A liaison office in India pertains to a branch or representative office established by a foreign company within the country. Its core objective is to streamline communication and coordination between the foreign-based parent company and various stakeholders in India. This office acts as a pivotal intermediary, linking the parent company with entities such as potential business partners, customers, government authorities, and other pertinent organizations in India.
Typically, liaison offices are established in India with specific or limited objectives. Once these goals are accomplished, the LO might decide to transition into a subsidiary of an Indian company or cease its operations in India. In either case, the Liaison Office needs to be shut down.
The validity period of the Liaison office in India:
In India, the opening phase for a liaison office holds a standard validity of 3 years since its inception. During this time, foreign corporations have the opportunity to firmly establish their presence, conduct comprehensive market research, actively promote their products or services, and effectively engage with Indian stakeholders. Following the completion of the initial 3-year term, the foreign company holds the option to apply for an extension of the liaison office's validity. The extension period, often ranging from one to three years, hinges on a multitude of factors, including the corporation's historical record of compliance, financial achievements, and the intricate nature of its operational undertakings.
To initiate the extension process, the foreign company is obligated to compile and submit a set of mandated documents and information to the Reserve Bank of India (RBI). These encompass an array of financial statements, intricately prepared audit reports, a formal letter of undertaking to affirm alignment with prevailing legal norms and regulations, and any supplementary documents that the RBI deems pertinent.
Steps to shut down the Liaison office in Registrar of Company (ROC) & Authorized Dealer Bank (AD):
Step 1. Closure certificate from Ministry of Corporate Affairs (MCA):
- A closure certificate from MCA is to be obtained by filing Form.
- The board resolution of the parent company would be required for obtaining a closure certificate from the ministry confirming the closure of the Indian Liaison office.
Step 2. Audited Financials:
- The liaison office (LO) is required to prepare financials and all other reports till the date of closure.
Step 3. No due certificate:
- No due certificate has to be obtained from the Income Tax for closure.
- To acquire this certificate, you need to submit the closure certificate, along with the financial records and other reports of the Liaison office, to the Income Tax authorities.
Step 4. Closure application with the bank:
- Now we can proceed with submission to a bank for closure of the Liaison office.
Step 5. Repatriation of Surplus funds:
- Once the bank has initiated contact with the Reserve Bank of India and received approval for closing the Liaison Office, any surplus funds in the Indian Liaison Office's bank account can be sent back to the parent the company through repatriation.
- CA certificate in form, Self-declaration, Form, and other applicable forms are required.
Step 6. Closure of Bank Account and surrender of Unique Identification Number:
- Once the funds have been repatriated, you should submit an application to the bank for the closure of the bank account.
In the event of default or non-compliance, the following actions may be taken:
1. If the Liaison Office in India fails to furnish the requested documents, statements, accounts, returns, or reports to the authority.
2. If the Liaison Office in India does not cooperate with the inspection or investigating authority appointed by IRDA, RBI, or the Government of India.
3. If the Liaison Office in India fails to comply with the given directions.
4. If the Liaison Office in India fails to comply with the terms and conditions of the approval granted by the authority.
In such instances, the authority retains the right to revoke the approval granted to the Liaison Office. Before taking this step, the authority will ask for an explanation from the Liaison Office and offer them a chance to present their case.
The authorities might also direct the foreign insurer to remove the chief executive of the liaison office in India. Moreover, the authority will inform the regulatory body in the overseas insurer's home country about the actions taken against the Liaison Office.
The authority has issued these guidelines under the provisions of Section 14 (1) of the IRDA Act, 1999.
The process of closing up an Indian liaison office involves a series of important steps. This includes obtaining closure certificates from the Ministry of Corporate Affairs (MCA) and thoroughly preparing audited financial statements. The Income Tax authorities play a key role by issuing the required no-due certifications. Additionally, it's essential to submit closure applications to the designated bank. Furthermore, the process encompasses repatriating surplus funds and ultimately closing the liaison office's bank account.
Partnering with experienced professionals like KDP Accountants guarantees a closure process that is both compliant and smooth for your Indian liaison office. Their expertise in navigating intricate regulatory requirements ensures the effectiveness of the process. By teaming up with KDP Accountants and foreign companies can expertly and confidently bring their Indian liaison office operations to a close.
The above note is subject to further study and clarifications. This note does not form an opinion from our end and before taking any decision based on above, it is recommended to consult our experts on the subject.Kamdar, Desai & Patel will not be liable for any damages (including, without limitation, damages for loss of business projects, or loss of profits) arising in contract, tort or otherwise from the use of or inability to use this article, or any of its contents, or from any action taken (or refrained from being taken) as a result of using this article or any such contents.
