What is a Liaison Office?
A Liaison Office (LO), also known as a Representative Office, is a place of business that acts as a channel of communication between the head office of a foreign company and its Indian counterparts. It is the simplest and most cost-effective way for foreign companies to establish a presence in India without making a significant financial commitment.
Key Characteristics
- No Legal Personality: LO is not a separate legal entity but an extension of the parent company
- No Commercial Activity: Cannot undertake any commercial, trading, or industrial activities
- Parent Funded: All expenses must be met through inward remittances from the parent company
- RBI Approved: Requires prior approval from Reserve Bank of India
- Limited Duration: Valid for 3 years initially, renewable in blocks of 3 years
When to Set Up a Liaison Office
Market Exploration
Ideal for companies wanting to understand the Indian market before making significant investments.
Building Relationships
Perfect for promoting technical, financial, and business collaborations with Indian companies.
Communication Hub
Acts as a communication channel between parent company and Indian businesses.
Import/Export Promotion
Can promote export and import activities between India and the parent country.
Permitted and Prohibited Activities
Liaison Offices have strict restrictions on activities they can undertake. Violating these restrictions can result in penalties and closure orders.
✓ Permitted Activities
- Representing the parent company in India
- Promoting export from India to parent country
- Promoting import into India from parent country
- Promoting technical and financial collaborations
- Acting as communication channel
- Market research and analysis
- Providing information about parent company products
- Coordinating with Indian business partners
✗ Prohibited Activities
- Trading or commercial activities
- Entering into contracts on behalf of parent
- Earning any income in India
- Issuing invoices for goods/services
- Providing consultancy services
- Holding stock of goods
- Raising funds from Indian sourcesBorrowing money in India
Eligibility Criteria
Not all foreign companies can establish a Liaison Office in India. RBI has prescribed specific eligibility criteria to ensure serious investors only establish offices.
| Criteria | Requirement | Documentation |
|---|---|---|
| Profitability | Profitable operations in 3 preceding years | Audited financial statements |
| Net Worth | Minimum USD 50,000 or equivalent | Auditor/CPA certificate |
| Track Record | No adverse regulatory history | Banker's report |
| Legal Status | Validly incorporated outside India | Certificate of Incorporation |
Note: Net worth requirement may be relaxed for NGOs, non-profit organizations, government bodies, and national oil companies with appropriate justification.
RBI Approval Process
Setting up a Liaison Office requires prior approval from RBI through an Authorized Dealer Category-I bank. The process involves multiple stages and typically takes 6-8 weeks.
Application Process Steps
Select AD Bank
Choose an AD Category-I bank (major banks like SBI, ICICI, HDFC) that will forward your application to RBI.
Prepare Documentation
Compile all required documents including Form FNC, financials, board resolution, and KYC documents.
Submit Application
AD bank reviews documents and forwards application to RBI with their recommendation.
RBI Review
RBI examines application. May seek clarifications from AD bank if required.
Approval & UIN
RBI issues approval letter with Unique Identification Number (UIN) for the LO.
MCA Registration
After receiving RBI approval, the Liaison Office must be registered with the Ministry of Corporate Affairs (MCA) within 30 days.
e-Form FC-1 Requirements
- Attach: RBI approval letter with UIN
- Attach: Certified English translation of parent company incorporation documents
- Attach: Address proof of LO office premises
- Provide: Details of authorized representative in India
- Digital Signature: Must be signed by authorized representative
Late filing penalty: ₹1,000 per day after 30 days from RBI approval date.
Opening Bank Account
A Liaison Office must open a bank account with an AD Category-I bank for receiving inward remittances from the parent company.
| Account Feature | Details |
|---|---|
| Permitted Credits | Inward remittance from parent, tax refunds, asset sale proceeds on closure |
| Permitted Debits | Local operating expenses, remittance of surplus on closure |
| Documents Required | UIN, MCA FC-1 filing proof, PAN, office address proof, board resolution |
| Account Type | Non-interest bearing current account only |
Annual Compliance Requirements
Liaison Offices must fulfill annual compliance obligations to maintain their status and ensure smooth renewal.
| Compliance | Due Date | Form |
|---|---|---|
| Annual Activity Certificate | Within 6 months of closing accounts | From Statutory Auditor |
| MCA Annual Return | Within 60 days of closing accounts | e-Form FC-3 |
| RBI Activity Report | Annually through AD Bank | Annual Activity Certificate |
| FLA Return | By July 15 annually | RBI FLA Portal |
| Renewal Application | 2 months before expiry | Through AD Bank |
Costs and Timeline
Understanding the costs and timeline helps in proper planning for establishing a Liaison Office in India.
Setup Timeline
Frequently Asked Questions
Can a Liaison Office hire employees?
Yes, LOs can hire both local and expatriate employees. They must comply with Indian labor laws including EPF, ESIC, and TDS requirements. All salary expenses must be met through inward remittance from parent.
What happens if LO violates permitted activities?
Violations can result in penalties under FEMA, denial of renewal, forced closure, and potential blacklisting of the parent company for future approvals in India.
Can LO be converted to Branch Office?
No direct conversion is allowed. The LO must be closed first, and a fresh application for Branch Office must be submitted to RBI.