Under the Foreign Exchange Management Act (FEMA), there are various compliance criteria that must be met by liaison offices in India.
1. Registration and Approval: In order to open a liaison office in India, overseas businesses need to register with the Reserve Bank of India (RBI) first and then get the RBI's prior approval. A board resolution, audited financial statements, and a declaration from the parent business are some of the required documents that must be included with the application, which is to be submitted through an authorised dealer bank.
2. Reporting Duties: Liaison offices are required to returns to the RBI, which include the following: a. Annual Activity Certificate (AAC): On or before September 30 of each fiscal year, liaison offices are required to submit an Annual Activity Certificate to the RBI. This certificate must be certified by a chartered accountant. The AAC checks to make sure that the liaison office has only participated in authorised activities. b. Quarterly Progress Report: Liaison offices are expected to submit a Quarterly Progress Report to the RBI no later than 15 days after the end of each quarter. This report contains specific information regarding the actions that were carried out by the office within the specified time period. c. Other Reports: If the RBI seems fit, that it is necessary to do so, it may request that liaison offices provide further reports, statements, or information.
3. Liaison offices are not permitted to engage in any commercial or revenue-generating activity while located in India due to operational restrictions. Their responsibilities are limited to enabling collaboration, acting as a communication conduit between the parent firm and Indian entities, and promoting the economic interests of the parent company.
4. Funding and Expenses: It is required that all of the funding for liaison offices in India come from remittances sent from the parent firm. These incoming remittances are necessary for meeting the costs associated with operating the liaison office.
5. Tax Compliance: Liaison offices are required to adhere to the tax regulations of India. They are expected to get a Permanent Account Number (PAN) and meet all of their tax duties, which includes filing their income tax reports.
6. Compliance with Other Laws: Liaison offices are also expected to comply with any other pertinent Indian laws and regulations, such as those pertaining to labour laws, data protection legislation, and other industry-specific requirements that are applicable to the activities that they engage in.
1. What was the rationale behind opening a liaison office in India?
A liaison office's main function is to serve as a conduit for communication between Indian entities and the parent firm. Liaison offices support communication, disseminate information, and advance the parent company's commercial objectives in India.
2. What activities are approved for liaison offices in India?
Only specific activities, such as representing the parent company, promoting exports and imports, facilitating technical or financial collaborations, conducting market research, and serving as a liaison between the parent company and Indian parties, are permitted by liaison offices.
3. Is prior authorization necessary to open a liaison office in India?
It is true that international businesses must first receive RBI approval before opening a liaison office in India. An authorised dealer bank receives the application and the necessary supporting documentation.
4. What reporting guidelines apply to liaison offices?
Liaison offices must provide annual activity certificates (AACs), which must be approved by chartered accountants, to the RBI as part of their reporting requirements. Additionally, they must provide any other reports needed by the RBI in addition to quarterly progress reports.
5. Can an Indian liaison office make money?
It is not allowed for liaison offices to make money in India. Only those costs that are covered by remittances from the parent firm may be incurred.
6. Do liaison offices need Permanent Account Numbers (PANs)?
Getting a PAN from the Indian tax authorities is a requirement for liaison offices. PAN is necessary to complete financial transactions and adhere to income tax laws.
7. Do Indian tax regulations apply to liaison offices?
The Indian tax laws must be followed by liaison offices. They must meet their tax obligations, which include submitting income tax returns and paying any necessary taxes.
8. In India, are liaison offices permitted to do business or sign contracts?
Liaison offices are not allowed to carry out business operations, generate income, or sign contracts on the parent company's behalf. They just serve liaison and communication functions.