A Liaison office or Representative Office both are same. We can be easily set up for representing in India of the Group Companies/Parent Company, Promoting Export/Import from/to India, Promoting technical/Financial collaborations between Parent/Group companies and companies in India and to Act as a communication channel in between the Parent company and Indian companies. Liaison offices are foreign companies and Indian government taxes the profits of such entities at higher rates when it carries out the transactions which amount to commercial activities through a permanent establishment (PE). Now the tax on the Profit of the Foreign Company is 40% in Contrast to the tax Rate @ 22% on India Companies.
A Liaison Office can be undertaking only Liaison activities i.e. act as a communication channel in between the India Parties and Head Office of the abroad. The role of these offices are limited to collecting information about possible market opportunities, Source of supply, providing information about the Parent Company and its products to the prospective Indian customers or vice versa to its Vendor. Any expenses incurred of such these offices are to be met entirely through inward remittances from the Head office outside India.
The Foreign Parent Company must have a profitable track record of 3 years in a row and also must have a minimum Net worth of US$50,000 attested by their Auditors.
The liaison office can’t earn any income in India, and the parent company must finance all its operations. Any Indian Taxes is not liable to pay through a Liaison Office as it is not undertaking any commercial activity, but now it is required to file annual return with ITD (Income Tax Department).
For Liaison Office is required to Setup in India, with the approval from Reserve Bank of India. After approval from RBI is received, further the Company is required to be registered with ROC (Registrar of Companies) which completes the Liaison Office Setup process.
Through the PE can established the transaction amounts to commercial operation. Then the Income tax on a Liaison Office can be imposed by Indian tax authorities
Only 4 kinds of activities are permitted for the liaison office, please refer – Permitted Activities for Liaison Office for details.
The documentation plays a crucial role in smooth processing of the application for setting up the Liaison Office. The list of documents required has been provided.
We receive the complete set of basic documents as per RBI, the application for Liaison Office and Branch Office can only be submitted by Authorized Dealer. The following documents for signature by the applicant company and the authorized signatory
All the documents which are managing from a Foreign Country or which is Signed/Executed in a Foreign Country shall be Legalized either through Indian Embassy or to be Apo stilled as per the Hague Convention.
Every Person who is intending to be appointed as shareholders and directors of a LO shall make an application for a Digital Signature Certificate (DSC). The filing process starts with the issue of a digital signature for all the shareholders and directors of the LO.
The application for registration of a Liaison office of a foreign company is filed in FNC to the reserve bank of India through AD Bank (Authorized Dealer). We have a best relationship with many banks in India, which is helping to us for applying in the RBI and Follow Up. For the communication AD Bank plays a crucial role to the RBI has to be routed through them.
After the FNC Form is filed through the AD Bank, a request is sent to the banker of the foreign company for verification of documents. This process is swift based verification. After this the confirmation of the documents is receipt from the foreign banker, after that the application is submitted to the RBI for their approval. The RBI may be survey for clarification or any additional document which need to be submitted.
The process of approval within a week after the swift verification. Through the AD Banker there is a specific policy of approving the establishment of a liaison office and only those cases where the automatic route is not available the cases are forwarded for prior approval of the RBI.
After Company incorporation, the Bank A/c has to be opened, wherein the FDI (foreign direct investment) must reach within 180 days of incorporation advance intimation to Banker. Please note that the new company can’t start any of its business activities unless the capital has been received.
The income tax department for the allowed a 10 digits numbers of PAN, to comply with TDS provisions, every taxpayer needs to obtain a Tax Deduction Account Number. TAN number is a permanent number to business to the provisions of withholding tax (TDS) and Identification numbers are essential to compliance with the tax rules. The bank account of the liaison office can be opened after Pan Number by the Income Tax Department.
The application must be accompanied by the RBI approval and KYC of all authorized persons in India and the foreign company. And finally, the liaison office needs to register it with the state police (In the office of the superintendent of Police).
Liaison office would have received the Bank Account or chequebook; we would need a copy of the check for making application for GST Registration and Import Export Code for the Liaison Office of the foreign Company.
A Liaison Office and functions representative office to primarily explore and understand the business and investment clam. A Liaison Registration (to also known as Representative Office) can undertake only liaison activities communication channel between the Head Office and Parties in India.
Liaison office first checks the eligibility of being financially sound in terms of the network less than USD 50,000 or its equivalent. Then call Startupefilings representative to discuss documentation and stepwise process. It shall be taken professionally qualified CA, CS and Advocates.
Steps to set up Liaison Office
FNC Application for Establishment of Branch/Liaison Office in India.
RBI is empowered to establishment of a liaison office, under master direction dated January 01, 2016 for the establishment of a corporation has been delegated to Category 1 Banker.
A liaison office is allowed to do only limited activity in India, provided none of the activities is profit-making activity. A liaison office can do market research and representation activity only.
A Liaison office of a foreign mother company is not treated as a separate and distinct entity in India and for all tax purposes, the Indian government taxes the profits of such entities at higher rates. the Income Tax profit of a foreign company is 40% in contrast and tax rate of 30% on an Indian company.
The liaison or representative office of a foreign company can be opened if the applicant foreign corporation has a track record of profit generation for the past 3 years and it is financially sound. We say financially context for representative or liaison office establishment and foreign company, we means net-worth of USD 50,000. The financial statement duly attested by the statutory auditor of the parent company is required.