Setting-Up of Liaison Office by Foreign Corporations in India | Best FDI Attorney in India | FDI Attorney in Delhi NCR | India Business Entry |

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“Any foreign corporation can set up their liaison office in India. This can be the first step towards the expansion of footprints in India. The best FDI attorney legal advice is to first set up a liaison office in India and then only commence foreign direct investments in India or FDI in India. Setting up a Liaison office in India is a preferable option for foreign entities planning to set up their business in India as it would help the foreign entity to look out for possible business opportunities and to develop a strategy to promote business activities of the parent company outside of India.”

Concerned Authority for Approval of Application: Best FDI Attorney Legal Advice in india
The Foreign Exchange Management Act,1999 (FEMA) administered by Reserve Bank of India (RBI) regulates the application process for establishment of Liaison offices in India and is also responsible for approval of the same. Applications from foreign entities that are non-profit organisations, non- government organisations or government bodies/departments are considered by the Reserve Bank of India (RBI) with the consultation of Government of India and Ministry of Finance. Foreign entities whose principal business falls under the Insurance Sector have to obtain approval from the Insurance Regulatory and Development Authority (IRDA) for setting up a Liaison Office in India. The setting up of Liaison Office by Foreign Banks needs approval from the Department of Banking Regulation (DBR)which is administered by Reserve Bank of India (RBI).

Procedure for Setting-Up of Liaison Office in India
Under two routes, the application for setting up of Liaison Office would be considered by the Reserve Bank of India (RBI) – the Reserve Bank Route and the Government Route. Under the Reserve Bank Route, it is for the foreign entities whose principal business falls under the sector where 100 percent Foreign Direct Investment (FDI) is allowed under the Automatic Route whereas under the Government Route, it is for the foreign entities whose principal business does not falls under the sector where 100 percent Foreign Direct Investment (FDI) is allowed under the Automatic Route. The application needs to be filed by the foreign entity along with the specified documents through Authorised Dealer (AD) Category 1 Bank in Form FNC and that application must be forwarded to the General Manager of Foreign Exchange Department, Central office Cell of Reserve Bank of India (RBI). Those specified documents are- copy of the Certificate of Incorporation / Memorandum & Articles of Association of the Parent company/ applicant company in English version attested by Indian Embassy / Notary Public in the Country of Registration and Latest Audited Balance Sheet of the parent company which is applying for setting up of Liaison Office. Before forwarding the application, the designated Authorised Dealer (AD) needs to perform due diligence in respect the background of applicant, nature and location of activity, the sources of fund and the antecedents of the promoter etc. and also have to make sure the compliance of KYC norms by the entity. The approval process generally takes 40 days and after that the Liaison office will be allotted a Unique Identification Number (UIN) and it also obtains Permanent Account Number (PAN) from the Income Tax Authorities on establishing the Liaison offices in India.

Permissible Activities for Liaison Office in India: Best FDI Legal Solutions in india
Liaison activities are the activities which can be undertaken by the Liaison office i.e. it can act as a medium of communication between the parent office outside India and parties in India. Business activities and earning any income in India cannot be undertaken by the Liaison office. Therefore, the role of Liaison office is limited to exploring possible market opportunities and promoting the parent company’s services or goods to the parties in India.
Following are the permissible activities for Liaison office-

1. Representing the Parent company in India.
2. Facilitating the communication between the parent company and India companies.
3. Promotion of import or export from or to India.
4. Promotion of technical/financial collaborations between parent companies and Indian companies.

Time Span
Initially three years permission is granted for setting up of Liaison office and this may be extended for a period of 3 years from the date of expiry of approval granted by Reserve Bank of India (RBI) or Extension granted by the RBI, from time to time by an Authorised Dealer (AD) Category 1 Bank, if the applicant has complied with the following conditions-

1. The Liaison office have submitted the previous years Annual Activity Certificates and
2. The account of Liaison office which is maintained with the Authorised Dealer (AD) Category 1 Bank is being operated as prescribed by the terms and conditions stipulated in the approval.
   And this extension of time period must be granted within one month period from the receipt of the request of said extension of term for liaison office under intimation to the Regional Office concerned of the Reserve Bank and also to the General Manager of Foreign Exchange Department, Central Office Cell, Reserve Bank of India.
   And for the foreign entities requesting extension for terms of liaison office engaged in Insurance business and Banks, it has to be submitted to the Insurance Regulatory and Development Authority (IRDA), Department of Banking Regulation (DRB) and Reserve Bank.

In case of extension for the Liaison office for foreign entities engaged in Nonbanking financial companies (NBFCs) and construction and development sectors (excluding infrastructure development companies) no extension would be considered. That means that on the end of term of these Liaison offices, they have to close down the office or there is other option too that is in conformation with the extant Foreign Direct Investment (FDI) policy to be converted into a Joint Venture (JV) or Wholly Owned Subsidiary (WOS).

Application for Undertaking Additional Liaison Offices or Additional Activities
Application for requesting the undertaking additional activities in addition to the activities initially allowed by the Reserve Bank have to be submitted by Authorised Dealer (AD) Category 1 Bank to the General Manager of Foreign Exchange Department, Central office Cell of Reserve Bank of India (RBI).
Application for requesting the setting up of additional Liaison office have to be made in FNC Form duly signed by the authorized signatory of Parent company to the Reserve Bank of India. The only thing different is this that the document specified in FNC Form need not to be re submitted if there are changes in documents already submitted by the parent company.

1. If there are more than 4 offices (i.e. one Liaison Office in each zone viz; East, West, North and South), the applicant has to justify the need for additional office.
2. Recognition of one of the Offices in India as the Nodal Office by the applicant, through which the activities of all other Offices in India will be coordinated.

Reporting by the Liaison Office
Entities setting up Liaison office need to submit a report within five working days of the Liaison Office becoming functional containing all the information as mentioned in Annex 3 to the Director General of Police (DGP) of the state concerned in which the said Liaison office has established its office and if exceeding 1 office then to the every concerning DGPs.
Information required in Annex 3- Details of the foreign entity, details of the office in India, visa related details of foreign nationals employed at Liaison office, details of personnel of Liaison office, details of those foreigners other than employees who visited Indian office in connection with the activities of the company, details of equipment imported for business activities in India, Details of suppliers or services rendered to the Government Sector and Details of contact with Government Departments / PSUs including names of officials / Civil Society Bodies / Trusts / Non-Government Organisations.

These are the information which needs to be submitted by the Liaison office in India. There is other information required too like Annual Activity Certificates (AAC) from Chartered Accountants which have to be filed by the Liaison offices, at the end of March 31, along with the audited Balance Sheet on or before September 30 of that year. In case where the annual accounts of the liaison office are already finalized with reference to a date other than March 31, the AAC along with the audited Balance Sheet may be submitted within six 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 (International Taxation) along with the audited financial statements including receipt and payment account.
The certificates that are to be filed by the following offices:
 In case of only one liaison office, by that concerned liaison office;
 In case of more than one liaison office, a combined Annual Activity Certificate (AAC) in respect of all Offices in India by the Nodal Office of the Liaison office.

Conclusion
The foreign entity needs to look into the sector where Foreign Direct Investment (FDI) is permitted and then can accordingly make plan to set-up Liaison office in India to promote the parent company outside the India but only the Liaison activities are permitted in India for Liaison offices, they cannot earn income in India by establishing any business and all the procedure for approval of setting up of Liaison office have to be approved by Reserve Bank under the provision of Foreign Exchange Management Act, 1999 (FEMA).
Authored By: Adv. Anant Sharma & Anjali Swami