Closure of a Liaison Office (LO) in India – Step-by-Step process

If a foreign company wants to close its Liaison Office (LO) in India, it must comply with the guidelines set by the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA). The closure process involves obtaining a No Objection Certificate (NOC) from the RBI, settling outstanding liabilities, and submitting necessary documents.

Key Requirements for Closing a Liaison Office

The LO must comply with all RBI regulations and FEMA guidelines. All outstanding liabilities, including taxes and employee dues, must be settled. Any pending legal or financial disputes in India must be resolved. The LO’s bank account must be closed after receiving RBI approval.

Step-by-Step Process for Liaison Office Closure

1. Obtain a Board Resolution from the Parent Company

The foreign parent company must pass a board resolution approving the LO’s closure in India.

2. Prepare Closure Application and Supporting Documents

The Authorized Signatory of the LO should prepare a closure application with the following essential documents:

1) Copy of RBI Approval Letter for establishing the LO.

2) Board Resolution authorizing the LO closure.

3) Indemnity Letter and Undertaking stating all liabilities are settled.

4) Auditor’s Certificate confirming no outstanding statutory dues, no pending legal cases, and no income-generating activities by the LO.

5) NOC from the Landlord if the LO operated from leased premises. PAN Card and Income Tax Clearance Certificate (ITCC).

6) Latest Audited Financial Statements and Activity Report.

7) Copy of Form FC-4, the Annual Return for Foreign Companies.

3. Submit to the Authorized Dealer (AD) Bank

The closure application must be submitted to the AD Category I Bank where the LO maintained its account. The bank will verify the documents and forward the closure request to the RBI.

4. Obtain RBI Approval

The RBI will review the application and grant approval if all documents are in order. The LO must remit any remaining bank account balance to the parent company before account closure.

5. File Closure with the Ministry of Corporate Affairs (MCA)

After receiving RBI approval, the LO must submit Form FC-2 to the MCA for official closure.

Form FC-2 Requirements: RBI approval for closure. Auditor’s Certificate. Declaration of compliance with FEMA and the Companies Act.

6. Close the Bank Account and Remit Remaining Funds

The LO must provide the RBI closure approval to its AD Bank. The bank will authorize the remittance of any remaining funds to the parent company and close the account.

Timeline for Closure

The complete closure process typically takes 3 to 6 months, depending on document verification and RBI approval.

Important Compliance to Ensure Before Closure

All taxes, employee salaries, and statutory dues must be cleared. All annual filings, including AAC, FC-4, and financial statements, must be submitted. The bank account must not have any pending transactions before closure.

Consequences of Non-Compliance

Failure to follow the correct closure procedures may result in penalties under FEMA and RBI regulations, legal complications with MCA and the Income Tax Department, and challenges for the parent company in making future investments in India.

Conclusion

Closing a Liaison Office in India requires strict compliance with RBI, MCA, and FEMA regulations. Seeking professional guidance from our team of  Chartered Accountant (CA) or Company Secretary (CS) can simplify the process and ensure smooth closure.

For a hassle-free experience, ensure all documents are accurate and compliant with the regulations. Proper closure safeguards the foreign company’s reputation and future investment opportunities in India.