India has been experiencing significant economic growth, presenting opportunities for foreign companies to participate in and benefit from the expanding market. It is known for its large pool of skilled professionals in fields such as information technology, engineering, and finance, providing access to a talented workforce.  Having a Liaison office  or a branch office enhances brand visibility and credibility among Indian consumers and business partners.

Foreign companies or entities intending to establish a Branch Office or Liaison Office (BO/LO) in India necessitates obtaining approval from the Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA) 1999. They must submit their application using Form FNC, including the specified documents, to the Foreign Investment Division within the Foreign Exchange Department of the RBI’s Central Office in Mumbai. The submission should be made through an Authorised Dealer bank. The application form can be accessed on the official RBI website at www.rbi.org.in. RBI Secures prior consent from the Government before issuing the licence. Only for those sectors where the Government allows 100% Foreign Direct Investment (FDI) , no advance approval is necessary (referred to as the automatic route).

Liaison Offices:

A Liaison Office, also referred to as a Representative Office, is restricted to engaging solely in liaison activities. Its primary function is to serve as a communication conduit between the Head Office abroad and entities in India. The Liaison Office is prohibited from conducting any business activities within India and is not permitted to generate income in the country. All expenses incurred by such offices must be covered entirely through inward remittances of foreign exchange from the Head Office located outside India. The scope of these offices is limited to gathering information about potential market opportunities and disseminating information about the company and its products to prospective Indian customers. It will be a mere representative of the parent company or group companies. Facilitating the export/import activities to and from India. Fostering technical/financial collaborations between parent/group companies and Indian companies. Serving as a communication conduit between the parent company and companies in India are its primary activities.

The criteria examined by the RBI when approving Liaison office of foreign entities are a history of profitability over the last three consecutive financial years in the home country and a net worth which includes the paid-up capital and free reserves, excluding intangible assets based on the most recent Audited Balance Sheet or Account Statement, certified by a Certified Public Accountant or any Registered Accounts Practitioner should be equal to or exceeding USD 50,000 or its equivalent.

Branch Office

Foreign companies incorporated and involved in manufacturing or trading activities have the opportunity to establish Branch Offices in India, subject to specific approval from the Reserve Bank. These Branch Offices are authorised to act as representatives of the parent/group companies. According to RBI, they may engage in the following activities in India:

1. Export / Import of goods.
2. Rendering professional or consultancy services.
3. Carrying out research work, in areas in which the parent company is engaged.
4. Promoting technical or financial collaborations between Indian companies and parent or overseas group companies.
5. Representing the parent company in India and acting as buying / selling agent in India.
6. Rendering services in information technology and devel­opment of software in India.
7. Rendering technical support to the products sup­plied by parent/group companies.
8. Foreign airline / shipping company.

Typically, the Branch Office is expected to be involved in the same activity as the parent company. Branch Offices in India are prohibited from engaging in any form of retail trading activities. A Branch Office is prohibited from conducting manufacturing or processing activities in India, either directly or indirectly. Earnings generated by Branch Offices can be freely remitted from India, contingent on the payment of taxes @ 40% .

The criteria examined by the RBI when approving Branch offices of foreign entities are a history of profitability over the last five consecutive financial years in the home country and a net worth should be equal to or exceeding USD 100,000 or its equivalent.

Liaison offices/Branch offices that receive approval from the Reserve Bank will be assigned a Unique Identification Number (UIN). Liaison Offices /Branch Offices  must also acquire a Permanent Account Number (PAN) from the Income Tax Authorities upon establishing their presence in India.  For branch/liaison offices originating from China, Hong Kong, or specific prescribed companies, registration with Indian police authorities, i.e., Home Affairs, is mandatory.

Furthermore, Liaison offices/Branch offices are required to submit an Annual Activity Certificate (AAC) from auditors, as of the end of March, accompanied by the audited Balance Sheet no later than September 30 of the same year. The certificate should affirm that the Liaison Office/Branch Office has engaged only in activities authorised by the Reserve Bank of India.

Establishing liaison or branch offices in a foreign country can pose several challenges. Navigating complex regulatory frameworks and ensuring compliance with local laws and regulations can be challenging. Understanding and complying with local tax regulations, financial reporting requirements and accounting standards can be complex and may require professional assistance.

AT BCL India, we have a team of professionals who are well-versed in local laws, regulations, and compliance requirements. We can guide businesses through the intricate regulatory landscape, ensuring adherence to legal standards. We can help foreign companies prepare and submit the required documents, ensuring accuracy and completeness, and navigate approval processes efficiently. We are a team of Professionals who can offer guidance on financial matters, including tax implications, accounting practices, and financial reporting requirements. The guidance and expertise provided by our professionals contribute to a smoother and more successful entry into a new market, minimising risks and maximising opportunities.