A Liaison Office (LO) is set up with the purpose to understand and explore the investment climate, market, and business environment and provide the information to the head office. A Liaison Office is kind of a Representative Office. Liaison office is a communication channel of a company between its head office abroad and clients in India. Liaison offices are not permitted to engage in commercial activities and the role of the liaison office is limited to representing parent company in India, can stimulate import or export from/to India, promote collaborations between parent companies and companies or parties in India, collect and provide information to the parent company about market opportunities, source of supply, information of products of the parent company to Indian customers or vice versa to its vendors. All the expenses for these liaison offices shall be remitted by its head office abroad. That a liaison office is considered to be a foreign company and when these companies make profit with amount to commercial activities through a permanent establishment (PE) at higher rates, Government of India poses taxes on such transactions at a rate of 40% which is comparatively higher than 22% of tax on Indian companies. Otherwise, liaison offices are not subjected to taxation as in India there is no mechanism present that would allow the department of income tax to ascertain whether activities of liaison office are taxable in India or not.
Such liaison office will be governed by Reserve Bank of India/AD banker. These offices do not have any offices and only are extension of the existing business with clients in India. It is to be understood that the name of the liaison office shall be same as parent company. Liaison office is a boon for foreign companies in need of a temporary office in India to proceed with their business with Indian clients. Liaison offices are permitted to non-interest-bearing INR current accounts in India. For this purpose, these offices have to approach their Authorized dealers.
Any company in order to establish its office in India have to take prior approval from the Reserve Bank of India by filing an application in form FNC with the Authorized Banker (AD) in India. It may take up to 3 – 4 weeks for processing of this application.