Setting up a Liaison Office in India involves a systematic process with key steps that foreign companies must follow. First, obtaining prior permission from the Reserve Bank of India (RBI) is essential. Then, the company must select a suitable office location and appoint an Authorized Representative who will liaise with Indian authorities. Detailed documentation, including a letter of intent from the parent company, financial statements, and a business plan, should be submitted to the RBI for review. Once approved, the Liaison Office can be established, and the RBI will issue a unique identification number. Compliance with annual reporting requirements and adhering to the stipulated scope of activities are crucial for the smooth functioning of the Liaison Office in India.
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Drawing from our experience in assisting foreign companies with setting up a liaison office in India, we've compiled a set of frequently asked questions (FAQs) that address various aspects. These include inquiries about the process of opening Liaison/Branch offices, permissible activities for such offices, eligibility of Foreign Insurance Companies/Banks to set up Liaison Offices, the procedure for establishing Branch Offices, allowed activities for Branch Offices, and more.
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This document aims to provide an overview of several essential registrations needed under Income Tax, FEMA, and the Companies Act to Set up a liaison office in India. This includes registrations necessary for Liaison Offices (LO) and Branch Offices (BO) under different laws, Value Added Tax (VAT), and Profession Tax (PT) obligations. It also covers the filing of forms and declarations with the Reserve Bank of India (RBI) as mandated by the Foreign Exchange Management Act (FEMA).
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A PAN (Permanent Account Number) is a distinct 10-character alphanumeric code allocated to every taxpayer in India by the Income Tax Department. It is mandatory for most financial dealings within India, as well as for enrollment with various government bodies. Unique application forms exist for residents and non-residents, with distinct document requirements for each category. Document specifications also vary based on the entity's status, such as trusts, partnership firms, limited liability companies, or individuals.
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The Indian Income Tax Act specifies certain payments where the person making the payment needs to deduct and send the tax (TDS) on behalf of the person receiving the payment. It's important to include the Tax Deduction and Collection Account Number (TAN) whenever you submit TDS/TCS returns, payment challans, or issue certificates. If you don't follow the rules for applying for a TAN or other requirements mentioned in this section, there are penalties outlined in The Income Tax Act.
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This phase entails adhering to banking regulations to initiate the process of opening a bank account in the name of the Liaison Office/Branch Office. All registered LO/BO entities in India must establish a bank account with a financial institution and deposit funds as stipulated by the Reserve Bank of India (RBI).
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All entities engaged in importing goods into India or exporting goods out of India are obligated to obtain an Import Export Code (IEC). The IEC application process entails submitting necessary forms and documents to the Directorate General of Foreign Trade (DGFT).
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Liaison Office have fundamental duties that they must fulfill. These include abiding by the regulations outlined in the Companies Act, maintaining financial transparency by keeping accurate records and undergoing audits, paying taxes, practicing corporate governance, ensuring the rights of their employees, and following regulations related to environmental protection, consumer rights, data privacy, and specific rules for their industry. All of these responsibilities work together to ensure that these companies operate ethically and sustainably.
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After the Liaison office is set up, the next steps consist of regular tasks. These tasks include maintaining accounting records and meeting legal requirements, submitting quarterly returns by the Income Tax Act, filing returns for Service Tax/VAT, and managing payroll services.
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An audit is a legally required review of a company's financial records to ensure accuracy. It examines data like bank balances, transactions, and bookkeeping. A concise report is then submitted annually to the Income Tax Authorities. Indian firms must also electronically file an Annual Return with the Registrar of Companies, sharing necessary information. Additionally, they should submit forms/returns under the Foreign Exchange Management Act (FEMA).
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