Setting up of Liaison Office in India

This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information for setting up a Liaison Office in India and brief introduction of its regulatory and tax aspects. It contains relevant rules prevailing in India in March, 2009.

The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of circumstances. We strongly recommend readers to seek professional advice before taking any decision.

For any further information, please visit PGA at www.pgaindia.in or E-mail: pargambhir@hotmail.com or info@pgaindia.in

Regulatory Aspects

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•Companies incorporated outside India may establish Liaison Office(s) in India after obtaining prior approval from the Reserve Bank of India (RBI). Liaison Office is also known as Representative Office.  •Normally initial permission is granted for 3 years, subsequent extensions are possible. •Liaison office is treated as an extension of parent company in India. •Expenses of Liaison office are to be met by parent company from outside India. •Required to be registered with the Registrar of Companies (ROC). •Foreign Insurance Companies can establish liaison offices in India after obtaining approval from the Insurance Regulatory and Development Authority of India (IRDA).

•Required to get its annual accounts audited and to submit annual activity report to the RBI to ensure that it has undertaken only permitted activities.

Activities Permitted

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Activities Permitted Liaison office can undertake only liaison and related activities on behalf of the parent

entity, like: Representing the parent/group companies in India. To act as a channel of communication between its head office and parties in India. Collecting and/or providing business information. Promoting export /import from/to India. Promoting technical and financial collaborations between parent/group companies and

Indian companies.

Activities Not Permitted A Liaison office cannot enter any commercial or business activity in India.

Tax Implications & Transfer Pricing Rules

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Tax Implications

•Liaison offices are not liable to pay income tax in India as they are not expected to make any profit under the rules.

•Liable to pay Fringe Benefit Tax on the value of fringe benefits provided and deemed to be provided to its employees.

 Transfer Pricing Rules:

Normally, transactions between liaison office and parent/associated entities are not subject to Transfer Pricing (TP) Regulations.

Advantages & Formation Time

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Advantages Easy operations; Less formalities; and Simple exit route.

Formation time 4-6 weeks after receipt of the relevant information.

When To Open Liaison Office

• Entry in the form of Liaison office is suggested for a foreign company that does not have existing business in India but wishes to understand and explore Indian market.

• For collection of market information, interaction with Indian customers and providing information about parent company and its products to prospective Indian customers.

• To promote technical and financial collaborations between parent/group companies and Indian companies where services are to be provided from off-shore.

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Thanks

For further information, please visit PGA at www.pgaindia.in or E-mail: pargambhir@hotmail.com or info@pgaindia.in or contact us at:

87-B, Masjid Moth – II, DDA Flats, Greater Kailash - III New Delhi - 110 048 (INDIA)Tel/Fax: +91 11 2922 3838, +91 98112 52946

CA. Parveen Gambhir