Incorporation of Producer Company | Registration of Producer Company
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Since Inception of Liberalization in the year 1991, Global Investors prefer Indian marketplace for choosing a place of business. Foreign entities are permitted to establish a liaison office in India with permission of the Reserve Bank of India and LO is governed by Foreign Exchange Management Regulations, 2000. A Liaison office is not permitted to carry on any business in India, while a Branch office is permitted for doing business from India in terms of imports and exports. Through Liaison Office, Foreign Companies or Entities cannot undertake local trading or manufacturing activities except software development.
Foreign Liaison Office Setup in India by Foreign Investors/Entities
A foreign company planning to set up business operations in India having the following modes for Establishment: -
First: Incorporation of Company at MCA (As a wholly owned subsidiary company or joint venture company or LLP); and
Second: Unincorporated Mode Through branch office (“BO”) or liaison office (“LO”) or project office (“PO”).
Liaison Office or LO is one of the easiest option available to the Foreign Company or Entities which is also called Representative office in India.
This mode of doing business in India is to undertake only liaison activities and it can act as a channel of communication between Head Office Outside India and Parties in India. Liaison Office cannot acquire immovable property. However, it can take property by way of lease not exceeding 5 years. Liaison Office cannot earn any income in India.
Why Parent Company opt open a liaison office (“LO”) in India?
To represent the parent company in various fields in India like-
Acting as a communication channel between the parent company and Indian Parties and develop a network;Representing in India the parent company or group companies;Promoting export import from/to India;Research activity in the field where parent company is engaged;Promotion of export and import activities and trading on wholesale basis;Help in Promoting technical and financial collaborations between the Indian companies and overseas companies;Development of software in India; andAllocating information related to possible market opportunities and providing information about the Parent Company and its products to the prospective Indian customers.The documents required for registration of a Liaison Office (LO) in India depend on the mode of approval chosen by the parent company. Here are the basic documents required for registration of LO in India:
A letter from the parent company authorizing the setting up of the LO in India.A certificate of incorporation of the parent company.A memorandum of association and articles of association of the parent company.A statement of account of the parent company for the last three years, audited by a certified public accountant.A board resolution of the parent company approving the establishment of the LO in India and authorizing a representative to act on behalf of the parent company.A declaration that the LO will not undertake any commercial activity in India and will not earn any income in India.A power of attorney in favor of the representative authorized to act on behalf of the parent company.A completed application form in Form FNC (Annexure 1) for approval from the Reserve Bank of India.A certificate of incorporation of the parent company.A memorandum of association and articles of association of the parent company.A board resolution of the parent company approving the establishment of the LO in India and authorizing a representative to act on behalf of the parent company.A statement of account of the parent company for the last three years, audited by a certified public accountant.A declaration that the LO will not undertake any commercial activity in India and will not earn any income in India.A power of attorney in favor of the representative authorized to act on behalf of the parent company.Additionally, the RBI may require any other documents or information as deemed necessary during the approval process. It is advisable to consult with a professional to ensure all necessary documents are in order for registration of LO in India.
In India, the approval for setting up a Liaison Office (LO) is governed by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999.
There are two modes for approval of LO in India:
Automatic Route: Under this mode, the RBI grants approval for setting up an LO in India without any prior approval. However, the LO must comply with certain conditions, such as:
The parent company must have a track record of at least three years of profitable operations.
The proposed activities of the LO must be in the nature of representing the parent company in India, promoting export/import from/to India, and promoting technical/financial collaborations between the parent company and Indian companies.The LO cannot undertake any commercial activity in India and cannot earn any income in India. All expenses of the LO must be met through inward remittances from the parent company.Approval Route: Under this mode, the LO must obtain prior approval from the RBI before setting up an LO in India. The approval must be obtained through an application in Form FNC (Annexure 1) submitted to the RBI along with the required documents. The RBI evaluates the application based on the following criteria:
The track record of the parent company.The purpose of setting up the LO in India.The source of funding for the LO.The feasibility of the proposed activities of the LO.Once the RBI is satisfied with the application, it may grant approval subject to certain conditions. The LO must comply with these conditions while operating in India.
Bonus Points: It is important to note that the mode of approval depends on the proposed activities of the LO and the track record of the parent company. It is advisable to consult with a professional before setting up an LO in India.
Here are the features of Liaison Office (LO) registration in India:
Limited Scope: A LO in India has limited scope and can only engage in certain activities, such as representing the parent company in India, promoting export/import from/to India, and promoting technical/financial collaborations between the parent company and Indian companies. The LO cannot undertake any commercial activity in India and cannot earn any income in India.
No Profit-Making: Since the LO is not allowed to undertake any commercial activity in India, it cannot make any profits in India. All expenses of the LO must be met through inward remittances from the parent company.
Approval Required: The establishment of a LO in India requires prior approval from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999. The approval can be obtained through either the Automatic or Approval Route.
Parent Company Liability: The parent company is fully liable for all the activities of the LO in India. Any liabilities arising out of the LO’s operations in India must be met by the parent company.
Annual Filing: The LO must file an annual activity report with the RBI, detailing the activities undertaken by the LO in India during the year. The report must be submitted within six months of the close of the financial year.
Taxation: The LO is not subject to Indian taxation as it cannot earn any income in India. However, it must comply with certain tax requirements, such as obtaining a Permanent Account Number (PAN) and filing tax returns for any payments made to employees or vendors in India.
Time-bound: The approval for setting up a LO in India is typically valid for three years and can be renewed for another three years at a time.
It is important to note that the features of LO registration in India may be subject to change as per the laws and regulations applicable at the time of registration. It is advisable to consult with a professional before setting up an LO in India.