS OF A LIAISON OFFICE

• Uncomplicated setup formalities.
• Indian transfer pricing regulations do not apply to transactions undertaken between liaison offices and their overseas group.
• Not subject to taxation in India. Foreign company entitled, for tax purposes, to fully deduct costs generated in India.
• Activities of foreign representatives in India don't give rise to a permanent establishment in India, if the nature of work undertaken in India does not go beyond what is envisaged under RBI guidelines.
• Able to coordinate and manage quality control of sourcing and buying activities in India.
• Fewer on-going formalities as compared to other business entities.

CASES THAT REQUIRE PRIOR APPROVAL OF RBI:

• The applicant is a Non-Government Organization, Non-Profit Organization, Body/ Agency/ Department of a foreign government
• The applicant is a citizen of or the entity is registered/incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau and the application is for opening a liaison or branch office in Jammu and Kashmir, North East region and Andaman and Nicobar Islands;
• The principal business activity of the applicant falls in the four sectors; namely Defense, Telecom, Private Security and Information and Broadcasting

Such applications shall be forwarded to the Reserve Bank, Foreign Exchange Department, Central Office Cell, and New Delhi by the Authorized Dealer Category-I bank and be considered in consultation with the Government of India.
The process of setting of Liaison offices takes around 3-4 months. Post RBI approval activities take another 2 months. Thus, it takes around 6 months’ time for a liaison office to be operational in India. Initial approval to set up an LO is granted by RBI to establish India Liaison office for a 3-years period. If desired, LO can apply for extension of the same to its authorized dealer Bank. The AD Bank, in consultation with RBI, has the power to grant an extension for a further period of 3 years (subject to confirmation of certain compliance requirements). The LO should apply for extension at least 2 months before the expiry of the initial time period.

Our experienced team of professionals at Vyom Tax Compliance ensure a smooth process in setting up liaison offices in India.