Liaison office is setup by a foreign company in India to facilitate and promote the parent company's business activities, and act as a communications channel between the foreign parent company and Indian companies. The role of Liaison Office is limited to collection of information, promotion of exports/imports and facilitate technical/financial collaborations. Liaison office cannot undertake any commercial activity directly or indirectly. The company cannot have any revenue for the Indian Liaison office, It has to meet all its expenses of Indian office through remittances from the Head office.
Liaison office is suitable for a foreign company to test and understand the Indian market, as it does not allow the companies to do business but just to be in the market and understand the Indian market or carry out the Research & Development activities or to understand the problem of existing clients of the company and serve them better. The Foreign Exchange Management Act (FEMA) governs the application and approval process for the establishment of a liaison or branch office. Under the Act, foreign enterprises must receive specific approval from the RBI to operate a liaison office in the country.
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