Procedure for Closure of Liaison Office, Project Office or Branch Office in India

The economies across the world have opened up and India is aggressively allowing companies to ‘Make in India’. Opening a Liaison Office (LO), Project Office (PO) or Branch Office (BO) is the ideal option for foreign companies to establish their presence in India and conduct their operations. But what if the purpose of opening these offices is fulfilled or the companies are no longer operating in India?

They have to close the LO, PO or BO. But what is the procedure to close LO/BO in India? Let’s find out!

Validity Period of LO/PO in India

Liaison offices or branch offices are governed by the Foreign Exchange Management Act and rules and regulations made thereunder. It comes with a fixed validity period. The validity period of the liaison office is generally 3 years. However, it can be extended by a further period of 3 years if required. In the case of a project office, the validity period depends upon the validity of the project for which the office was opened. Once the validity period expires, the foreign companies shall close the liaison or project office.

The Process to Close LO/PO

The process of closing the LO/PO involves both intimating the AD Category-I Bank as well as the Registrar of Office (ROC). Here’s the complete process for the same:

Application to AD Category-I Bank

1. The concerned applicant needs to make an application for closure of LO/PO and remittance of winding-up proceeds to the concerned AD Category-I bank.
2. The application should be submitted along with all the necessary documents for closure of LO/PO. These include:

• The RBI’s or AD Category-I bank approval for establishing the LO/PO.
• Certificate of auditor certifying the following:
  • Manner of computing the winding up proceeds, statement of assets and liabilities and the manner of disposal of assets.
  • Confirmation that all the liabilities in India are paid off, including the arrears of gratuity and other employee benefits.
  • Confirmation that no income accruing from sources outside India has remained unrepatriated to India.
  • Confirmation that there are no legal proceedings pending against the LO/PO/BO in India.
• A report from the ROC relating to compliance with the provisions of the Companies Act, 2013.
• Any other document as may be required.

3. The AD Category-I bank will confirm that the LO/PO/BO has complied with all the provisions applicable therein.
4. All the documents shall be executed and signed by the authorised person. In case the documents are executed and signed outside India, then they should be duly notarised and apostilled.
5. The designated AD Category-I bank will report to the RBI along with a declaration that all the requisite documents have been submitted by the LO/PO/BO, they have been scrutinised and found in order.
6. The AD Category-I bank shall forward all the documents to RBI, if required along with any additional documents.
7. After the AD Category-I bank finds everything in order, it shall proceed to close the LO/PO/BO along with their bank accounts.

Application to the Registrar of Companies

If the LO/PO/BO is registered with the ROC, then the concerned applicant shall make an application for closure of LO/PO/BO to the ROC as well. However, before making such an application, it should ensure that all the annual compliances have been updated in the records of the ROC. Here are the steps to close the LO/PO/BO with the ROC:

1. Preparation of all the documents for winding up of LO/PO/BO including all the board resolutions.
2. All the documents shall be executed and signed by the authorised person. In case the documents are executed and signed outside India, then they should be duly notarised and apostilled.
3. The LO/PO/BO should file in the respective e-form with the ROC for its closure in India.
4. The ROC will scrutinise the application along with other supporting documents. If everything is found in order, then it shall issue a certificate for the closure of LO/PO/BO.

Remittance of Winding Up Proceeds

Apart from the application for closure of LO/PO/BO, an application for remittance of the winding-up proceeds to the parent entity shall also be filed. The proposal for remittance of winding-up proceeds should be considered for only those entities who have followed the operational guidelines. The remittance should be allowed subject to the following conditions:

1. Transfer of assets by way of sale shall be allowed only if the foreign company intends to close the LO/PO/BO.
2. A certificate from the statutory auditor should be obtained stating the following information:

• Details of the assets to be transferred
• Original cost of assets
• Depreciation till date
• Written down value
• Sales consideration
• That the asset has not been revalued after initial recognition and the sales consideration does not exceed the book value.

3. The assets should have been acquired by the LO/PO/BO through inward remittance. Further, the assets should not contain any intangible assets. Also, revenue expenses shouldn’t be capitalised and transferred under the winding-up proceeds.
4. All the applicable taxes should have been paid.
5. The credits to the bank accounts in relation to such transfers should be considered as permitted receipts for remittance.
6. The AD Category-I bank shall allow the remittance of winding-up proceeds after obtaining the copies of approval for closure of LO/PO/BO in India from the sectoral regulators along with the requisite documents.

Following was the complete process for closure of the LO/PO/BO and remittance of the winding-up proceeds. In case you need any assistance in relation to the closure of LO/PO/BO in India, feel free to contact the ASC Group.

Also check: Procedure of Setting up of a Liaison office in India

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