India Desk News Alert

March 2012

Concept of a Liaison Office in India

Setting up a Liaison Office (LO) is a common practice for foreign companies seeking to enter the Indian market.

The role of the LO is limited to collecting information about the possible market and to providing information about the company and its products to prospective Indian customers. LO is not allowed to undertake any business activities other than liaison work and therefore cannot earn any income in India.

Under Indian exchange control regulations, in order to set up a LO, permission is required from the Reserve Bank of India (RBI).

Important amendment for reporting of activities by LO

The Union Budget for Fiscal 2011 – 2012 proposed that non-residents having a LO in India will be required to file an annual statement, providing details of activities carried out in India. The due date for filing the statement will be within 60 days from the end of the financial year.

Through a recent amendment in the Income-tax Rules, 1962 (the Rules) Form 49C has been prescribed to be the format of the annual statement. The Form 49C must be duly verified and digitally signed by a chartered accountant or a person authorized by the non-resident.

It is important to note that the filing requirements seek to monitor the activities of the LO to make sure it is not creating a taxable presence in India.  Further, it highlights the need for multinationals to review their existing arrangements – the nature of the activities conducted by their LOs and to assess the compliance requirements.

PwC India has issued an Alert which outlines the key information required to be supplied in the annual statement. The link can be accessed here PwC News Alert.