General Criteria And Permissible Activities Of A Liaison Office In India

The rules and guidelines set by the Reserve Bank of India must be followed if you want to set up a liaison office in India. There are a few strategic criteria in general apart from the permissible activities. Firstly, a body, whether it is a firm, association or an individual that is incorporated outside India eager to start a liaison office or branch office in India must obtain a permit from the Reserve Bank as per the provisions of FEMA 1999. Applications to open an LO or BO by a foreign company must be made in the prescribed Form FNC, Annex-1.

The two routes followed

The RBI will consider the applications of the companies desirous of Starting operations in India under two specific ways. First, it is their route in which the principal business of the foreign company will fall under sectors in which the law permits 100% Foreign Direct Investment under the automatic route. Secondly, it is the government route where the principal business of the foreign company must fall under the sectors wherein 100% foreign investment is not permitted directly under the automatic route. In such situations, the Reserve Bank of India will consider the application after consulting with the Ministry of Finance of the government of India.

Few additional criteria

There are a few other criteria considered by the Reserve Bank of India while sifting and sanctioning applications of foreign entities having a wish for Setting up Project Office in India. The track record plays a vital role in this matter. It must show a profit in the home country for the five immediately preceding financial years. However, the time required for companies wanting to set up liaison office is limited to three years. The net worth of the foreign company is also an essential factor that is considered by the Reserve Bank of India. This is the value of the paid-up capital and reserves, less any intangible assets.

Forwarding of application

The application for setting up business in India must be forwarded through proper channel by the foreign entity. That means the designated AD Category I bank must forward the application to the General Manager, Foreign Exchange Department, Central Office Cell in the regional office of Reserve Bank of India in New Delhi. Along with the form, prescribed documents such as an audited balance sheet of the foreign entity and an English version of the Certificate of Incorporation or Notary Public in the country of registration or a Registration or Memorandum & Articles of Association attested by Indian Embassy must be included.

Permissible activities of branch office

Before Opening a Branch Office in India, you must know the permissible activities so that you stay clear from any legal hassles and other problems. If you are engaged in manufacturing or trading activities, then you are allowed to export and import goods, rendering consultancy or professional services, carry out research work in your specific areas. Promoting financial or technical collaborations, representing as buying or selling agent, rendering services in IT and software development, technical support for products supplied are also allowed. In short, a branch office must engage in activities of the parent company.

General permission for the project office

General permission for setting up a company in India will be granted and is at the discretion of the Reserve Bank of India. As it involves a lot of foreign transaction that will be made usually online, care must be taken for the security of the nation, draining of resource, utilization of it in a strategic manner and prevent any type of malpractice. Therefore, know the rules for a company set up India beforehand.

Seema Mehra is a Chartered Accountant at Ashok Maheshwary & Associates, top accounting firms in India that provide accounting services in India in a convenient manner.