Setting Up of Business, Industrial and Labour Laws · Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Liaison Office in India: Scope, Activities and Approval

Updated 11 October 2026 · Fact-checked

A liaison office is a foreign company's representative presence in India. It may only carry out non-revenue activities such as representing the parent, promoting exports and imports, promoting collaborations and acting as a communication channel. It earns no income, is funded fully by inward remittances, needs approval through an AD bank, and files an annual activity certificate.

Understand Liaison Office: Scope, Activities and Approval

A foreign company that wants to explore the Indian market does not have to start a full business. It can open a liaison office (LO). Think of it as a listening post and a messenger. It is not a place to do business.

The key idea is that an LO must not earn any income in India. It cannot sell, trade, manufacture, give paid services or sign commercial contracts for the parent. Because it earns nothing, all its running costs must be met from money sent from the head office. That money must come through normal banking channels.

The permitted activities are narrow. An LO may represent the parent company in India. It may promote export and import between India and the parent's country. It may promote technical or financial collaboration between the parent or its group companies and Indian companies. It may act as a communication channel between the parent and Indian companies.

The LO is regulated under FEMA and the RBI's rules on establishing branch, liaison and project offices. Approval is normally routed through an Authorised Dealer Category-I bank (AD bank). Some cases need RBI or Government approval, such as applicants from certain neighbouring countries or sensitive sectors. Check the current RBI Master Direction before relying on the list of countries.

After approval, the LO gets a unique identification number, registers for PAN and files the foreign company documents with the Registrar of Companies as required by the Companies Act for a place of business in India. Each year it must file an annual activity certificate from a Chartered Accountant. This certificate confirms that the LO did only permitted work and met its costs from inward remittances.

Key rules to remember

Permitted activities of an LO: Represent parent; promote export/import; promote technical or financial collaboration; act as communication channel; All are non-revenue activities. Anything that earns income is outside the permitted scope.
Eligibility: net worth: Net worth ≥ USD 50,000 (or equivalent) as per latest audited balance sheet; Applies to a standard non-financial applicant. Banks and other special categories have separate conditions.
Eligibility: track record: Profit-making track record in the home country during the immediately preceding 3 financial years; A loss in any of the three years is a problem. Both the net worth and profit tests must be met.
Funding rule: LO expenses = inward remittances from head office through normal banking channels; No income in India. No local fees, commission or sale proceeds can fund the LO.
Approval route: Application to AD Category-I bank; RBI or Government approval in specified cases; The AD bank deals with most cases. Specified countries or sectors need prior RBI or Government approval.
Validity of approval: 3 years, extendable by AD bank on request; Apply for extension before expiry. Check the current Master Direction for the exact process.
Annual Activity Certificate (AAC): CA certificate filed every year by 30 September; It certifies that only permitted activities were done and expenses came from inward remittances. It is filed with the AD bank and the authorities named in the Master Direction.

How to solve Liaison Office: Scope, Activities and Approval questions

Most LO questions are either a scope question (can the LO do this?) or a procedure question (how is it set up and kept compliant?). Use the same order every time.

1Identify what the question asks: scope of activity, eligibility, approval, funding, or annual compliance.
2State the basic nature of an LO: a non-revenue representative office of a foreign company, regulated under FEMA and RBI rules.
3For an activity question, test each activity against the four permitted activities. If it earns income or involves trading, it fails.
4For eligibility, check both tests: net worth of at least USD 50,000 and profits in each of the last three financial years in the home country.
5For approval, name the route: AD Category-I bank, with RBI or Government approval for specified countries or sectors. Mention the 3-year validity.
6For funding, state that all expenses must come from inward remittances through banking channels and that the LO cannot earn income in India.
7Add the continuing compliance: Registrar of Companies filing, PAN, and the annual activity certificate by 30 September.
8End with a clear conclusion: permitted or not permitted, eligible or not, compliant or in breach.

Quickest way: The income test for any LO question

When to use it: Use it when a question describes an activity of a liaison office and asks whether it is allowed.

Ask one question: does this activity earn money or create a commercial contract for the LO in India?
If yes, it is not permitted. Say the LO must not do commercial, trading or industrial activity.
If no, check that it fits one of the four heads: representing, promoting trade, promoting collaboration, or communicating.
Check how costs are met. Only inward remittances from the head office are allowed.
Write the conclusion and mention that the AAC would report any breach.

Common mistakes in Liaison Office: Scope, Activities and Approval

Treating an LO like a branch office and allowing it to trade or earn commission
Both are offices of a foreign company in India and students mix up their permitted activities.
Fix: Remember that an LO is non-revenue only. A branch office can carry out the specified activities that earn income. An LO cannot.
Saying an LO can meet expenses from income earned in India
Students think an office should fund itself locally.
Fix: State that the LO has no income. Every expense is met by inward remittance from the head office through normal banking channels.
Applying only the net worth test and ignoring the profit track record, or the reverse
Students remember one number and forget the second condition.
Fix: Write both conditions: net worth of at least USD 50,000 and profits in each of the three preceding financial years.
Saying RBI approval is always needed
Students remember RBI as the FEMA regulator.
Fix: Say that applications generally go through an AD Category-I bank. RBI or Government approval is needed only in specified cases.
Forgetting the annual activity certificate or giving the wrong person to issue it
It is a post-approval compliance and is skipped when learning the setup steps.
Fix: Write that a Chartered Accountant issues the AAC every year, due by 30 September, and that it confirms permitted activities and funding.
Listing activities from memory, such as 'providing consultancy for a fee'
Students add plausible activities that are really revenue-earning.
Fix: Stick to the four permitted activities and run the income test before adding anything else.

Worked examples

Example 1

Helmgate GmbH, a German company, wants to open a liaison office in Pune. Its latest audited balance sheet shows a net worth of USD 75,000. It made profits in two of the last three financial years and a loss in the third. Is it eligible?

Show the solution

An applicant must satisfy two conditions: net worth of at least USD 50,000 and a profit-making track record in the home country during the immediately preceding three financial years.
Net worth test: USD 75,000 is more than USD 50,000, so this condition is met.
Profit test: Helmgate made a loss in one of the three years. The track record is therefore not satisfied.
Both conditions must be met, so passing one test is not enough.

Answer: Helmgate GmbH is not eligible under the standard conditions. It meets the net worth requirement but fails the three-year profit record. It could reapply once it has made profits in each of the three preceding years, or approach the AD bank to see whether any other route applies.

Example 2

The Mumbai liaison office of a Japanese manufacturer meets Indian buyers, negotiates prices, signs sale contracts in its own name and collects payment in an Indian bank account. It also uses this money to pay its rent and salaries. Examine whether this is permitted.

Show the solution

An LO may only do non-revenue activities: representing the parent, promoting exports and imports, promoting collaboration, and acting as a communication channel.
Negotiating and signing sale contracts in its own name and collecting payment are commercial activities. They are outside the four permitted heads.
Collecting payment means the LO earns income in India. An LO must not earn any income.
Paying rent and salaries from this income breaches the funding rule. All LO expenses must be met from inward remittances from the head office through normal banking channels.
The annual activity certificate from the Chartered Accountant must confirm that only permitted activities were done and that expenses came from inward remittances. This LO could not honestly give that certificate.

Answer: The activities are not permitted and the funding is a breach. The LO may only promote the parent's exports and communicate with Indian customers. Contracts and receipts must be handled by the parent directly, or the company should seek a branch office or subsidiary if it wants to trade in India. All LO costs must be met by remittances from Japan.

Exam tips

Write the four permitted activities in the same order every time. Examiners look for all four.
When a question gives facts, apply the income test first. It settles most scope questions in one line.
Quote both eligibility tests with the numbers: USD 50,000 net worth and three years of profits.
Mention the AD Category-I bank as the approval route, and add that RBI or Government approval applies to specified cases. Do not say RBI approval is always required.
End a long answer with the post-approval compliance: Registrar of Companies filing, PAN and the annual activity certificate by 30 September.

Practice questions from Setting up of Branch Office, Liaison Office and Wholly Owned Subsidiary by Foreign Company

Liaison Office: Scope, Activities and Approval: frequently asked questions

What activities can a liaison office in India carry out?

It can represent the parent company in India, promote exports and imports, promote technical or financial collaboration with Indian companies, and act as a communication channel between the parent and Indian companies. It cannot do any commercial, trading or industrial activity. It cannot earn income in India.

Who approves a liaison office in India?

Applications are generally made to an Authorised Dealer Category-I bank, which approves in most cases. Applicants from certain countries or in sensitive sectors need prior RBI or Government approval. Check the current RBI Master Direction for the exact list.

How is a liaison office funded?

Its expenses must be met entirely from inward remittances sent by the head office through normal banking channels. The LO has no income of its own in India. Using local receipts to pay costs is a breach.

What is the annual activity certificate for a liaison office?

It is a certificate from a Chartered Accountant confirming that the LO carried out only permitted activities and that its expenses were met through inward remittances. It is filed every year by 30 September with the AD bank and the other authorities named in the Master Direction.

What is the difference between a liaison office and a branch office?

A liaison office does non-revenue work only and earns no income. A branch office can carry out specified activities that earn income, such as exporting or importing goods and rendering professional or consultancy services. Branch office rules are covered under a separate topic.