This story is from July 16, 2018

GST not payable on reimbursement of costs to liaison offices by foreign companies

GST not payable on reimbursement of costs to liaison offices by foreign companies
MUMBAI: The Authority for Advance Rulings (AAR) – has recently held that payments made by a foreign company to reimburse the expenses of its liaison office in India, will not be subject to GST.
Setting up a liaison office in India, is typically the first step for many foreign companies, as they test the waters for setting foot in India. A liaison office, which is required to be registered with the Reserve Bank of India (RBI) is not permitted to carry on any commercial activities, rather it acts as a communication channel between the parent company and Indian parties.
The entire expenses of the liaison office are to be met exclusively out of funds received from abroad through normal banking channels.
In this case, which was heard by the AAR – Rajasthan bench, the Jaipur based liaison office of the Dutch furniture manufacturer, Habufa Meubelen, sought a ruling on whether the reimbursement of expenses and salary paid to the liaison office by its head office would be subject to GST. The Netherlands head office reimbursed its liaison office for expenses incurred by it, such as salary, rent, security, electricity, travel etc.
The AAR observed: The applicant (ie: liaison office) does not have any other source of income and it is solely dependent on the head office for reimbursing all the expenses incurred by it. Therefore, the head office and the liaison office cannot be treated as separate persons. Thus, there cannot be any flow of services between them as one cannot provide service to self. Based on this reasoning the AAR concluded that – the reimbursement of expenses made by the head office cannot be treated as consideration towards any service. In the absence of any service being provided there can be no levy of GST, concluded the AAR. The AAR bench further held that the liaison office is not required to get itself registered under GST.
author
About the Author
Lubna Kably

Lubna Kably is a senior editor, who focuses on various policies and legislation. In particular, she writes extensively on immigration and tax policies. The Indian diaspora is the largest in the world; through her articles she demystifies the immigration-policy related developments in select countries for outbound students, job aspirants and employees. She also analyses the impact of Income-tax and GST related developments for individuals and business entities.

End of Article
FOLLOW US ON SOCIAL MEDIA