§ 1
What a liaison office may and may not do
A liaison office may represent the parent or group companies in India, promote export and import, promote technical or financial collaboration, and act as a communication channel between the parent and Indian businesses. It may not undertake any commercial, trading or industrial activity, sign contracts on the parent's behalf in a way that creates business income, or receive fees or commissions in India.
All its expenses are met through inward remittances from the head office. Because it earns nothing, it pays no income tax in India, but it is still watched closely: the tax department looks for signs that a liaison office is in fact negotiating and concluding contracts, which would make it a permanent establishment of the foreign company.
Companies often use a liaison office to test the market before committing to a subsidiary. That works well as long as the office's day-to-day conduct stays within the approval.
§ 2
The law that applies
| FEMA (Establishment in India of a Branch Office or a Liaison Office or a Project Office or any other place of business) Regulations, 2016 | Eligibility, permitted activities, validity and extension. |
|---|---|
| RBI Master Direction on branch, liaison and project offices | Form FNC, Unique Identification Number, Annual Activity Certificate and closure. |
| Companies Act, 2013, sections 380 to 386 | Form FC-1 registration and annual filings of the foreign company. |
| Income-tax Act, 2025 and tax treaties | Permanent establishment risk and the annual statement of the liaison office's activities to the tax department. |
§ 3
Issues and how we solve them
The problems that most often hold up or complicate this work, and how we deal with each.
Issue 1
The parent does not meet the three-year profit and USD 50,000 net worth tests.
Our approach
We check the audited accounts first. Where the applicant falls short but is part of a group, a letter of comfort from a parent that qualifies can support the application.
Issue 2
Staff in the liaison office start negotiating prices and closing deals.
Our approach
We give the India team written operating guidelines on what they can and cannot do, review the office's correspondence and contracts at year end, and structure the Annual Activity Certificate around evidence that the office stayed within its role. That is the best defence against a permanent establishment claim.
Issue 3
The approval period ends before the parent decides whether to expand.
Our approach
Extension must be applied for through the AD bank before the validity expires. We diarise it six months in advance and, if the business has grown, help convert to a subsidiary instead of extending.
§ 4
Process and timeline
- 1
Eligibility
Week 1Three-year profit record and USD 50,000 net worth, or a letter of comfort.
- 2
Documents
Weeks 1–4Parent's incorporation and constitution, audited accounts, bankers' report and board resolution; apostille abroad.
- 3
Application
Weeks 4–5Form FNC filed with the AD bank.
Filing: Form FNC
- 4
Approval and UIN
Weeks 5–9Bank approval and RBI Unique Identification Number.
- 5
ROC and tax
Weeks 9–11Register the place of business, then PAN and TAN, and open the bank account.
Filing: Form FC-1 within 30 days
§ 5
Ongoing obligations
| Obligation | Basis | When |
|---|---|---|
| Annual Activity Certificate from the auditor | FEMA · AD bank | By 30 September |
| Annual statement of activities to the Income-tax Department | Income-tax Act, 2025 | Within 60 days of year end |
| Audited accounts and annual return of the foreign company | Forms FC-3 and FC-4 | Annually |
| TDS on salaries and rent | Income-tax Act, 2025 | Monthly and quarterly |
| Extension of approval | FEMA | Before expiry of validity |
§ 6
Our scope of work
Included
- Eligibility review
- Form FNC and AD bank liaison
- FC-1 registration
- PAN, TAN and bank account
- Operating guidelines for the India team
- First-year compliance calendar
Not included (quoted separately)
- Prior RBI approval applications
- Apostille and translation costs abroad
- Government fees
§ 7
Questions
Does a liaison office pay tax in India?
It earns no income, so it normally pays no income tax. It must still deduct tax on salaries and rent and file an annual statement of its activities with the tax department.
How long is a liaison office approval valid?
Usually three years, or two years for NBFCs and construction and development companies. It can be extended through the AD bank.
Can a liaison office be converted into a subsidiary?
Not directly. The foreign company sets up a subsidiary and then closes the liaison office through the AD bank, transferring its assets as permitted.
Prepared by CA Utsav Dogra, Chartered Accountant, ICAI M. No. 542375, SU and Company · Last reviewed 4 November 2026. General information only, based on the law as it stood on that date; it is not advice for any particular case.