Foreign Liaison Office
Liaison Office Setup in India for Foreign Companies
Since the liberalization of the Indian economy in 1991, India has become one of the most attractive destinations for foreign investors. To establish a business presence in India, foreign entities may set up a Liaison Office (LO) with prior approval from the Reserve Bank of India (RBI).
A Liaison Office (also called a Representative Office) acts as a communication bridge between the parent company abroad and stakeholders in India. However, it cannot engage in commercial, trading, or manufacturing activities and cannot earn income in India.
Modes for Setting Up a Foreign Liaison Office in India
Foreign investors/entities can establish their presence through the following routes:
Incorporated Mode (via MCA registration)
Wholly Owned Subsidiary (WOS)
Joint Venture Company
Limited Liability Partnership (LLP)
Unincorporated Mode (via RBI approval)
Liaison Office (LO)
Branch Office (BO)
Project Office (PO)
Why Do Companies Opt for a Liaison Office (LO) in India?
A Liaison Office helps the parent company in:
Acting as a communication channel between parent company and Indian partners
Representing the parent/group company in India
Promoting export/import from/to India
Conducting research activities in the field of parent company operations
Promoting technical and financial collaborations with Indian companies
Developing software and IT services (non-commercial only)
Collecting and sharing market information with headquarters abroad
Enhancing the brand presence of the parent company in the Indian market
Features of a Foreign Liaison Office (LO) in India
A Foreign Liaison Office (LO) in India acts as a communication channel for foreign companies to connect with Indian stakeholders. However, it operates under specific restrictions and guidelines defined by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA), 1999.
Here are the key features of an LO in India:
Limited Scope –
An LO has restricted operations. It can only represent the parent company, promote export/import, facilitate technical and financial collaborations, and act as a liaison between the parent company and Indian companies.
It cannot undertake commercial or revenue-generating activities in India.No Profit-Making –
Since it is not allowed to carry out business operations, an LO cannot earn profits in India. All expenses must be funded through inward remittances from the parent company.Approval Requirement –
Establishing an LO requires prior approval from the RBI under FEMA, 1999. The approval can be obtained either through the Automatic Route or the Approval Route, depending on the parent company’s sector of operations.Parent Company Liability –
The parent company is fully liable for all obligations of its LO in India, including any debts, liabilities, or obligations incurred.Annual Filing –
Every LO must file an Annual Activity Certificate (AAC) with the RBI, detailing activities carried out during the year. This must be submitted within six months from the close of the financial year.Taxation –
An LO is not subject to Indian income tax, as it cannot earn income in India. However, it must obtain a PAN and comply with tax filings for employee/vendor payments.Time-Bound Approval –
RBI grants LO approvals for three years, which can be renewed in blocks of another three years at a time.
Documents Required for Foreign Liaison Office (LO) Registration in India
The documents required to establish a Liaison Office (LO) in India depend on whether approval is sought under the Automatic Route or the Approval Route as per the Reserve Bank of India (RBI) guidelines.
1. Automatic Route
For sectors where 100% Foreign Direct Investment (FDI) is allowed under the Automatic Route, the following documents are required:
A letter from the parent company authorizing the setting up of the LO in India.
Certificate of Incorporation of the parent company.
Memorandum of Association (MOA) and Articles of Association (AOA) of the parent company.
A statement of account of the parent company for the last three years, duly audited by a certified public accountant.
A Board Resolution from the parent company approving the establishment of the LO in India and authorizing a representative.
A declaration that the LO will not undertake any commercial activity in India and will not earn any income in India.
A Power of Attorney (PoA) in favor of the representative authorized to act on behalf of the parent company.
2. Approval Route
For sectors where FDI is not fully allowed under the Automatic Route, approval must be obtained from the RBI. The required documents include:
A completed application form in Form FNC (Annexure I) for RBI approval.
Certificate of Incorporation of the parent company.
MOA & AOA of the parent company.
A Board Resolution of the parent company approving the establishment of the LO in India and appointing an authorized representative.
A statement of account of the parent company for the last three years, audited by a certified public accountant.
A declaration that the LO will not engage in commercial activities or generate income in India.
A Power of Attorney (PoA) authorizing a representative to act on behalf of the parent company.
1. Automatic Route
Under this route, the RBI grants approval to set up an LO in India without prior approval, provided the following conditions are met:
The parent company must have a track record of at least three years of profitable operations.
The LO’s proposed activities must include only representative functions such as promoting exports/imports, brand building, and technical/financial collaborations.
The LO cannot undertake any commercial activity in India and cannot earn income.
All expenses of the LO must be met only through inward remittances from the parent company.
2. Approval Route
If the activities of the LO do not qualify under the Automatic Route, the foreign company must obtain prior approval from the RBI before setting up an LO in India.
The approval application must be submitted in Form FNC (Annexure I) along with supporting documents. The RBI evaluates the application based on the following factors:
The track record of the parent company.
The purpose of establishing the LO in India.
The source of funding for the LO.
The feasibility of the proposed activities.
Once satisfied, the RBI grants approval subject to certain conditions. The LO must comply with these while operating in India.
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