India market entry · Liaison office FEMA compliance
FEMA and RBI Compliance for Liaison Offices in India
Prepared by S U and Company's CA-led advisory team · Published 27 October 2026 · About S U and Company
A liaison office runs on a tighter leash than a branch office: it has no income of its own, so every rupee it spends has to trace back to a remittance from the head office, and its approval has a shelf life that has to be renewed before it lapses. The compliance load is lighter than a branch's, but the margin for error is narrower, because the one thing that is absolutely prohibited — earning income — is also the one thing examiners look for first.
Quick answer
What ongoing FEMA and RBI compliance does a liaison office have in India?
A liaison office operates under FEMA and the RBI-approved terms of its Form FNC. It must do only permitted liaison tasks, earn no income, fund every expense from inward remittances through banking channels, file an Annual Activity Certificate from a Chartered Accountant with its authorised dealer bank each year (normally by 30 September), and extend its approval — typically valid for three years — before it expires.
1. The FEMA and RBI calendar
| When | What |
|---|---|
| Before setting up | Form FNC and approval (see our registration guide) |
| After approval | UIN recorded and bank account opened |
| Each remittance | Inward remittance records |
| By 30 September | Annual Activity Certificate with audited accounts |
| Before approval expires | Extension request to the authorised dealer bank |
| At closure | Closure and remittance of remaining funds |
Dates can shift by notification, so the current date applicable to a given year should be confirmed rather than assumed from the prior year.
2. The Annual Activity Certificate
Every year, the liaison office submits an Annual Activity Certificate from a Chartered Accountant, with audited accounts, to its authorised dealer bank, confirming that it carried out only the activities its approval actually permits and that every expense was met from remittances rather than any income of its own. This is the single most consistent recurring FEMA obligation a liaison office has, and it is normally due by 30 September.
3. Funding: remittances in, no income, ever
A liaison office is funded only by inward remittances from the head office through banking channels, with every expense met from those funds. Unlike a branch or project office, it has no permitted path to earn its own income — no sales, no fees, no commission. Doing so is a contravention of the approval terms, not merely a tax event, and tends to invite scrutiny at extension, closure, or routine AD bank review.
4. Extension of approval before it expires
Approval is normally granted for a limited period, typically three years, and must be extended with the authorised dealer bank before it lapses, supported by the Annual Activity Certificates and accounts filed during the approved period. Tracking the expiry date well ahead of time avoids the office operating, even briefly, without a valid approval.
5. Additional offices
A foreign company that wants to open more than one liaison office files a fresh Form FNC with its authorised dealer bank, explaining why the additional office is needed, with each office's UIN and Annual Activity Certificate tracked separately going forward.
6. Compounding: fixing a FEMA lapse
A missed report or certificate, an expired approval, or any income earned generally creates a contravention that needs to be regularised — often through a compounding application to the RBI, with a fee based on the amount involved and the length of the delay. Reviewing past filings before a problem compounds further, and setting a calendar going forward, is cheaper than discovering a multi-year gap at extension time.
7. Closing a liaison office
Closure needs authorised dealer bank permission, a Chartered Accountant's certificate confirming all liabilities are paid or provided for, tax clearance, and the ROC and RBI formalities, before any remaining funds can be remitted to the head office. See our guide to closing a branch, liaison or project office for the fuller process.
Frequently asked questions
What is the Annual Activity Certificate and when is it due?
A liaison office submits an Annual Activity Certificate from a Chartered Accountant, with audited accounts, to its authorised dealer bank, confirming it carried out only permitted liaison activities and met its expenses from remittances. It is normally due by 30 September, with the exact date confirmed against the current notification each year.
How is a liaison office funded, and can it earn income?
A liaison office is funded only by inward remittances from the head office through banking channels, with every expense met from those funds. It cannot earn any income — doing so is a contravention of its approval, not a tax-neutral event.
How long is a liaison office approval valid, and how is it extended?
Approval is normally granted for a limited period, typically three years, and must be extended with the authorised dealer bank before it expires, supported by the Annual Activity Certificates and accounts filed during that period.
What happens if a liaison office misses a FEMA filing?
A missed report or certificate generally creates a contravention that needs to be regularised, often through a compounding application to the RBI, with a fee based on the amount involved and the length of the delay. Reviewing past filings before a gap widens is cheaper than discovering it at extension or audit time.
How does a liaison office close in India?
Closure needs authorised dealer bank permission, a Chartered Accountant’s certificate confirming liabilities are paid, tax and ROC clearances, before any remaining funds can be remitted to the head office.
Can a foreign company open more than one liaison office in India?
Yes, with fresh approval. The parent files a new Form FNC with its authorised dealer bank explaining why the additional office is needed, with each office’s UIN and Annual Activity Certificate tracked separately.
Are the FEMA rules for liaison offices changing?
They may be. In October 2025 the RBI released draft regulations on offices set up in India by foreign entities. These were not confirmed as formally notified at the time of writing, so the 2016 regulations continue to apply until a formal notification supersedes them.
How S U and Company can help
We prepare and file the Annual Activity Certificate, track and file the extension of approval, and handle compounding applications where earlier filings were missed. See our liaison office registration guide and tax compliance guide, or explore the US-to-India entry guides.
Sources and further reading
- Reserve Bank of India — FEMA regulations and published compounding orders.
- Ministry of Corporate Affairs — company-law resources.