How to Set Up a Liaison Office (LO) / Representative Office in India: A Step-by-Step Guide
- 08/03/2025
- Posted by: admin
- Categories: Company Law, Non Residents
Expanding into India can be a strategic move for foreign companies looking to explore market opportunities. One of the most effective ways to establish a presence in India without engaging in direct commercial activities is by setting up a Liaison Office (LO), also known as a Representative Office. This office serves as a communication bridge between the foreign parent company and Indian businesses.
In this comprehensive guide, we will discuss the process, eligibility, compliance requirements, and benefits of establishing a Liaison Office in India.
1. What is a Liaison Office (LO)?
A Liaison Office is a temporary establishment set up by a foreign company in India to carry out specific non-commercial activities. It does not engage in revenue-generating operations but acts as a channel to explore business opportunities.
Key Features:
✔ Serves as a representative office of the parent company.
✔ Cannot undertake any commercial or industrial activities.
✔ Facilitates communication between the parent company and Indian businesses.
✔ Must comply with regulations under Foreign Exchange Management Act (FEMA), 1999.
2. Eligibility Criteria for Setting Up a Liaison Office in India
To be eligible to establish an LO in India, a foreign company must meet the following criteria:
✔ Profitable Track Record – The parent company must have been operational for at least three years with a history of profitability.
✔ Minimum Net Worth – The foreign company must have a net worth of at least USD 50,000 (or equivalent).
✔ Approval from RBI – The Reserve Bank of India (RBI) must approve the application under FEMA, 1999.
3. Activities Permitted for a Liaison Office
Foreign companies can use a Liaison Office for the following activities:
✔ Market research and feasibility studies
✔ Promotion of business opportunities for the parent company
✔ Acting as a communication bridge with Indian stakeholders
✔ Facilitating import/export activities
Activities NOT Allowed:
❌ No revenue generation or trading
❌ No commercial or business operations
❌ No manufacturing or industrial activities
4. Step-by-Step Process to Set Up a Liaison Office in India
Step 1: Obtain RBI Approval
✔ The foreign company must submit an FNC (Foreign National Company) application to the RBI.
✔ The application is routed through an Authorized Dealer Bank (Category I).
✔ The bank forwards the application to RBI for approval.
✔ Processing Time: Approximately 4–6 weeks.
Step 2: Register with the Ministry of Corporate Affairs (MCA)
✔ After RBI approval, the Liaison Office must register as a foreign company with the MCA.
✔ The company must file Form FC-1 within 30 days of obtaining RBI approval.
Step 3: Obtain PAN & Open a Bank Account
✔ Apply for a Permanent Account Number (PAN) from the Indian Income Tax Department.
✔ Open a bank account in India, which will be linked to the parent company.
Step 4: Register with State Police (If Required)
✔ If the foreign parent company is from China, Pakistan, Bangladesh, Sri Lanka, Iran, Afghanistan, or Hong Kong, it must register with the Directorate General of Police (DGP).
Step 5: Obtain Additional Licenses (if required)
✔ GST Registration (if applicable).
✔ Shops and Establishment Act Registration (varies by state).
5. Compliance Requirements for a Liaison Office
Once the LO is established, it must meet the following compliance requirements:
✔ Annual Filing with RBI – Submission of Annual Activity Certificate (AAC) from a Chartered Accountant.
✔ Annual Filing with MCA – Submission of Form FC-4 (Annual Return).
✔ Tax Compliance – While the LO is not subject to income tax, it must comply with TDS (Tax Deducted at Source) regulations.
6. Validity & Closure of a Liaison Office
Validity
✔ The initial approval is for three years (renewable upon request).
Closure Process
✔ Obtain RBI approval before shutting down the LO.
✔ Submit closure documents to MCA.
✔ Settle outstanding liabilities before winding up operations.
7. Conclusion
Setting up a Liaison Office (LO) in India is a strategic and regulated process that allows foreign companies to explore market opportunities without engaging in direct business operations. Given the RBI and FEMA approval requirements, it is highly recommended to consult a legal or financial expert to ensure smooth processing.
By following the correct procedure and maintaining compliance, foreign businesses can successfully establish a representative presence in India and build strong market connections.
Need Assistance?
If you need professional help in setting up a Liaison Office in India, feel free to reach out to business consultants or legal experts for seamless compliance and approval processes.
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