Branch/Liaison Office

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Branch Office in India – An Overview:
Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
  • Export/Import of goods.
  • Rendering professional or consultancy services.
  • Carrying out research work, in which the parent company is engaged.
  • Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
  • Representing the parent company in India and acting as buying/selling agents in India.
  • Rendering services in Information Technology and development of software in India.
  • Rendering technical support to the products supplied by the parent/group companies.
  • Foreign airline/shipping company.
  • Foreign Banks.
Branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).
Suitability of a Branch Office
The opening up of branch offices is one of the options by which a foreign company can set up its business operations in India. It needs to obtain a prior permission from Reserve Bank of India (RBI) for setting up such offices in India. As per the guidelines issued by RBI, these branch offices are subjected to the following conditions:-
  • The branch office cannot expand its activities or undertake any new trading, commercial or industrial activity other than those which are expressly approved by the RBI
  • The entire expense of the branch office in India will be met either out of the funds received by it from abroad through normal banking channels or through income generated by it in India
  • The branch office cannot accept any deposits in India;
  • The commission earned by the branch office from parties abroad for any agency business will be repatriated to India through normal banking channels.
Procedure for Branch Office
For opening a branch office, the foreign company needs to submit its formal application to the Chief General Manager, Exchange Control Department (Foreign Investment Division), RBI Central Office, Mumbai in the form FNC-1. These applications are considered on a case-to-case basis. The RBI generally gives permission in a time span of about 2 to 4 weeks. The application must include the following details:-
  • Operating history of the company worldwide
  • Proposed interests and activities in India
  • Reasons for wanting to open a branch office
  • Any foreign exchange implications for such matters.
  • English version of Certificate of Incorporation, MOA and AOA of the company duly attested by the Indian Embassy or Notary in the country of origin.
  • Audited balance sheet of the applicant company.
  • Details about the activities of the company.
Liaison office:
A Liaison Office is in the nature of a representative office set up primarily to explore and understand the business and investment climate. A Liaison Office is not permitted to undertake any commercial / trading / industrial activity, directly or indirectly, and is required to maintain itself out of inward remittances received from parent company through normal banking channels.

The Liaison Office is permitted to undertake following activities only:

  • Representing the parent Company in India
  • Promoting export/ import from/ to India
  • Promoting technical / financial collaborations between the parent companies and companies in India
  • Acting as a communication channel between the parent company and Indian companies
Any foreign company intending to open a Liaison Office in India is required to obtain prior approval from the RBI, the apex bank in India. Approval is usually granted for one to three years and can be renewed on expiry thereof.
Suitability of a Liaison Office
The Liaison Office generally acts as a communication channel between the parent company overseas and its present or prospective customers in India. The Liaison Office can also be set up to establish business contacts or gather market intelligence to promote the products or services of the overseas parent company. The Liaison Office cannot undertake any business activity in India nor earn any income in India.

At the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company.

Since the Liaison Office is not permitted to earn any income, it should not constitute a taxable entity in India. However, the Liaison Office would be required to withhold tax from certain payments and hence is expected to comply with the requisite “tax withholding” obligations under the domestic tax law.

To open a Liaison office, the parent company has to apply to the Reserve Bank of India and is normally granted permission within 2 to 4 weeks.

Liaison office is subjected to few restrictions; some of them that deserve to be well understood are reproduced here:

  • It cannot carry out any commercial operations in India.
  • It must maintain a QA22C account with the bank. This is a special account that only allows inflows from abroad.
  • It can neither borrow, nor lend money
  • All expenses of the office must be met through inward remittances to the office from abroad (parent company) through the bank. It is not subject to taxation in India.
  • However, the office must file regular returns to the RBI. Such returns must include Audited Annual accounts and an activity report for the year.
The following documents are required for applying to RBI for setting up the Liaison Office in India:
  • Form FNC 1* - 3 Copies
  • Letter from the Principal officer of the Parent Company to RBI*
  • Letter of Authority from the Parent Company in favour of local representative*.
  • Two copies of the English version of the Memorandum and Articles of Association (Charter Documents) of the Parent Company attested by Indian Embassy/Notary Public in the country of registration.
  • The latest audited Balance Sheet of the Parent Company.
* These documents would need to be signed by the Principal Officer of the Company that intends to set up the Liaison Office in India.