One common method used by foreign investors to explore the Indian market for the first time is the establishment of liaison offices (LO). In India, a liaison office is a branch or representative office that a foreign corporation has set up inside the nation. Simplifying coordination and communication between the international parent company and several Indian stakeholders is its main goal. Serving as a crucial middleman, this office connects the parent company with Indian government agencies, potential clients, business partners, and other relevant organisations.. Liaison offices are usually set up in India with a restricted set of goals. After achieving these objectives, the LO may choose to stop operating in India or change into an Indian company's subsidiary. The Liaison Office closure is as stated hereunder:
The validity period of the Liaison office in India:
The initial validity period of a liaison office in India is three years from the date of establishment. Foreign companies can use this period to properly build their brand, carry out in-depth market research, actively sell their goods and services, and interact with Indian stakeholders in a productive manner. The foreign corporation may request an extension of the validity of the liaison office after the first three-year period has passed. The length of the extension period, which typically lasts between one and three years, depends on a number of variables, such as the company's past compliance history, its financial performance, and the complexity of its operational projects.The foreign corporation must gather and provide the Reserve Bank of India (RBI) with a set of required documents and information in order to start the extension procedure. They include various financial accounts, elaborately written audit reports, a formal undertaking attesting to compliance with current legal standards and regulations, and any other documentation that the RBI considers relevant.
How to close the Liaison office at the Authorized Dealer Bank (AD) and Registrar of Company (ROC):
Step1: The Ministry of Corporate Affairs (MCA) issues a closure certificate to the Liaison office:
- Form submission is required in order to receive a liaison office closure certificate from MCA.
- The parent company's board decision would be necessary in order to get a closure certificate from the ministry attesting to the Indian Liaison office closure.
Step 2: Audited Financials:
Up to the closure date, the liaison office (LO) is in charge of preparing the financials and all other reports.
Step 3: No due certificate:
Upon the closure of Liaison office, the Income Tax does not require the acquisition of a no due certificate.
You must turn in the closure certificate to the Income Tax authorities along with the financial records and other data from the Liaison office in order to obtain this certificate.
Step 4: Bank closure application submission:
At this point, we can move forward with submitting the Liaison office closure application to a bank.
Step 5: Reimbursement of Exceeding Cash
Any excess money in the Indian Liaison Office's bank account may be repatriated to the parent firm once the bank has contacted the Reserve Bank of India and obtained permission to close the Liaison Office.
The self-declaration, form, CA certificate in form, and any other relevant forms must be submitted.
Step 6: Closure of Bank Account and Surrender of UIN:
During the time of closure of Liaison office the liaison office must Suspend the Unique Identification Number and close the bank account
You should apply to the bank to have the account closed as soon as the money has been repatriated.
The following measures could be implemented in the case of non-compliance or default may lead to closure of liaison office in India.
- If the required documents, statements, accounts, returns, or reports are not provided to the authority by the Liaison Office in India.
- If the Indian Liaison Office refuses to assist the inspection or investigative body designated by the RBI, IRDA, or the Indian government.
- In the event that the Liaison Office in India disregards the instructions.
- If the Liaison Office in India fails to comply with the terms and conditions of the approval granted by the authority.
The authority is still able to withdraw its approval of the Liaison Office which may lead to closure of Liaison office in the cases that were previously specified. The Liaison Office will be given an opportunity to explain themselves and be asked for an explanation before the authority takes any further action. The foreign insurer may also be instructed by the authorities to fire the head of the liaison office located in India. Furthermore, the authority will notify the domestic regulatory body of the foreign insurer of the measures taken against the Liaison Office.
The authority has issued these guidelines under the provisions of Section 14(1) of IRDA Act, 1999
There are several crucial processes involved in shutting an Indian liaison office. The Ministry of Corporate Affairs (MCA) closure certificates must be obtained, and comprehensive audited financial statements must be prepared. The necessary no-due certifications are issued by the Income Tax authorities, who play a crucial role. It's also imperative that closure applications be sent to the assigned bank. In addition, the procedure includes remitting any excess monies back to the home country and shutting the liaison office's bank account.