Saturday, February 26, 2011

FOREIGN TECHNOLOGY COLLOBORATIONS PAYMENTS –ROYALTY PAYMENTS


Royalty and Foreign Technical collaboration payment are governed by the RBI circular AP ( DIR Series) Circular No 5 dated 21 July 2003. Earlier ,only wholly owned subsidiaries are allowed to pay royalty to offshore parent companies abroad without any restriction on the duration of payment under the automatic route.

Earlier, under  liberalized  the foreign technology collaboration agreement policy through Press Note No 2 (2003 Series) dated 24 -06-2003 , irrespective of who have entered into foreign technology collaboration agreements were  permitted on the automatic approval route to make royalty payments at 8% on exports and 5% on domestic sales without any restriction on the duration of royalty payments.

 
Can shares be issued against Lumpsum Fee, Royalty and ECB?

 An Indian company eligible to issue shares under the FDI policy and subject to pricing guidelines as specified by the Reserve Bank from time to time, may issue shares to a person resident outside India :
     i.        being a provider of technology / technical know-how, against Royalty / Lumpsum fees due for payment; and
    ii.        against External Commercial Borrowing (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI Guidelines).
Provided, that the foreign equity in the company, after the conversion of royalty / lumpsum fee / ECB into equity, is within the sectoral cap notified, if any.
RBI has delegated the powers, to make payments for royalty, lumpsum fee for transfer of technology and payment for use of trademark/brand name in terms of the foreign technology collaboration agreement entered by the Indian company with its foreign partners, to the AD banks subject to compliance with the provisions of Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Foreign / technical Collaboration / technology transfer – Royalty or technology transfer fees

Automatic route:

The Government of India has reviewed the extant policy vide the press note no 8 (2009  series ) dated 16th December 2009 and it has been decided to permit, with immediate effect, payments for royalty, lumpsum fee for transfer of technology and payments for use of trademark/brand name on the automatic route without any limit as stated in the following table  i.e. without any approval of the Government of India. All such payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended from time to time.

PROCEDURE FOR MAKING ROYALTY PAYMENTS

For making Royalty payment following activities to be completed.

1.     TDS @10% ( to be updated with the necessary rates) has to be paid on the Royalty amount and obtain challan from banker.

2.     R&D Cess @ 5% has to be paid to Reserve Bank of India and obtain proof of payment (challan copy) form the RBI.

3.     Obtain certificate from Chartered Accountant in form 15CB and submit to Income Tax Department as to TDS has been deducted and remitted to the government as per the provisions of Income Tax Act and Double Taxation Avoidance Agreement between India and "The Parent Company Country" &

4.     Obtain TCR Report from Chartered Accountant confirming that TDS and R&D Cess has been remittance to the RBI and submit to the banker to make payment.

5.     Based on the inputs given to the Income Tax department Form 15CA will be generated from the Income Tax website and submit the same to banker to make payment.

Only after completing these activities and providing these documents to the bankers payment can be effected.


R.V.Seckar
919848915177

Details
With effect from
16-12.2009,  after issue of Press Note 8 (2009 series)
Lump sum payments
No limit now
Royalty payable
No limits - subject to FEMA  (Current Account Transactions) Rules, 2000 
Duration of royalty payments
No Limits
Royalty limits are
Net of taxes and are calculated according to standard conditions

6 comments:

  1. Dear Readers,

    If you need further info or clarification on the subject, please revert to me at rvsekar2007@gmail.com

    Regards

    R.V.Seckar

    ReplyDelete
  2. Please let us know the procedure for obtaining RBI approval for payment of Royalty/Technical know fee for trademark and technical know how for Infrastructure company

    Rgds Mohan

    ReplyDelete
  3. Could anybody tell me the valuation rules for these royalty calculations - is it cost of sales or something else..

    ReplyDelete
  4. My cousin recommended this blog and she was totally right keep up the fantastic work!







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  5. The blog was absolutely fantastic! Lot of great information which can be helpful in some or the other way. Keep updating the blog, looking forward for more contents...Great job, keep it up..
    Collaboration technology

    ReplyDelete
  6. Hello,

    Nice and informative. Please tell me whether government has renewed TDS rate or still it remains same?. I need to register my business for collaboration device so need your help.

    ReplyDelete