A LO is in the nature of a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office (LO) is not permitted to undertake any commercial /trading /industrial activity, directly or indirectly, and is required to maintain itself out of inward remittances received from parent company through normal banking channels. The LO is permitted to undertake following activities only:
Any foreign company intending to open a LO in India is required to obtain prior approval from the RBI, the apex bank in India. Approval is usually granted for one to three years and can be renewed on expiry thereof.
The LO generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The LO can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company.
The LO cannot undertake any business activity in India nor earn any income in India. At the time of closure of the LO, RBI grants permission to repatriate the balance in the Indian bank account to the parent company subject to fulfillment of prescribed conditions.
Since the LO is not permitted to earn any income, it should not constitute a taxable entity in India. However, the LO would be required to withhold tax from certain payments and hence is expected to comply with the requisite "tax withholding" obligations under the domestic tax law. To open a LO, the parent company has to apply to the Reserve Bank of India and is normally granted permission within 6 to 8 weeks.
LO is subjected to few restrictions; some of them that deserve to be well understood are reproduced here:
As per recent circulars of RBI, a Foreign company wishing to set up a LO needs to fulfill following requirements:
Eligibility Criteria for Establishment of LO in India
Reserve Bank Route -
Principal business of the foreign entity falls under sectors where 100 per cent foreign direct investment (FDI) is permissible under the automatic route.
Principal business of the foreign entity falls under the sectors where 100 per cent FDI is not permissible under the automatic route. Applications from entities falling under this category are considered by the Reserve Bank, in consultation with the Government of India, Ministry of Finance.
You may let us know the proposed activities of the LO to enable us to advise you further on the available route for you in India. You may get in touch with us on LO@kdpaccountants.com
Applicants that do not satisfy the eligibility criteria and are subsidiaries of other companies may submit a Letter of Comfort from their parent company (for format of the annexure, pl write to us at LO@kdpaccountants.com) subject to the condition that the parent company satisfies the eligibility criteria as prescribed.
Following documents are required for applying to RBI for setting up the LO in India:
For any further Questions that you may have, please feel free to write to us on LO@kdpaccountants.com
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