Procedure for Setting Up of Liaison Office/ Branch Office in India By Ekta Pandey



In order to enter into the Indian Market, one of the most adopted ways by the foreign Companies is setting up of a liaison office (representative office)/Branch Office. It acts as a channel or intermediary between the Head Office of the foreign Companies in Abroad and the parties in India.

A body corporate (including firms or other association of individuals) incorporated outside India who wants to open a branch office or liaison office in India needs prior permission of Reserve Bank of India under the relevant provisions of FEMA Act, 1999

REGULATIONS:

  • The Foreign Exchange Management Act (FEMA), 1999 governs the application and approval process for the setup of a liaison or branch office in India.
  • Foreign banks can establish LOs only after obtaining approval from the Department of Banking Regulation (DBR), RBI.
  • Under the FEMA Act, foreign enterprises require specific approval from the Reserve Bank of India (RBI) Foreign Exchange Department to operate a liaison office in the country.
  • Foreign insurance companies require approval from the Insurance Regulatory and Development Authority (IRDA) to establish a liaison office in India.

ELIGIBIVLITY CRITERIA:

GENERAL CRITERIA

Application in Form FNC (Annex-1) will be considered by Reserve Bank in two routes:

1. Reserve Bank Route – Where the principal business of the foreign entity falls under sectors where 100 percent Foreign Direct Investment (FDI) is permissible under the automatic route. Usually, the RBI takes around 4-8 weeks to process the form and then issues a Unique identification number (UIN).

2. Government Route – Where the principal business of the foreign entity falls under the sectors where 100 percent FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organizations/ Non – Profit Organizations/ Government Bodies / Departments are considered by the Reserve Bank in consultation with the Department of Economic Affairs, Ministry of Finance, Government of India. In case of foreign government bodies and NGO, usually, it goes to the Home Ministry as well for security clearance. The entire process takes at least 4-6 months because there is rigorous checking at the Ministry levels.

Note: In case the applicants do not satisfy the eligibility criteria and are subsidiaries of other Companies can submit a Letter of Comfort issued by the Parent Company if the Parent Company satisfies the eligibility criteria

Additional Criteria:

  1. The parent Company should have a track record of profit making during the immediately preceding three financial years (in case of liaison office) and a track record of profit making during the immediately preceding 5 financial years (in case of branch office) in its home country.]
  2. The net worth shall not be less than US $ 50,000 or equivalent (in case of liaison office) and US $ 1,00,000 or equivalent (in case of branch office).

Note: Net Worth is total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name called.

PROCEDURE FOR REGISTRATION:

1. Submit an application in Form FNC [As per Annex B of Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016] to an AD Category -1 Bank along with the following documents and information:

  1. Copy of certificate of Incorporation, MOA & AOA attested by the notary public in the country of registration (in English);
  2. Banker’s report from the applicant’s banker in the country where it is registered showing the number of years for which the applicant has had the banking relations;
  3. Audited financial statement of the applicant company of immediately preceding 3 financial years;
  4. A power of attorney in favor of
  5. Certificate from a chartered accountant in India about satisfaction or otherwise of the additional criteria by the Parent Company;
  6. Other details like the profile of the applicant, nature and location of activities and sources of funds, information about Directors, shareholders, and KMP, Background verifications etc.

2. The AD Category -1 Bank shall carry out the due diligence and after getting itself satisfied regarding the adherence to the eligibility criteria for establishing the Liaison Office along with the other requirements may grant approval to the foreign entity for establishment of Liaison Office in India.

3. Before issuing the name approval letter to the applicant, the AD Category -1 Bank is required to forward the copy of form FNC to the General Manager, Foreign Exchange Department, Central Office Cell, Reserve Bank of India, New Delhi Regional Office, 6, Parliament Street, New Delhi-110 001, India for allotment of Unique Identification Number (UIN) to each LO.

4. After receipt of the UIN from RBI, the AD Category -1 Bank shall issue approval letter to the applicant entity for setting up the Liaison Office.

Activities that can be carried out by the liaison office:

  • Representing the Parent Company/Group Companies in India;
  • Promote import/export from/to India;
  • Promoting technical/financials collaborations between parent/group companies in foreign and Companies in India;
  • Acting as a communication between the parent company and Indian Companies

Activities that cannot be carried out by the liaison office:

  • It cannot carry out any business activities in India and can not earn any income there;
  • The expenses of such offices are required to be met by the inward remittance of foreign exchange from the Head Office situated in Abroad only.

VALIDITY:

The permission granted to set up or establish a liaison office by the AD Category – I Bank is initially for 3 years only and this may be extended from time to time.

Once the validity period expires, the liaison office has to either close down or be converted into a joint venture/wholly owned subsidiary in conformity with the FDI policy.

REPORTING:

  • Branch Offices/Liaison Office are required to file the Annual Activity Certificate (AAC) from Chartered Accountants, made at the end of 31st March along with the audited balance sheet on or before 30th
  • In case the annual accounts of the LO/BO are finalized with reference to a date other than March 31, then the AAC along with the audited balance sheet may be submitted within 6 months from the due date of the balance sheet to the designated AD Category – I Bank and a copy to the Directorate General of Income Tax, New Delhi along with the audited financial statements including the receipt of the payment account.
  • All new entities setting up BO/LO shall submit a report containing such information as may be required within 5 working days of the LO/BO becoming operative to the Director General of Police of the state in which the LO/BO has been established. In case there are more than one LO/BO then the report has to be submitted to each such state where the LO/BO have been established.
  • A copy of the report in shall be filed with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate, and also with the AD concerned.
  • Within 30 days of establishment, the liaison office must register with the Registrar of Companies (ROC) by filing e-form FC-1 through the Ministry of Corporate Affair’s online portal.

The following documents must also be provided:

  • A notarized and apostilled copy of the liaison office charter or Memorandum and Articles of Association in English;
  • Full address of the enterprise’s principal place of operation outside of India;
  • Name and address of the liaison office in India;
  • List of directors; and
  • Name and address of the company’s official representative based in India (the person authorized to accept delivery of notices and documents served to the company).
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