The Process of Incorporating Liaison Office in India; Up-Close Information
Foreign companies which have branches or a subsidiary in India are aware of the need for incorporating Liaison Office. Such an entity acts as a channel of communication linking the India based branch or subsidiary to the head office elsewhere outside India.
However, a national policy in India does not allow the formation of a liaison office as a separate entity for the sole purpose of incurring revenues. With no locally generated revenues allowed for these liaison offices, the government of India is not inclined on collecting taxes from them either – unless it becomes a fixture in the corporate structure.
Designated incorporating liaison office limits information of India’s potential market opportunities. This occurs in the same manner that it can share company information and its products to the prospective Indian customers.
Many entrepreneurs find it odd enough incorporating liaison offices in India. However, considering India as among the best places to put up a business, foreign companies can consider incorporating liaison offices of their own.
Limitations of Liaison Office
Web sources define liaison offices as a business mechanism primarily designed to serve as a communication channel between a principal company abroad and its branch or subsidiary in India.
Before incorporating liaison offices in India, governing agencies, which include the Ministry of Corporate Affairs makes it clear that commercial/trading/industrial activity, directly or indirectly, is not allowed in India.
As to how it keeps afloat, India’s Reserve Bank issued a circular. This stipulates that a liaison office could only maintain its existence out of inward remittances sent by the head office of the foreign company that has commissioned it for the purpose of information gathering and sharing.
Liaison offices limits liaising work.
Preparations before Incorporating Liaison Office
Incorporating Liaison Office does not require too much time spent to wait, but entails patience. Under India’s normal procedures, setting up a liaison office is not as hard as businessmen think it is. However the Ministry of Corporate Affairs, in close coordination with the Reserve Bank of India, would only issue a permit that would only be good for three years.
However, “Authorized Dealer – Category I Bank”. Can extend liaison’s office permit from time to time.
In incorporating liaison offices in India, the principal company abroad should be able to secure a long checklist of registrations and a corresponding number of approvals from several Indian government agencies.
The principal company requires to open an account is imperative to designate a bank and branch. The designated bank thus becomes the liaison office and bank.
Pains of Incorporating Liaison Office
Just like in any other business venture, the best results are not met overnight. In the process of Incorporating Liaison Office in India, the principal company should file an application with all necessary attachments to the Reserve Bank of India (RBI) through the AD Bank.
As soon as the RBI issues the approval, the next steps are as follows:
- ROC Application for “Certificate of Establishment of Place of Business in India”
- Apply for a Permanent Account Number with Income Tax Authority
- Apply for Tax Collection/Deduction Account Number with Income Tax Authority
- Open a bank account to obtain account number
- Registration under Shop and Establishment Act
- Registration under Professional Tax
- Obtain Import Export Code
Ongoing Compliance Requirements
Regular update of Annual Activity Certificate from Chartered Accounts requires RBI, after the tedious process of India’s Incorporating liaison offices.
Director-General Income Tax (International Taxation) can furnish documents copies aside from RBI.
- Annual receipt and payment statement,
- Assets and liabilities statement duly audited by practising local Chartered Accountants to the office of Registrar of Companies (ROC)
- Latest consolidated financial statement of the principal company (duly notarized and certified by the Indian Embassy / Consulate office that has proper jurisdiction in the office location of the parent company).
In the event that the principal company does not use English in its documents, it is imperative to prepare translated copies as well by a certified translator before starting the process of notarization and certification.
Liaison Office is also duty-bound to provide the list of all places of business. This comes along with a copy of approval obtained (if any) within six months from the date of closure of Liaison Office books of accounts.
The permit issued to a Liaison Office has a validity of three years. After which, the principal company has the option for an extension.
Gains of Incorporating Liaison Office
Understandably, incorporating a Liaison Office requires a lot of time and patience. These are two things that most principal companies do not have as a luxury.
Seeking help from an experienced business advisor of India’s incorporation services is the best. We at 3E Accounting guarantee to deliver results in less time than the normal timetable.
For more information, please contact us.