Welcome to AJSH & Co.

Blog Banner
liaison-office-in-india

Establishing a liaison office in India

Prospective companies and investors looking to enter India must precisely consider the options available for investment and avenues for establishing a business presence in the country.up to explore the Indian markets and understand the business and investment climate, as it does not allow the companies to do business but just to be in the market and understand the Indian market or carry out the research and development activities or to understand the problem of existing clients of the company and serve them better. As compared to other business structures, liaison offices permit foreign companies to build a light footprint in India keeping their financial, legal, and administrative commitments low.

General features of liaison office

  • Name of Indian liaison office shall be same as parent company.
  • Governing body for a liaison office License is Reserve Bank of India.
  • It is suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.
  • A Liaison office does not have any ownership; it is just extension of the exiting company in the foreign country.
  • Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India.
  • License for a liaison office is given for three years and shall be renewed every 3 years.

 
Activities allowed to liaison office in India

  • Representing in India the parent company / group companies.
  • Promoting export / import from / to India.
  • Promoting technical /financial collaborations between parent / group companies and companies in India.
  • 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.
  • Acting as a communication channel between the parent company and Indian companies.

 
Restrictions on activities of a liaison office

  • A Liaison Office is not permitted to undertake any commercial / trading / Industrial activity, directly or indirectly and therefore cannot earn any income in India.
  • A liaison office can neither borrow, nor lend money.
  • It cannot acquire, Hold, (otherwise than by way of lease for a period not exceeding five years) transfer or dispose of any immovable property in India, without prior approval of RBI.

 
Regulators

  • The Foreign Exchange Management Act (FEMA) governs the application and approval process for the setting up of a liaison or branch office in India.
  • Under the Act, foreign enterprises obtain permissions from the Reserve Bank of India’s (RBI) Foreign Exchange Department to establish a liaison office in the India.
  • Foreign insurance companies can set up liaison offices in India after obtaining approval from the Insurance Regulatory and Development Authority (IRDA).
  • Foreign banks can establish liaison offices in India only if they get approval from the Department of Banking Regulation (DBR), RBI.
  • The applications from such entities are to be submitted through Form FNC Annex-1 (Application for Establishment of Branch / liaison Office in India).

 
 Investment route

The applications from these entities will be considered by the RBI through two routes:

  • RBI route – Where principal business of the foreign entity falls under sectors where 100 percent FDI is permissible under the automatic route.
  • Government route – Where 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 are considered by the RBI in consultation with the Ministry of Finance, Government of India.

The approval process generally takes 20 to 24 weeks and permission to operate a liaison office is granted for a three-year period, which can be extended at a later date (maximum three year extension).

 
Condition for setting up liaison office

An enterprise must also meet the following conditions before qualifying for the establishment of a liaison office:

  • Must have a three-year record of profitable operations in the home country; and,
  • Must have a minimum net worth of US$50,000 verified by the most recent audited balance sheet or account statement.

If a company does not meet these requirements, but is a subsidiary of a company that does, the parent company may submit a Letter of Comfort on the subsidiary’s behalf, as per Annex-2.

Documents required to begin the process of setting up a liaison office, a certificate of incorporation, Memorandum and Articles of Association (MOA and AOA), and a copy of the parent company’s latest audited balance sheet.

A liaison office must also obtain a Permanent Account Number (PAN) from the income tax department and a Unique Identification Number (UIN) from the RBI. The application for registration should be forwarded to the RBI by a designated AD Category – I Bank.

Within 30 days of establishment, a liaison office must register with the Registrar of Companies (RoC) through the Ministry of Corporate Affair’s online portal. The following documents are required for the same:

A notarized and apostilled copy of a 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 a liaison office in India.
  • List of directors.
  • 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).

 
Compliance and conversion to another business structure

  • Each year, a liaison office must file an Annual Activity Certificate(AAC), prepared by a chartered accountant, to the RBI verifying the office’s activities are within its charter (Annex-3).
  • An AAC should also be filed with the Directorate General of Income Tax within 60 days of the close of the financial year.
  • If a liaison office wants to open more than one bank account in India, it has to obtain prior permission of the RBI through its AD Category – I bank justifying the reason for the additional account.
  • A liaison office can also be upgraded into a branch office (BO) structure once its bank account is re-designated as a BO account. The entity will not require a new PAN.

If you require any assistance in setting up a liaison office in India, please contact AJSH & Co LLP. If you have any query regarding this, please click here.

1

Periodic routine compliances of a company

With an Ease of doing business, starting a business in India is way easy, but running it in this competitive world is complex. In such complex environment maintaining data, records and managing compliances is the biggest task that every company have to deal with.

What are Periodic and Routine Compliances?

Generally, compliance means keeping up with the set rules, policies, law or standard. Periodic means timely or on a regular interval, like monthly, quarterly and so on. Thus, periodic compliances mainly refers to recording, maintaining, filing or submitting the necessary documents and informative data timely or in regular intervals.

Whereas regular compliance is primarily concerned with ensuring that the company remains on the right side of the law and ensures due and timely compliances under the concerned law. These matters are which have to be taken care of on a timely basis and with a great care every year.

Compliances might not be productive in nature but are very important for smooth functioning of the company. Hence, managing day to day operations of business along with compliance of corporate laws is taxing. Hereto, we can serve you, with our experience and professional skepticism to understand such legal requirements and ensure timely compliance, without any levy of interest or penalty.

For meeting compliances individually, every company has a unique corporate identification number (CIN) issued at the time of incorporation. To fulfill the compliances with MCA, company uses its CIN. Also, for the purpose of taxation and legalizing the existence of the company, they are issued Tax Deduction and Collection Account Number (TAN) and Goods and Service Tax Identification Number (GSTIN).

 List of Periodic Compliance

Below are some of the common periodic compliances which a company has to mandatorily ensure in its routine working:

  1. Statutory Audit of Accounts: For the purpose of filing the company’s audit report with the registrar, every company shall get its financial statements audited by a Chartered Accountant at the end of every financial year, compulsorily.
  2. Holding Annual General Meeting: It is mandatory for every private limited company to hold an Annual General Meeting (“AGM”) in every calendar year i.e. January – December. Companies are required to hold their AGM within a period of six months, from the date of the end of their financial year
  3. Filing of Financial Statements: Every company is required to file its financial statements consisting of balance sheet along with statement of Profit and Loss account, and Director’s Report in the form AOC- 4 within 30 days from the conclusion of AGM.
  4. Filing of Annual Report: Every company is required to file annual return of for its financial year within 60 days of holding of the AGM.
  5. Director’s Board of Meeting: All companies are required to hold minimum 4 board meetings each year. Here “year” means calendar year and not financial year of the company. Gap between the two consecutive board meetings shall not be more than 120 days.
  6. Filing of Tax Audit Report: Company has to conduct a mandatory tax audit in case turnover of the business exceed INR. 1 crore in the previous year, provided if company pays tax under 44AD limit exceed to INR 2 crore.
  7. Income Tax Compliances:
    • Advance tax – payment of a percentage of direct tax calculated on an estimated profit of the company on quarterly basis.
    • Goods and service tax (GST) – monthly payment of indirect tax collected / deducted by company
    • Tax deducted at source (TDS) – TDS is to be paid monthly
    • Tax returns – E-return has to be filed for the taxes paid by the company on their respective due dates for both direct and indirect tax
  1. Tax Audit: Tax Audit is means review or examining the books of accounts of business organization or individuals for the purpose of computation of income and tax and helps in filing the returns
  2. Minimum Alternate Tax: Normal tax rate applicable to an Indian company is 30% exclusive of cess and surcharge as applicable, which has been decided to be progressively reduced to 25% by 2019. As per MAT provisions, a company has to pay higher of normal tax liability or liability.
  3. Other: There are many more compliances which a company needs to fulfill like Certification of Tax compliances (Form 15CA/ Form 15CB), Transfer pricing, etc.

List of Routine Compliance

We have briefed some of the common routine compliances which company has to mandatorily ensure:

  1. Extraordinary general meeting: Also called special general meeting or emergency general meeting, is a meeting other than a company’s annual general meeting (AGM) that regularly occurs among a company’s shareholders, executives and any other member. Convening and holding a meeting and drafting its minutes is not as easy as it looks like.
  2. Change in management: It refers to change that happens in director(s) of company that means their removal, resignations or appointment for which there are specific compliances to be fulfilled with the registrar of company.
  3. Constitutional changes: Any change in name of the company, registered address, place of business, objects of business, financial year, increase/decrease of registered share capitals and so many more is constitutional change.
  4. Share issuance / transfer: There are certain procedures which are to be complied with while transferring or issuing of shares among the inner groups of the company like directors, employees and so on.
  5. Other: There are many more events which occur in a company and have obligatory compliances. For instance, voluntary liquidation / deletion of company and place of its business; branch establishment, etc.

We, a Chartered Accountant firm, serve a number of clients who need assistance for various regulatory compliances including setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST and auditing. If you require any guidance for the any professional service, we are here to serve you!

For further queries, click here!