How Foreign Companies Can Set Up a Liaison or Branch Office in India? - Step by Step Guide by MyStartup Solution

How Foreign Companies Can Set Up a Liaison or Branch Office in India?

Expanding into the Indian market is a milestone for any global business.

India has become a promising market for business expansion and a significant opportunity for global companies. It is not only the potential of the economy that makes India attractive but also the size of the consumer base. Companies entering India, especially foreign companies need to remain cautious of the legal landscape and regulatory compliance for their operations initially. Establishing a Liaison Office (LO) or a Branch Office (BO) is the most prudent way to test the market before fully investing in the operations.

MyStartup Solution offers services to ease the translation of complex regulations into simpler language. In case you wish your office to be merely the link between your corporation and India or want to carry out some form of commercial activities, we have a well trained squad with a wealth of experience in these matters to assist. 

Differentiate Between a Liaison Office and a Branch Office

It is imperative to analyze what will serve the purpose best before making the decision for your business.

Liaison Office- A Liaison Office generally known as a Representative Office can be considered a voice or a light of the parent company in a foreign country. It can not directly or indirectly carry on any activity in the nature of trade, commerce, industry or any other business activity and thus it does not earn income in India. It is a mere promotional and market research arm of the parent company. The expenses of a LO have to be entirely financed through inward remittances from the foreign parent company.

Branch Office- Conversely, a Branch Office enjoys extended operational flexibility. While it remains a foreign company's arm only yet it can carry on trade activities e.g. importing/exporting goods, rendering professional services and research activities, etc. Besides that, a BO can earn revenue in India which is not possible in the case of an LO. However, a BO must always be aware of the limitation of its activities and operations that can legally be undertaken when compared to a private limited company.

Eligibility Criteria for Foreign Entities

RBI through various circulars has made it very clear that there are some corporate financial benchmarks that must be met before a company can be allowed to set up business in India.

The foreign company which desires to open a Liaison Office in India must have made profits during the three immediately preceding financial years. Also, the company's net worth (capital plus reserves) must not be less than USD 50, 000.

On the other hand, companies wanting to establish a Branch Office should have been profitable for the last 5 years and have a minimum net worth of USD 100,000. In the case corporate financial figures are still not up to par the group parent company can issue a Letter of Comfort to fulfill the obligation.

The Step-by-Step Registration Process for these offices

The first formal step to take in setting up these offices is to obtain the appropriate approval from the two main regulatory bodies, RBI and Ministry of Corporate Affairs (MCA). My Startup Solution simplifies this by providing a clear checklist of steps required at each point.

• Document control and filing: The essential first step is to carefully prepare the file and submit all relevant supporting docs with the application. Out of the documents needed are a foreign company's Certificate of Incorporation, its Memorandum and Articles of Association and its audited accounts, all of which must be in the English language and certified by a notary public (or apostilled). Form FNC must be duly filled.
• Application via AD Bank: Applications are forwarded through an AD bank (Authorized Dealer) Category- I Bank rather than sent directly to the RBI. Upon receipt of the application, the bank conducts the due diligence on the foreign applicant before coming up with a report for the RBI.

• Ownership confirmation (UBO): The Indian government is stringent in regards to Ultimate Beneficial Ownership (UBO). If the foreign company is from a country that has a land border with India (e.g. China, Pakistan), the approval procedure includes obtaining security clearance from the Ministry of Home Affairs.

• The granting of approval and issue of UIN: When the RBI or the AD bank is satisfied with the case, they give the approval letter. After this, an office is assigned a Unique Identification Number (UIN).
• Registration with the ROC: Within thirty days of getting the RBI, go ahead, an office appoints a Registrar of Companies (ROC). For this purpose, the office will file Form FC-1 to get a Corporate Identity Number (CIN), which will serve as its identification when referred to as a "Foreign Company" in India.

Post-Registration Formalities

After obtaining the license, several additional formalities must be done before the office can function legally. Among them are obtaining Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. In order to receive bank transfers from the parent company as well as to pay for the office local expenses, opening a bank account in India is therefore essential.

Should the office have employed staff, it may also require securing registrations under the Professional Tax and Provident Fund acts. Also, in case the BO is engaged in trading, it has to promptly obtain the Goods and Services Tax (GST) registration.

Compliance and Annual Requirements

Operating in India requires strict adherence to annual compliance to avoid penalties or the cancellation of the license. Every year, both Liaison and Branch Offices must file an Annual Activity Certificate (AAC). This document, certified by a Chartered Accountant, confirms that the office has only engaged in activities permitted by the RBI.

Other annual returns and financial reports must also be submitted to the ROC.

At My Startup Solution, we provide ongoing support to ensure you never miss a deadline allowing you to entirely focus on your business growth.

Why Choose My Startup Solution?

Local Indian laws and procedures as well as the registration systems on the web might appear a bit of a challenge to foreign directors. Just minor errors can result in the rejection of the application or even in long delays of the processing.

Here we come where My Startup Solution is your eyes and ears locally. We provide a one stop solution that covers:

• Initial consultation to choose the right business structure.
• Drafting and notarizing international documents.
• Liaising with AD Banks and the RBI.
• Handling ROC filings and GST registrations.
• Managing monthly and annual tax compliances.

Setting up a business in India is a bold move that signals growth. We believe that legal paperwork should not be a barrier to your vision. Our experts ensure that your entry into the Indian market is smooth, legal and efficient.

If you have the urge to escalate your global enterprise and at the same time want a setting up process with no stress, just dial +91-7081220800 and get in touch with My Startup Solution today that we can take over the cutting edge part while you are busy building your brand in one of the world's most vibrant economies.