Before going into the practices in which the liaison offices engage in this country to do business, it is essential to highlight the basic function of this entity. Basically, a liaison office acts as an intermediary of a company responsible for maintaining smooth communication between the head office in one location and the offices in the other parts of the globe. For instance, a business with its head office in New York might have a liaison office in this country for managing the operations. However, the liaison office cannot earn any income but only collect information about the opportunities of the market, and also impart the necessary information about the products and the company to the customers of this country. The application for opening a liaison office is approved under specific conditions. For starting operations in India, companies need to follow them strictly to get the approval.
Representing the parent company
The liaison office in India is responsible for representing the foreign entity in this country without engaging in any supply or order as it deems the entity as doing business and the entire income accrued through it is going to be taxable.
Promotion of export and import
While setting up a project office in India for liaison work, the entity can function for the promotion of export and import services in this country. The foreign entities keen to operate in this country as Payment Gateway Service providers must also open a liaison office with the approval of the Reserve Bank.
After opening a company in India and functioning as a liaison office, the entity can promote the financial and the technical collaborations with the parent and the group companies.
The company must act as a communication channel between the parent company located in another country and the company set up in India for facilitating the functioning of the business.
Things to obtain
After the establishment of the liaison office, with prior approval of the Reserve Bank of India, it must get the Unique Identification Number. For continuing operations in this country and following the best practices, the company also needs to get the Permanent Account Number from the Income Tax Department before opening a branch office in India and functioning properly. It must also complete the process of registration with the ROC or the Registrar of Companies with a period of thirty days of establishing itself in this country.
Getting special permission
For setting up company in India, a business must function as a liaison office in this country at first. It must also obtain the necessary permission from the IRDA or the Insurance Regulatory Development Authority. The banking operations need to obtain this permission under the Banking Regulation Act for setting up a liaison office in this country.
Financial dealings of the company
For company set up in India, the foreign entity must create a liaison office at first for determining the condition of the market in this country and for studying the opportunities of growth. Even though the expenses of such offices are to be carried out strictly according to the regulations of the Reserve Bank of India, the remittances it will earn should come as foreign exchange through the head office located in the other country.
Activities to undertake
Before setting up business in India, the foreign entity must function as a nodal or a sole liaison office. It must also submit the Annual Activity Certificate at the end of every financial year, so that the Authorized Dealer Bank can screen the activities that the liaison office has undertaken in this country according to the regulations and the approval provided by the Reserve Bank of India. Furthermore, the company must also follow the provisions of the Foreign Exchange Management Act when business is to be conducted through the way of a liaison office.