Representative office/Liaison Office is one of the three forms in which, foreign companies can set up their operations in India. It is set up primarily to explore and understand the business and investment climate in India. The role of liaison office is limited to collecting information about possible market opportunities and providing information about the overseas parent company and its products to prospective Indian customers.
Any foreign company intending to open a Liaison Office in India is required to obtain prior approval from the RBI, the apex foreign exchange management authority in India. Approval is usually granted for three years and can be renewed on expiry thereof. The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. In addition to this, the foreign company is also required to obtain a Certificate of establishment of place of business in India from the Registrar of Companies (ROC). At the time of closure of the Liaison Office, the RBI grants permission to repatriate the balance in the Indian bank account to the parent company.
Activities of the Liaison office
Representing in India the parent Company / group Companies.
Promoting export/ import from/ to India.
Promoting technical / financial collaborations between the parent / group companies and companies in India.
Acting as a communication channel between the parent company overseas and Indian companies.
Restrictions on the activities of the liaison office
No commercial operation can be done by the liaison office (No invoicing).
The liaison office must maintain a QA22C account with the bank. This is a special account that only allows inflows from abroad.
The liaison office can neither borrow, nor lend money.
It must file regular returns to the RBI. Such returns must include Audited Annual accounts and an activity report for the year.
A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and cannot, therefore, earn any income in India. It is required to maintain itself out of inward remittances received from abroad through normal banking channels. Hence it does not constitute a taxable entity in India. Also, the liaison office is not subjected to taxation in India as there is no mechanism for the income tax department to examine and ascertain as to whether the activities under taken by it result in any taxable income in India. However, the Liaison Office would be required to withhold tax from certain payments and hence to comply with the requisite tax withholding requirements under the domestic tax law
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