ESTABLISHING LIAISON / BRANCH OFFICE IN INDIA

A BRIEF WRITE-UP ON ESTABLISHING LIAISON / BRANCH OFFICE IN INDIA

1. Permission from RBI and opening of bank a/c with AD-Category-1 Bank
2. Registration with Registrar of Companies
3. Obtaining PAN/TAN from income tax department

Time Period for Above Activities / Approvals of Liaison Office in India

1. For RBI Approval within three months from the date of submission of all the documents with AD- Category-1 Bank in India.

• For Approval of form by Registrar of Companies within 15 days after filing the documents. Documents will be filed after getting approval from Reserve Bank Of India.

• For PAN and TAN within 15 days after submitting the applications. Applications will be filed after getting registration with Registrar of Companies.

1. Procedure for Approval From Reserve Bank of India under FEMA

(A) GENERAL

A body corporate incorporated outside India (including a firm or other association of individuals), desirous of opening a Liaison Office (LO)  in India have to obtain permission from the Reserve Bank under provisions of FEMA 1999. The applications from such entities in Form FNC will be considered by Reserve Bank under two routes:

• Reserve Bank Route — Whereprincipal business of the foreign entity falls under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible under the automatic route.
• Government Route — Where 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 and those from Non – Government Organisations / Non – Profit Organisations / Government Bodies / Departments are considered by the Reserve Bank in consultation with the Ministry of Finance, Government of India.

The following additional criteria are also considered by the Reserve Bank while sanctioning Liaison Offices of foreign entities:

• Track Record
  For Liaison Office — a profit making track record during the immediately preceding three financial years in the home country.
• Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name].
  
  o For Liaison Office — not less than USD 50,000 or its equivalent.

The application for establishing LO in India  should be forwarded by the foreign entity through a designated AD Category – I bank to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400 001, along with the prescribed documents including

• English version of the Certificate of Incorporation / Registration or Memorandum & Articles of Association attested by Indian Embassy / Notary Public in the Country of Registration.
• Latest Audited Balance Sheet of the applicant entity.

Applicants who do not satisfy the eligibility criteria and are subsidiaries of other companies can submit a Letter of Comfort from their parent company subject to the condition that the parent company satisfies the eligibility criteria as prescribed above. The designated AD Category – I bank should exercise due diligence in respect of the applicant’s background, antecedents of the promoter, nature and location of activity, sources of funds, etc. and also ensure compliance with the KYC norms before forwarding the application together with their comments/ recommendations to the Reserve Bank.

The Liaison offices established with the Reserve Bank’s approval will be allotted a Unique Identification Number (UIN) (www.rbi.org.in/scripts/Fema.aspx).

The LOs shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

(B) LIAISON OFFICE

b.1 Permissible Activities for a Liaison Office

A Liaison Office (also known as Representative Office) can undertake only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office outside India. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by an AD Category I bank.

A Liaison Office can undertake the following activities in India:

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

b.2 Liaison Office of Foreign Insurance Companies / Banks

Foreign Insurance companies can establish Liaison Offices in India only after obtaining approval from the Insurance Regulatory and Development Authority (IRDA). Foreign banks can establish Liaison Offices in India only after obtaining approval from the Department of Banking Operations and Development (DBOD), Reserve Bank of India.

b.3 Extension of Validity of the Approval of Liaison Offices

The designated AD Category – I bank may extend the validity period of LO/s for a period of 3 years from the date of expiry of the original approval / extension granted by the Reserve Bank, if the applicant has complied with the following conditions and the application is otherwise in order.

1. The LO should  have submitted the Annual Activity Certificates for the previous years  and
   1. The account of the LO maintained with the designated AD Category – I bank is being operated in accordance with the terms and conditions stipulated in the approval.

Such extension has to be granted, as expeditiously as possible, within a period of one month from the receipt of the request under intimation to the Regional Office concerned of the Reserve Bank and to the Chief General Manager–in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai 400 001, quoting the reference number of the original approval letter and the UIN.

The application for extension of the validity period of the LOs of banks and entities engaged in insurance business has to be directly submitted to the Department of Banking Operations and Development, Reserve Bank and Insurance Regulatory and Development Authority (IRDA), respectively as stipulated by them, as hitherto. Further, no extension would be considered for LOs of entities which are NBFCs and those engaged in construction and development sectors (excluding infrastructure development companies). Upon expiry of the validity period, these entities have to either close down or be converted into a Joint Venture (JV) / Wholly Owned Subsidiary (WOS), in conformity with the extant Foreign Direct Investment policy.

C) Application for Undertaking Additional    Liaison Offices

Requests for undertaking activities in addition to what has been permitted initially by the Reserve Bank may be submitted through the designated AD Category -I bank to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Mumbai, justifying the need with comments of the designated AD Category – I bank.

Requests for establishing additional LOs may be submitted through fresh FNC form duly signed by the authorized signatory of the foreign entity in the home country to the Reserve Bank of India as explained above. However, the documents mentioned in form FNC need not be resubmitted, if there are no changes to the documents already submitted earlier.

1. If the number of Offices exceeds 4 (i.e. LO in each zone viz; East, West, North and South), the applicant has to justify the need for additional office/s.
2. The applicant may identify one of its Offices in India as the Nodal Office,   which will coordinate the activities of all Offices in India.

(D) Annual Activity Certificates to be Submitted by Liaison Offices

Branch Offices / Liaison Offices have to file Annual Activity Certificates from Chartered Accountants, at the end of March 31, on or before Sept. 30, to the designated AD Category I bank and a copy to the Directorate General of Income Tax (International Taxation),  New Delhi within two months from the year ended March 31.

The certificates are to be filed by the following offices as applicable:

1. In case of a sole LO, by the LO concerned;
   1. In case of multiple LO, a combined Annual Activity Certificate in respect of all Offices in India by the Nodal Office of the LOs.

The designated AD Category – I bank shall scrutinize the Annual Activity Certificate and ensure that the activities undertaken by the LO are being carried out in accordance with the terms and conditions of the approval given by the Reserve Bank. In the event of any adverse findings being reported by the Auditor or noticed by the designated AD Category -I bank, the same should be reported immediately by the designated AD Category–I bank to the respective Regional Office of the Reserve Bank in respect of LOs along with the copy of the Annual Activity Certificate and their comments thereon.

(E) Closure of Liaison Offices

At the time of winding up of Liaison offices the company has to approach the designated AD Category – I bank with the following documents:

1. Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the LO.Auditor’s certificate- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the Office in India.Any other document/s, specified by the Reserve Bank while granting approval.

The designated AD Category – I banks has to  ensure that the LOs had filed their respective Annual Activity Certificates with the Reserve Bank for the previous years, in respect of the existing Liaison Offices. Confirmation about the same can be obtained from the Regional Office concerned of Reserve Bank of India in the case of LOs.

Closure of such LO has to be reported by the designated AD Category – I bank to the Reserve Bank (the Regional Office concerned for LOs, along with a declaration stating that all the necessary documents submitted by the LO have been scrutinized and found to be in order. If the documents are not found in order or cases are not covered under delegated powers, the AD Category – I bank may forward the application to the Reserve Bank, with their observations, for necessary action.  All the documents relating to the  LO operations may be retained by the AD Category – I bank for verification by the internal auditors of the AD / inspecting officers of the Reserve Bank.

2.Procedure for establishing place of business in India by a foreign company with Registrar of Companies:

1. A Liaison office in India will comply with Foreign Exchange Management (Establishment in India of  Office) Regulations,2000 as prescribed above.

• The office/offices will be established. Letter-heads etc., will be printed.

• The name of the company and the country in which the company is incorporated will be–

1. conspicuously exhibited on the outside of every office or place where it carries on business in India in easily legible English characters and also in the characters of the language or one or the languages in general use in the locality in which the office or place of business is situated.
   1. stated in legible English characters in all business letters, bill-heads and letter paper and in all notices and other official publications of the company.

• Where the liability of the members is limited, the notice of that fact will be indicated in the places and papers of the company mentioned above.

• Within 30 days of establishing a place of business in India e-Form FC-1 will be filed with the Registrar of Companies. Exemption from filing e-Form FC-1  is available in case of companies incorporated outside India by a Royal Charter or by an Act of Parliament.

• E-form FC-1 will be accompanied by the following documents:
  • Charter, statutes or memorandum and articles of association or other instrument constituting or defining the constitution of the company is to be attached. If the same is not in English language then it should be translated copy in English language.
    • Details of individuals directors are to be attached. Details should contain name, surname, former name, if any, residential address, occupation and other directorship-if any.
    • Approval letter from Reserve Bank of India for the setting up of business in India is to be attached.
    • Power of attorney or board resolution in favour of the authorized representatives is to be attached.
    • Directors details, in case of body corporate, details containing name and complete address of body corporate.
    • Secretary details, if any.

• If the instrument is not in the English language, a certified translation thereof. Where any such translation is made outside India, it shall be authenticated by the signature and the seal, if any-

1. of the official having custody of the original; or
2. of a Notary(Public) of the country(or part of the country) where the company is incorporated.

• Where such translation is made within India, it shall be authenticated-

1. by an advocate, attorney or pleader entitled to appear before any High Court; or
   1. by an affidavit, of some person having, in the opinion of the registrar, an adequate knowledge of the language of the original and of English.

• A fee of Rs.6000 to be paid.

3. Procedure for compliance of Income Tax Act By Liaison Office

1. PAN NO:- Liaison office shall obtain PAN no. after approval of form filed with Registrar of Companies
   1. TAN No.:- Liaison office shall obtain TAX Deduction  Account No after approval of form filed with Registrar of Companies.
      1. Filing of annual activities certificate within Two Months of year ended March 31.

DOCUMENTS REQUIRED FOR LIAISON OFFICE SETUP:

1. Form FNC – Three copies
2. Letter from the principal officer of the Parent company to RBI.
3. Letter of authority from the parent company in favour of Local Representative.
4. Letter of authority/ Resolution from parent company for setting up Liaison office in India.
5. Comfort letter from the parent company intending to support the operation in India.
6. Two copies of the English version of the Certificate of Incorporation, Memorandum & Articles of association (Charter Document) of the parent company translated & duly attested by the Indian embassy or notary public in the country of registration.
7. The Latest audited Balance sheet and annual accounts of parent company duly Translated notarized for past Three years. & Certified by Indian Consulate & Directors.
8. Name, Address, email ID and telephone number of the authorized person in Home Country.
9. Details of Bankers of the Organization the Country of Origin along with the bank account number.
10. Expected funding level for operations in India.
11. Details Relating to address of the proposed local office, number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided
12. Details of Activity carried out in Home Country by the applicant organization in brief about the product and services of company in Brief.
13. Bankers Certificate
14. Latest Proof of identity of all the Directors – Certified by Consulate and Banker in Home Country
15. Latest Proof of address all of Directors – Certified by Consulate and Banker in Home Country
16. Details of the Individuals / Company holding more 10% of Equity
17. Structure of the Organization w.r.t Shareholding pattern
18. Complete KYC of Shareholders holding more than 10% Equity in the Applicant Company
19.  Resolution for Opening up Bank Account with the Banker.
20. Duly Signed Bank Account Opening Form.