Indian corporate law provides for different legal forms for foreign companies - depending on their business activities. In addition to local company models (Indian Corporations: LLP, Private Limited Company, Public Limited Company), there are so-called foreign corporations such as “Project Office”, “Branch Office” or “For limited business activities of foreign companies”.Office Liaison".

What is a Liaison Office (LO)?

A liaison office serves as a liaison and contact office between a foreign company and the Indian market or its (potential) customers. A LO does not undertake any economic activities itself and does not generate any income. It is financially completely dependent on the parent company. All costs are financed by direct international transfers from the European headquarters.

A liaison office serves to obtain information, explore the market and also takes on representative tasks on the Indian market. It serves to promote import and export activities of the parent company and to facilitate technical cooperation with India. In addition, purchasing activities (sourcing for export to Europe, for example) are expressly permitted.

Good reasons for a liaison office

These are usually the first and most important tasks when entering the Indian market. Instead of overwhelming yourself with company development, financing and numerous compliance tasks, it makes sense for many companies to first explore the Indian market, identify business potential and, if necessary, adapt their own business model. Deals concluded in the early days can, for the time being, easily be carried out through direct exports from Europe. And it may be enough if, in the first step, you “just” have a communication channel between the European headquarters and the Indian market.

  • The establishment of a liaison office is considered in terms of investments clearly the cheapest form of presence. The financial outlay for tax advisors, lawyers and administrative fees is usually significantly lower than with a private limited. This is probably the reason why advisors rarely recommend LO, even though it would often be the most sensible way to initially explore the market.
  • The Compliance effort at liaison offices is kept to a minimum. At the end of every Indian financial year (March 31), only one type of audit is carried out by a Practicing Chartered Accountant.
  • A nice side effect of the Liaison Office - and often a key motivation for founding one - is that Avoiding a “tax permanent establishment” in India. If the representative tasks are taken over by a dependent agent or freelancer on site, a “tax permanent establishment” is created in no time. This means your foreign company becomes liable to tax in India and is directly exposed to Indian jurisdiction.
  • And last but not least: A liaison office exists for a standard period of three years from the time it is founded and expires automatically without any further action. But there is also the possibility of an extension. This is a decisive advantage over other forms of presence. If the business hopes do not come true, the withdrawal from India should be carried out quickly and cleanly. This is not always so easy with other forms of presence.

Establishment of a liaison office

The Liaison Office is established – for most industries (100% automatic route) – by reporting to and approved by the Reserve Bank of India (RBI). In exceptional cases, however, a formal approval from the Indian Ministry of Finance is required.

As with all other legal forms, the regulations are defined in the Foreign Exchange Management Act (FEMA, 1999). The founding process is extremely quick and uncomplicated.

We would be happy to advise you on your choice of form of presence in India and would be happy to support you in setting up your liaison office. Feel free to contact us!