India: Newsletter - October 2017

Last Updated: 14 November 2017
Article by Malay Damania


Liaison Office (LO) in India:

A foreign entity can establish a Liaison Office in India in accordance with Section 6(6) of The Foreign Exchange Management Act (FEMA) read with notification no. FEMA 22(R) /2016-RB dated 31st March 2016.

Eligible entity:

A foreign Company which can be a body corporate incorporated outside India including a firm or association of individuals may make an application to establish a LO in India.

Permission route:

AD Category I bank has the power to permit the establishment of LO in India. The AD bank shall check out on applicant's background, adherence to the eligibility criteria, antecedents of promoters, nature and location of activities of the applicant, sources of funds, compliance with the KYC norms before granting the approval.

However, specific RBI permission is required in the following cases:

  • The applicant is a citizen of India or is registered in Pakistan;
  • The applicant is a citizen of India or is registered in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong or Macau AND the application is for opening a LO in Jammu & Kashmir, North East region and Andaman and Nicobar Islands;
  • The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private security and Information and Broadcasting;
  • The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/Agency/Department of a foreign government.

The validity period of a LO is generally three years. For NBFCs and entities engaged in construction and development sectors, the validity period is two years.

Financial track record:

The nonresident entity applying for a LO in India should have profit making track record during preceding three financial years in the home country and net worth of at least USD 50,000 or its equivalent. If the applicant entity is financially not sound, RBI may consider a Letter of Comfort from its parent/group Company.

Bank Account:

An LO should maintain only one bank account in India. The permitted credits in this account are:

  • Funds received from Head Office through normal banking channel;
  • Refund of security deposits;
  • Refund of taxes, duties from tax authorities;
  • Sale proceeds of assets of the LO.

The permitted debits in this account are for meeting the local expenses of the office. Banks are not allowed to extend any fund or non-fund based facilities to the LO. The entire operations of the LO must be funded by the foreign parent entity.

Permitted activities:

LO in India is allowed to perform only the following activities:

  • Representing in India the parent company/group companies.
  • Promoting export import from/to India.
  • Promoting technical/financial collaborations between parent/group companies and companies in India.
  • Acting as a communication channel between the parent company and the Indian Companies

Basically, a Liaison office is only a Representative Office and is not expected to carry out any activity that earns revenue for the company.

A Liaison office can only act only as a communication channel between the Parent company and Indian companies. It can only gather and pass on the information to the Parent company for them to take the entire decisions base on the information pass on to them. They on their own cannot conclude any sale transaction.

Annual Activity Certificate (AAC):

Every year an LO in India needs to submit AAC along with audited accounts and other requisite documents to the AD bank as well as Director General of Income Tax (International Taxation), New Delhi.

Additional offices and activities:

An LO may seek fresh permission in case of establishing additional offices. If the number of offices exceed 4, the applicant has to justify the need for such additional office and it shall also require prior approval of RBI. Further, in case of multiple offices, the applicant may identify one of its offices as "Nodal office" which will coordinate activities of all of its offices in India.

Wherever the existing LO is shifted to another city, prior approval of AD is required. However, no approval is necessary in case of change in address in the same city.

Closure of Liaison Office:

For winding up of a LO, following documents needs to be complied with:

  • Confirmation from the Company that no legal proceedings in any court in India are pending against the LO and that there is no legal impediment if the residual amount from LO is remitted back to the parent Company;
  • Auditors' need to certify
    • A statement of assets and liabilities indicating the manner in which assets are disposed off and basis of arriving at the remittable amount;
    • Confirming that all the liabilities in India are either fully paid or provided for;
    • Confirming that no income from source outside India (ex: export proceeds) have remained unrepatriated to India.
  • A report from the Registrar of Companies that all the provisions of the Companies' Act, 2013 have been duly complied with.
  • Confirmation from the AD bank that all the AACs have been filed by the LO.

On compliance with all of the above requirements, the LO can be wind up and residual balance in the bank account of the LO, if any, can be remitted back to the parent Company account.

Transfer of Assets of the Liaison Office:

  • Transfer of assets by way of sale to JV/WOS when the parent Company intends to close their LO;
  • The Statutory auditor must certify the date of acquisition, original price, depreciation till date, present book value and sale consideration to be obtained. He must also certify that the assets were not re-valued after their acquisition. The sale consideration should not be more than the book value in each case.
  • The LO cannot capitalize any intangible asset such as Goodwill, pre-operative expense or leasehold improvements as fixed assets eligible for such transfer.
  • The AD bank must ensure payment of all the taxes before permitting any Remittance
  • Donations of old furniture, vehicles, computers and other office equipment to NGOs or nonprofit organisations may be permitted by the AD bank after satisfying itself about the bonafide of the transaction.

Other General directives:

  • LO shall obtain a PAN card from Income Tax authority;
  • When LO is upgraded to a Branch Office, the same PAN card and bank account can continue;
  • Each LO is required to transact through single AD bank only;
  • LO is not allowed to buy a property. It can lease a property for a period not exceeding 5 years;
  • AD bank can allow term deposit for a period of only up to 6 months provided the bank is satisfied that the deposit is out of the temporary surplus funds and the LO furnishes an undertaking that the maturity amount shall be utilized for its business purpose within 3 months of its maturity.
  • Where change in name is requested due to acquisition or merger of foreign entities involving change in ownership, the acquired entity is required to apply a fresh by closing the existing entity.
  • LO must intimate the AD bank in case of any change in top management or CEO/MD/CMD of the LO.

Annual Statement to be filed with Tax authority:

In accordance with Rule 114DA of the Income Rules read with Form 49C, every foreign Company having an LO in India will have to file an Annual Statement with the jurisdictional Assessing Officer within 60 days from the end of the financial year. This Statement has to be verified by a Chartered Accountant or by an authorised representative of the foreign Company.

The details required to be given in this Annual Statement is as follows:

  • Nature of activities undertaken by the LO
  • Date of opening and registration number granted by the RBI.
  • Details of receipts, income and expenditure from India centric activity of foreign Company in addition to that of the LO.
  • Details of purchase and sales of materials from/to Indian parties directly by foreign Company.
  • Details of services provided to or received from Indian parties directly by foreign Company.
  • Details of agent/distributors of foreign Company in India.
  • Details of top 5 parties with whom the LO is doing liaising activity in India.
  • Number of employees working in LO along with the details of those drawing salary in excess of Rs. 50,000/- per month.
  • Details of presence of group entities in any form in India.

However, if the RBI or Income Tax department takes a view that the Liaison office is carrying out activities beyond their defined scope of "permitted activities", the Profits that attribute to the activity that is being carried out in India becomes subject to Income Tax.

Although this is a structure which does not attract any tax liability in India due to its limited permitted activity, foreign Company needs to be extremely clear and careful as regards the nature of activity it proposes to carry out in India. It must be strictly in accordance with the permitted activities as prescribed by RBI to avoid any kind of inquiry and penal consequences at a later stage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions