Set Up a Liaison Office in India from Israel

How to Set Up a Liaison Office in India from Israel

India and Israel share a thriving economic partnership, with bilateral trade valued at approximately USD 3.9 billion in 2024 and more than 300 Israeli companies already invested in the Indian market. In September 2025, the two nations signed a bilateral investment agreement to further deepen cooperation, and negotiations toward a Free Trade Agreement gained fresh momentum. For Israeli companies that want to explore the Indian market without immediately committing to a full commercial presence, a Liaison Office (LO) offers a low-risk entry point.

A Liaison Office is a representative office established by a foreign company in India for the sole purpose of carrying out non-commercial, liaison activities. It acts as a communication bridge between the Israeli parent company and potential Indian partners, clients, or suppliers. Unlike a Branch Office or a Private Limited Company, a Liaison Office cannot generate revenue in India — all operating expenses must be funded entirely through inward remittances from the Israeli head office.

The establishment of a Liaison Office requires prior approval from the Reserve Bank of India (RBI). The application is submitted through an Authorised Dealer Category-I (AD Cat-I) bank using Form FNC. Because Israel is not on the restricted countries list under Press Note 3 of 2020, Israeli applications follow the general permission route, ensuring a smoother process without additional security clearance requirements.

A Liaison Office is particularly suitable for Israeli technology companies exploring the Indian IT market, agricultural technology firms assessing opportunities in India's agritech sector, defence companies seeking partnerships for "Make in India" projects, and professional services firms looking to build relationships before committing to a commercial entity.

FDI Route and Regulatory Requirements

The establishment of a Liaison Office in India is governed by the Foreign Exchange Management (Establishment in India of a Branch or Office) Regulations, 2016, with proposed amendments under the RBI's draft 2025 regulations designed to streamline the framework further.

Key regulatory requirements for Israeli companies:

• RBI approval: Prior approval from the RBI is mandatory. The application is filed through an AD Category-I bank using Form FNC. For Israeli companies, the AD bank can process the approval under the general permission route, as Israel is not a country subject to additional RBI Central Office scrutiny.
• Eligibility criteria: The Israeli parent company must demonstrate a profit-making track record for the preceding three financial years in its home country. If the company does not meet this requirement, a Letter of Comfort from the parent company or group entity meeting these criteria can serve as an alternative. Note that the RBI's 2025 draft regulations propose removing minimum net worth and track record thresholds, though as of March 2026, the existing criteria remain in effect.
• Permitted activities: A Liaison Office is strictly limited to non-commercial activities: representing the parent company in India, promoting export from India and import to India, promoting technical and financial collaborations between the parent company and Indian entities, and acting as a communication channel between the Israeli head office and Indian parties.
• Prohibited activities: A Liaison Office cannot earn any income in India. It cannot engage in trading, provide services for consideration, execute contracts, or carry out any commercial, industrial, or trading activity. All expenses must be met through remittances from the foreign head office.
• Press Note 3 exemption: Israeli companies are fully exempt from the Press Note 3 restrictions that apply to entities from countries sharing a land border with India (China, Pakistan, Bangladesh, etc.).

The initial approval is granted for a period of three years. Extensions are available for subsequent three-year periods through the AD bank with prior RBI approval. The RBI's 2025 draft regulations propose removing the three-year tenure cap, allowing for longer-term operational planning.

DTAA Benefits for Israeli Investors

The India-Israel Double Taxation Avoidance Agreement (DTAA), in force since 1996 and amended by a Protocol signed in October 2015, provides important tax benefits relevant to Liaison Office operations.

Key DTAA provisions relevant to Liaison Offices:

• Permanent Establishment (PE) risk: A Liaison Office, by its nature, should not constitute a Permanent Establishment (PE) in India because it is restricted to preparatory and auxiliary activities. However, if the LO exceeds its permitted scope — for instance, by negotiating contracts or earning income — it may trigger PE status under the DTAA, exposing the Israeli parent company to Indian taxation on attributable business profits.
• Interest: 10% withholding tax rate on interest payments under the DTAA (compared to the domestic rate of 20%).
• Royalties: 10% withholding tax rate on gross royalty payments.
• Fees for Technical Services (FTS): 10% withholding tax rate.
• Dividends: 10% withholding tax rate under the treaty.
• No business income tax: Since a properly operated Liaison Office does not earn income in India, it should not have taxable business profits. However, the office must still file an income tax return and maintain proper books of accounts to demonstrate compliance.

Israeli companies should obtain a Tax Residency Certificate (TRC) from the Israeli tax authority to claim treaty benefits. The 2015 Protocol to the India-Israel DTAA updated certain provisions, so companies should ensure they apply the most current treaty rates.

Document Requirements and Authentication

Israel is a member of the Hague Apostille Convention, which means all documents originating from Israel need only be apostilled — a simplified authentication process — rather than undergoing full embassy legalisation. The Israeli Ministry of Foreign Affairs and other designated competent authorities can issue apostille certificates.

Documents required for establishing a Liaison Office in India:

• Certificate of incorporation: Of the Israeli parent company, apostilled by the Israeli Ministry of Foreign Affairs
• Memorandum and Articles of Association: Or equivalent constitutional documents of the Israeli company, apostilled
• Board resolution: Authorising the establishment of a Liaison Office in India, specifying the liaison activities and the authorised representative, apostilled
• Latest audited financial statements: For the preceding three financial years, demonstrating profitability and financial standing, apostilled
• Power of attorney: In favour of the authorised representative in India, apostilled
• Banker's certificate: From the Israeli parent company's principal banker, confirming the company's financial standing and transaction history
• Passport and address proof: Of the authorised signatory and the person designated to head the Liaison Office in India
• Form FNC: Completed application form for submission to the AD bank
• Activity plan: Detailed description of proposed liaison activities and how the office will support the parent company's business objectives in India

For documents in Hebrew, certified English translations must be obtained and notarised in Israel before the apostille is affixed. The apostille fee in Israel ranges from ILS 100 to ILS 300 per document.

Step-by-Step Registration Process

Setting up a Liaison Office in India from Israel follows a structured regulatory process, beginning with RBI approval and concluding with registration at the Registrar of Companies (RoC).

Step 1: Select an Authorised Dealer Bank

Choose an AD Category-I bank in India to act as the intermediary between the Israeli company and the RBI. Major banks such as State Bank of India, HDFC Bank, ICICI Bank, and Axis Bank handle these applications. The AD bank will review, process, and forward the application to the RBI.

Step 2: Prepare and Submit Form FNC

Complete Form FNC with details of the Israeli parent company, proposed liaison activities, office location in India, funding plan (inward remittance commitments), and the authorised representative. Submit the form along with all apostilled supporting documents through the AD bank.

Step 3: Obtain RBI Approval

The RBI examines the application, verifying the Israeli company's financial track record, proposed activities, and compliance with FEMA regulations. For standard Israeli company applications under the general permission route, the AD bank itself can grant approval. Approval is typically valid for an initial period of three years.

Step 4: Register with the Registrar of Companies (RoC)

Within 30 days of establishing the Liaison Office, file Form FC-1 with the RoC under Section 380 of the Companies Act, 2013. This form requires details of the parent company, LO address, authorised representative, and a copy of the RBI approval letter.

Step 5: Obtain PAN

Apply for a Permanent Account Number (PAN) for the Liaison Office using Form 49AA for non-resident entities. While a Liaison Office typically has no taxable income, PAN is required for filing tax returns and for any banking transactions.

Step 6: Open a Bank Account

Open a current account with the designated AD bank for receiving remittances from the Israeli head office. The Liaison Office operates through an Indian Rupee current account. All expenses — rent, salaries, utilities — must be funded exclusively through inward remittances from the parent company.

Step 7: Obtain Unique Identification Number (UIN)

The RBI allots a UIN to the Liaison Office, which serves as the reference number for all subsequent regulatory filings. The AD bank reports the establishment details to the RBI, which then issues the UIN.

Timeline and Costs

The typical timeline for setting up a Liaison Office in India from Israel is 6-10 weeks end-to-end, driven primarily by the RBI approval process.

Professional fees for the entire Liaison Office setup typically range from INR 40,000 to INR 1,20,000 depending on the complexity of the application and the service provider. Additional costs include office lease (required for the physical office address), staffing of the representative, and initial operational expenses. Unlike a Branch Office, a Liaison Office has lower ongoing costs because its activities are narrower and it does not generate revenue.

For companies seeking professional assistance, consider our Liaison Office registration service.

Post-Registration Compliance

A Liaison Office in India has specific ongoing compliance obligations under both the Companies Act and FEMA regulations:

• Annual Activity Certificate (AAC): The Liaison Office must submit an Annual Activity Certificate from its auditor to the AD bank, confirming that the office is carrying out only permitted liaison activities and that all expenses are met through inward remittances. This is a critical compliance requirement — non-submission can lead to RBI penalties.
• Annual Accounts Filing: File financial statements of the Liaison Office with the RoC within 60 days of the end of the financial year using Form FC-3, along with Form FC-4 listing places of business in India. See annual compliance services.
• Income Tax Return: Even though a Liaison Office should have no taxable income, it must file an annual income tax return. The return demonstrates to the tax authorities that the LO has not earned income in India and has operated within its permitted scope.
• GST Registration: Generally not required since the Liaison Office does not provide taxable services. However, if the LO receives services from outside India (reverse charge mechanism), GST registration and compliance may be triggered.
• RBI Annual Return on Foreign Liabilities and Assets (FLA): Due by 15 July each year.
• Renewal of RBI Approval: The initial three-year approval must be renewed before expiry. The renewal application should be submitted at least 30 days before the approval lapses, through the AD bank with updated financial statements and an AAC.
• Annual Return with RoC: File Form FC-4 annually with the Registrar of Companies.
• Remittance documentation: All inward remittances from the Israeli head office must be properly documented through the AD bank for RBI records.

Common Challenges for Israeli Companies

Israeli companies setting up Liaison Offices in India commonly encounter the following challenges:

• No revenue generation: The most fundamental constraint of a Liaison Office is that it cannot earn any income in India. Israeli companies that anticipate needing to invoice clients, execute service contracts, or engage in commercial activities should consider a Branch Office or Private Limited Company instead.
• PE risk from scope creep: If the Liaison Office gradually expands its activities beyond pure liaison — for example, by negotiating contracts, making business decisions, or providing services — it risks being classified as a Permanent Establishment under the India-Israel DTAA. This would expose the Israeli parent company to Indian taxation on attributable business profits at the foreign company rate of 35% plus surcharge and cess.
• Three-year renewal cycle: The initial RBI approval is valid for only three years, requiring renewal applications with updated documentation. While the 2025 draft regulations propose removing this cap, the existing framework creates planning uncertainty for longer-term market exploration strategies.
• Limited operational flexibility: A Liaison Office cannot hire staff for commercial work, lease large office spaces, or maintain inventory. It is designed purely for representational activities, which limits how effectively it can support the parent company's market entry.
• Hebrew document translation: Israeli corporate documents in Hebrew require certified English translations and notarisation before apostille. This adds approximately 3-5 business days and additional cost to the documentation timeline.
• Conversion to commercial entity: There is no direct mechanism to convert a Liaison Office into a Branch Office, Private Limited Company, or any other commercial entity. The Israeli company would need to separately incorporate the desired entity and then close the Liaison Office through the RBI closure process, which itself can take 3-6 months.
• Closure complexity: Closing a Liaison Office requires RBI approval, a No Objection Certificate from the Income Tax Department, and filing Form FC-2 with the RoC. The process can take 3-6 months and involves settling all liabilities and obtaining clearances from multiple regulatory bodies.
• Banking limitations: The Liaison Office bank account can only receive inward remittances from the Israeli head office. Any other credits or receipts could raise regulatory red flags and jeopardise the LO's compliance status.

Frequently Asked Questions

Can an Israeli Liaison Office earn revenue in India?

No. A Liaison Office is strictly prohibited from earning any income in India. It can only carry out non-commercial liaison activities such as representing the parent company, promoting trade, and facilitating technical or financial collaborations. All expenses must be funded entirely through inward remittances from the Israeli head office. If your company needs to generate revenue, consider a Branch Office or Private Limited Company.

What happens if the Liaison Office exceeds its permitted activities?

Operating beyond the approved liaison activities is a violation of FEMA regulations and can result in penalties imposed by the RBI, including fines and potential forced closure of the office. Additionally, exceeding the scope may trigger Permanent Establishment status under the India-Israel DTAA, creating tax liability for the Israeli parent company on attributable business profits in India.

How long is the initial RBI approval valid?

The initial RBI approval for a Liaison Office is valid for three years. The Israeli company must apply for renewal at least 30 days before the approval expires, submitting updated financial statements and an Annual Activity Certificate through the AD bank. The RBI's 2025 draft regulations propose removing the three-year tenure cap, but as of March 2026, the existing framework applies.

Does an Israeli Liaison Office need to file income tax returns?

Yes. Even though a Liaison Office should have no taxable income, it must file an annual income tax return in India. The return serves as a declaration that the LO has not earned income and has operated within its permitted scope. Failure to file can result in penalties and complications during renewal or closure.

Can a Liaison Office be converted into a Private Limited Company?

There is no direct conversion mechanism. The Israeli company would need to separately incorporate a Private Limited Company or other commercial entity in India, and then apply to close the Liaison Office through the RBI process. The closure involves obtaining NOCs from the Income Tax Department and filing the necessary forms with the RoC.

What is the Annual Activity Certificate (AAC)?

The AAC is a certificate issued by the Liaison Office's auditor, confirming that the office has carried out only the activities permitted by the RBI and that all expenses have been funded through inward remittances from the foreign head office. It must be submitted annually to the AD bank. Non-submission is treated as a compliance violation and can lead to RBI penalties or refusal of renewal.

Is GST registration required for a Liaison Office?

Generally, no. Since a Liaison Office does not provide taxable services or earn income, GST registration is not required. However, if the LO imports services from outside India (which triggers the reverse charge mechanism under GST), it may need to register for GST and comply with the relevant filing requirements.