Closing a Foreign Company in India

Any foreign entity operating in India under Sec 2(42) if wishes to shut its business can do that simply by taking NOC from the ROC by filing its annual returns and form FC-2 along with other details.

What is a foreign subsidy?

A foreign company can be defined under Section 2(42). A foreign as any company or body corporate incorporated outside of India which—

• A part of its business is situated in India by itself or by an agent either physically or through electronic mode
• It is carrying out business activities in India in a different manner.

What is a Liaison office?

A Liaison Office (LO) or Representative Office is a representative office set up primarily to explore and understand the business and other non-transactional operations. A Liaison Office can undertake only liaison activities thus limiting the role of these offices to collect information about market opportunities, supply source, information about the parent company and its products to the prospective Indian customers or vice versa to its vendor.

What are the activities carried out by the Liaison office?

Following activities are carried by the Liaison or the representative offices:

• They represent their parent company or group companies in India.
• They promote export and import to and fro in India.
• Promote technical and financial collaborations between parent or group companies and other companies in India.
• Act as a communication barrier between the parent company and the Indian company

What are the salient features of Liaison Company?

• The name of Indian liaison office has to be the same as the name of the Parent Company.
• The governing body for the Liaison office has to be an AD category bank or Reserve Bank of India.
• It is suitable for foreign Companies looking forward to setting up a temporary office in India to expand its existing business with Indian clients.
• The Liaison office holds no ownership rights. It is just a part of the existing foreign company.
• The head office fulfils all the expenses of the Liaison office
• The Liaison office is not subjected to taxation in India as there is no mechanism for the income tax department to examine and ascertain as to whether the activities undertaken by it result in any taxable income in India
• The Liaison offices hold an account with the AD category banks in India. This is a special account that only allows inflows from abroad. However, during the time of closure of the Liaison Office, RBI grants permission to repatriate the balance in the Indian bank account to the parent company

What is the procedure of closing the Liaison Office or Project Office?

Once the purpose of setting up a Liaison office is completed, the office has to be closed by taking approval for closure from the income tax department or ROC and AD or RBI. The detailed procedure is as followed:

Step - 1: Obtaining No Objection Certificate

The Liaison office needs to avail a NOC from Ministry of Corporate Affairs or Registrar of Companies for the closing of such offices.

To get NOC, all required details and forms like FC-2, FC-3 AND FC-4 have to be filed on an annual basis. If all the annual returns are duly filed then

• Annual Activity Certificate
• Undertaking from ROC
• Certificate from Auditors and Parent Company

Has to be submitted along with Form FC-2 for the closure of the place of business in India.

Step - 2: Approval from AD/RBI

One needs to hold a valid letter from RBI for the approval of operation of such businesses in India and a Financial statement as on date along with the status of assets in India. Details of annual returns filed and also the amount of remittance and Procedure of calculation of such remittance.

After obtaining the Letter of Approval and NOC from the Registrar of Companies, the foreign company office or Liaison office can finally shut its business in India