Besides a Private Limited, the Indian variant of a BV, many international companies in India opt for a liaison office. What options does a liaison office in India offer? And is this really the best choice for your company?
A Liaison Office is the representation of a foreign company in India. The Indian central bank describes such an establishment as “an office that may only engage in binding activities”. This includes:
- Obtain information about the market and potential Indian consumers,
- Advertise, promote and perform other marketing-related activities,
- Stimulate exports to or imports from India,
- Establish technical and financial partnerships between headquarters and Indian companies,
- Establish a communication channel between headquarters and local partners.
A liaison office should not generate sales in India and therefore not produce goods or provide services. Parent company which is outside India pays the costs of a liaison office. Primarily, a liaison office is useful for companies that want to explore the Indian market. Furthermore, it is interesting for international investors who do not want to directly market their products in the Indian market. Example for this is, if a foreign party want to outsource work to India.
How do you set up a liaison office?
To set up a liaison office in India, various registration and approval procedures must be completed with different Indian government agencies. Following are the seven steps:
- Obtain an approval from any Indian bank to open a bank account for the liaison office. This bank will then automatically become the ‘ Authorized Dealer Bank ‘ for the new office.
- Submit a request with all necessary documents to the Reserve Bank of India (RBI) through the Authorized Dealer Bank.
- Once the RBI approves, the Indian Chamber of Commerce: the Registrars of Companies (ROC)‘ provides a Certificate of Establishment of Place of Business in India’.
- Subsequently, the Indian tax authorities will provide a Tax Deduction Account Number (TAN) and a Permanent Account Number (PAN).
- On receiving the documents, we can officially open the bank account of the liaison office at the authorized bank .
- Register the liaison office with the state where the office is located under the Shop and Establishment Act and under the Professional Tax.
- If we import samples to the liaison office, the office must also be registered under the Import Export Code.
To ensure that this does not become a daunting process, we advice you to seek help from a consultant. They can guide you on which documents to submit and what approvals will be required. Besides, the entire process can be smooth and quick. Otherwise, it would certainly take 3 to 6 months to complete this list. The approval of the Indian Central Bank alone takes an average of 2 to 3 months. So it is smart to choose a partner who can accelerate this process.
Mandatory compliance requirements
When you complete all the steps and you register the liaison office, you are not quite ready. In India, you have to report back to the various government agencies under which the liaison office is registered.
Six months after the Central Bank of India (RBI) gives its approval for the new office. The official address, the PAN and the Certificate of Establishment of Business Place in India of the Indian Chamber of Commerce (ROC) should notify to the RBI.
In addition, Chartered Accountant will give an ‘Annual Activity Certificate’. That is a full-time practicing accountant who is officially registered with the Institute of Chartered Accountants of India (ICAI). This certificate must also be sent to the RBI.
Finally, that accountant must submit an annual payment statement from the liaison office. He must also submit a financial statement from the corporate headquarters to the Registrar of Companies (ROC). ( Indian Embassy should endorse in the country where the corporate office is headquartered).
The liaison office approves for a three-year period, after which it can be extended for another three years. To do this, authorized dealer has to submit the application to the RBI. This must be done one month before the initial approval expires.
The Indian government is focusing on ease of doing business in India recently. In 2020, we expect further simplification of the tax system. Moreover, we also expect an improvement in the handling of disputes between entrepreneurs and local authorities. While all those new rules should only make things easier, setting up your first office in India is still a lot of paperwork. Aid is therefore not an unnecessary luxury. Maier+Vidorno has a team of local experts at your disposal to make your market entry as smooth as possible.