GST Exemption on Foreign Parent Expense Reimbursements to Indian Liaison Office
Rajasthan AAR ruled that foreign head office expense reimbursements to its Indian liaison office are not subject to GST or registration.
- Ruling
- ADVANCE RULING NO. RAJ/AAR/2018-19/05 Dated 16.06.2018
- Dated
- 16 Jun 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Liaison office asked if expense reimbursements from foreign parent entity attract GST.
- AAR ruled cost reimbursements for salaries and rent are not taxable supplies.
- Indian liaison offices making no taxable supplies do not require GST registration.
- Foreign head office and Indian liaison office are considered the same legal entity.
In short
Habufa Meubelen B.V., a company based in the Netherlands, set up a liaison office in Jaipur to handle quality control and coordinate with Indian suppliers under Reserve Bank of India (RBI) rules. The liaison office earns no independent income, charges no fees, and relies entirely on funds sent by its overseas head office to pay for rent, utilities, and employee salaries. The company asked tax authorities whether receiving these expense reimbursements counted as providing a taxable service under Goods and Services Tax (GST) and if the office needed a GST registration.
What has changed
How it worked before
Foreign companies operating liaison offices in India were unsure if money sent from overseas to pay local expenses counted as payment for services, raising fears of unexpected tax bills and registration burdens.
What has changed
The Rajasthan Authority for Advance Ruling (AAR) decided in order RAJ/AAR/2018-19/05 that money sent by a foreign head office to its Indian liaison office is merely an expense reimbursement. Because a company and its liaison office are the same legal entity, the office cannot provide a service to itself under GST law. Since the liaison office makes no taxable supplies and charges no fees, it does not need to pay GST on these funds or obtain a GST registration.
Who this affects
Foreign businesses running liaison offices in India that work strictly under RBI conditions without charging fees or making commercial sales.
An example
A foreign home decor brand opens a liaison office in Jaipur solely to inspect products from local manufacturers before shipment. The foreign home office sends exact funds each month to cover office rent and staff salaries, without paying any extra fee or commission. The liaison office issues no invoices and earns no revenue in India. Based on the logic of this ruling, those monthly transfers are non-taxable expense reimbursements, meaning the office does not need to register for GST.
What you should do
Review your Indian office operations to confirm that you only perform liaison work and collect actual cost reimbursements without any profit markup. Remember that an advance ruling binds only the company that applied and its specific tax officer, so this decision is not an automatic law for everyone. If your tax officer raises questions, you can show them this ruling to explain your position, but you may need your own advance ruling for legal safety.
If you do nothing
If your liaison office steps outside RBI guidelines by charging commissions, taking fees, or making commercial sales, tax officers can treat your transfers as taxable income. Relying on this ruling without checking your actual business setup leaves you vulnerable to back taxes, interest, and penalties during an audit. If a tax officer finds commercial activity, you could be forced to register retroactively and pay GST on all money received from abroad.
The terms explained
- liaison office
- An office set up in India by a foreign company to act as a channel of communication, strictly prohibited from earning income or engaging in direct commercial activities.
- supply of service
- Any business transaction where one party provides an activity or facility to another in exchange for payment or benefit under GST rules.
- input tax credit
- A system under GST that lets registered businesses deduct the tax they paid on purchases from the tax they collect on sales.
The ruling in detail
Authority for Advance Ruling
M/s Habufa Meubelen B.V. (Indian Liaison Office)
ADVANCE RULING NO. RAJ/AAR/2018-19/05 Dated 16.06.2018 · Rajasthan
Questions before the authority
- Whether the reimbursement of expenses and salary paid by M/s Habufa Meubelen B.V.(HO) to the liaison office established in India is liable to GST as supply of service, especially when no consideration for any services is charged/ paid.
- Whether the applicant i.e. the Liaison Office is required to get registered under GST?
- If it is assumed that the reimbursement of expenses and salary claimed by liaison office is a consideration towards a service, then what will be the place of supply of such service?
Facts
The applicant is the Indian Liaison Office of M/s Habufa Meubelen B.V., Netherlands, established in Jaipur with prior RBI permission to conduct quality control and liaison activities with Indian suppliers. The liaison office does not undertake any commercial, trading, or industrial activity, has no independent revenue or clients, and does not charge any fee or commission. All operational expenses including employee salaries, rent, and utilities are reimbursed on an actual cost basis by the foreign Head Office through normal banking channels.
Ruling
| Question | What the authority ruled |
|---|---|
| Reimbursement of expenses and salary by HO to Liaison Office | Not liable to GST Provided the liaison office does not render consultancy or other services directly/indirectly or possess significant commitment powers on behalf of HO. |
| Requirement of GST registration for Liaison Office | Not required to get registered under GST As the applicant makes no taxable supplies under Section 22 of the CGST Act. |
The AAR ruled that the **reimbursement of expenses and salary** paid by the foreign Head Office to its Liaison Office in India is **not liable to GST** as a supply of service. Consequently, the Liaison Office is **not required to obtain GST registration** as it makes no taxable supplies.
Reasoning
The Authority observed that under Section 7 of the CGST Act 2017, a supply requires consideration unless specified under Schedule I. The foreign Head Office and its Liaison Office are not distinct legal entities, and **one cannot supply service to oneself**. Since no fee or consideration is charged by the Liaison Office, the receipt of funds from the Head Office is merely a reimbursement of expenses. Furthermore, as the Liaison Office makes no taxable supplies, the registration requirements under Section 22 and Section 24 of the CGST Act 2017 do not apply.
Provisions relied on
- Section 7 of CGST Act 2017
- Section 9 of CGST Act 2017
- Section 22 of CGST Act 2017
- Section 24 of CGST Act 2017
- Section 2(102) of CGST Act 2017
- Schedule I of CGST Act 2017
- Schedule II of CGST Act 2017
For the practitioner
This ruling establishes that an Indian **liaison office operating strictly within RBI conditions** without independent revenue or commercial contracts is not providing a taxable service to its parent entity. Pure expense reimbursements do not attract GST, relieving such offices from **GST tax liability and registration**. It does not apply if the liaison office undertakes commercial activities or charges a fee.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/raj.05.2018-19_dtd_16.06.18-hmbv.pdf
Legibility of the scan, as read: high.
Prepared 19-10-2026.
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