Liaison Office (LO) in India

Foreign companies can establish a liaison office in India to conduct market research and engage with potential Indian customers.

Setting Up a Liaison Office (LO) in India

Foreign companies may set up a liaison office (also known as a representative office) in India to conduct market research, promote their products and services, interact with potential customers, and explore market opportunities. However, a liaison office is prohibited from engaging in any revenue-generating activities, such as commercial, trading, or industrial operations. The operating costs of an LO must be financed through inward remittances from the foreign parent company.

Liaison offices are typically used by foreign companies to raise awareness, network, and expand their presence in the Indian market. The establishment of an LO is governed by the provisions of the Foreign Exchange Management Act (FEMA) of 1999, with approval and oversight by the Reserve Bank of India (RBI).

Liaison Office (LO) Setup Criteria in India

The following criteria must be met for a foreign company to set up a liaison office (LO) in India:

The parent company must be registered/incorporated in Pakistan.
If the parent company is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, or Macau, the application must be for opening an LO in Jammu and Kashmir, the North East region, or the Andaman and Nicobar Islands.
The parent company's principal business falls within one of the following sectors: Defence, Telecom, Private Security, or Information and Broadcasting. However, if government approval or a license/permission from the relevant Ministry or regulator has already been granted, approval from the Reserve Bank of India (RBI) is not required.
If the applicant is an NGO, Non-Profit Organization, or a body/agency/department of a foreign government, a certificate of registration under the Foreign Contribution (Regulation) Act, 2010 (FCRA) is required. Such entities are not required to seek permission under the RBI regulations.
The validity of an LO is typically three years, except for Non-Banking Finance Companies (NBFCs) and entities in the construction and development sectors, where the validity is limited to two years.
The LO must comply with FEMA regulations for extension or closure after the validity period expires.

Permitted Activities for Liaison Offices (LO) in India

A Liaison Office (LO) in India is typically permitted to engage only in activities aligned with those of its parent company. Permitted activities include:

Representing the parent company or its group companies in India.
Facilitating export and import activities between India and other countries.
Promoting technical or financial collaborations between the parent or group companies and Indian companies.
Serving as a communication link between the parent company and companies in India.

Additionally, AD Category-I banks are prohibited from granting approval for any liaison office or place of business in India under FEMA if the purpose is to engage in the practice of law.

Withholding Tax Compliance for Liaison Offices

A Liaison Office (LO) in India must periodically deduct applicable withholding taxes on payments made to vendors and employees. Additionally, the LO is required to file quarterly withholding tax (TDS) returns in compliance with Indian tax regulations.