TRADE CREDITS FOR IMPORTS INTO INDIA

Trade Credits’ (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years.

Depending on the source of finance, such trade credits include suppliers’ credit or buyers’ credit. Suppliers’ credit relates to credit for imports into India extended by the overseas supplier, while buyers’ credit refers to loans for payment of imports into India arranged by the importer from a bank or financial institution outside
India for maturity of less than three years. It may be noted that buyers’ credit and suppliers’ credit for three years and above come under the category of External Commercial Borrowings (ECB) which are governed by ECB guidelines.

a) Amount and Maturity

AD banks are permitted to approve trade credits for imports into India up to USD 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the DGFT with a maturity period up to one year (from the date ofshipment). 

For import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date ofshipment). 

No roll-over/extension will be permitted beyond the permissible period.

AD banks shall not approve trade credit exceeding USD 20 million per import
transaction.

b) All-in-cost Ceilings
The current all-in-cost ceilings are as under :
Maturity period                                     All-in-cost ceilings over 6 months LIBOR*

Up to one year
More than one year but less                               200 basis points
than three years

* for the respective currency of credit or applicable benchmark

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

R.V.Seckar

rvsekar2007@gmail.com

919848915177

Liberalised Remittance Scheme of USD 75,000 for Resident Individuals

Under this Scheme, Authorised Dealers may freely allow remittances by resident individuals up to USD 75,000 per financial year (April-March) for any permitted current or capital account transactions or a combination of both.

·         The facility is available to all resident individuals including minors.

·         Remittances under the facility can be consolidated in respect of family members subject to individual family members complying with the terms and conditions of the Scheme.

·         Remittances under the Scheme are allowed only in respect of permissible current or capital account transactions or a combination of both. All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges / overseas counter party are not allowed under the Scheme.

·         Resident individuals are free to acquire and hold immovable property or shares (of listed companies or otherwise) or debt instruments or any other asset outside India without prior approval of the Reserve Bank.

·           The limits of USD 75,000 under the Scheme also include remittances towards gift and donation by a resident individual.

·         Remittances under the Scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.

·         The Scheme can also be used for remittance of funds for acquisition of ESOPs. The Scheme is in addition to acquisition of ESOPs linked to ADR / GDR and acquisition of qualification shares.

·         A resident individual can invest in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes, etc. under this Scheme. Further, the resident can invest in such securities out of the bank account opened abroad under the Scheme .

·         An individual who has availed of a loan abroad while as a non resident can repay the same on return to India under the Scheme as a resident.

·         The Scheme can be used for outward remittance in the form of a DD either in the resident individual’s own name or in the name of beneficiary with whom he intends putting through the permissible transactions at the time of private visit abroad, against self declaration of the remitter in the format prescribed.

·         Individuals can also open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the Scheme without prior approval of the Reserve Bank. The foreign currency accounts may be used for putting through all transactions connected with or arising from remittances eligible under this Scheme.

·         Banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under the Scheme.

·         The scheme is not available for remittances for any purpose specifically prohibited under Schedule I or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transaction) Rules, 2000.

·          The facility is not available for making remittances 

Precautions to be undertaken while making an application under this scheme:

All resident individuals are eligible to avail of the facility under the USD  75,000 scheme. However it is mandatory to have a PAN number to make a remittance under this scheme, and your account with any commercial bank in India must be at least 1 year old. This facility will not be available to corporate, partnership firms, HUF, Trusts, etc. Also, remittance cannot be done from any loan/overdraft account.

 It is also not permtted for remittance being made directly or indirectly to Nepal, Bhutan, Mauritius or Bhutan or to any country identified as a non-co-operative country by the Financial Action Task Force (http://www.fatf-gafi.org). Further, remittance for any payments in the nature of margin calls including for trading in foreign exchange are not permitted.

Further Clarification:

1.The facility is available to all resident individuals including minors. In case of remitter being a minor, the LRS declaration form should be countersigned by the minor’s natural guardian. Accordingly, the modified LRS application cum declaration form is enclosed;

ii. Remittances under the facility can be consolidated in respect of family members subject to individual family members complying with the terms and conditions of the scheme; and

 

iii. Remittances under the scheme can be used for purchasing objects of art subject to the provisions of other applicable laws such as the extant Foreign Trade Policy of the Government of India.

RBI/2011-12/430 March 06, 2012-A.P. (DIR Series) Circular No. 90

Investment in both Listed and unlisted shares are permitted now.

 In terms of the extant FEMA provisions LRS can be used to acquire both listed and unlisted shares of an overseas company. The Master Circular dated July 1, 2013 has been suitably modified.

Instances where more than $75000 per FY is allowed :

As per the current guidelines of LRS, only gift and donation (from the list of items under Schedule III to FEM CAT Rules, 2000), by a resident individual have been subsumed under the LRS limit. For all other purposes such as educational and medical expenses the limits of LRS and Schedule III to FEM CAT Rules 2000 are separate, distinct, mutually exclusive and over and above each other respectively.

In this context, it may be noted that under the extant guidelines under FEMA the following remittances can be made over and above the annual limit of USD 75000 permissible under LRS:

1. A resident individual can make remittances for meeting expenses for medical treatment abroad up to the estimate from a doctor in India or hospital/ doctor abroad  under general permission (without any RBI approval – Para 9 of Schedule III to FEM CAT Rules, 2000, as amended from time to time).
2. A resident individual can make remittances up to USD 25,000 for maintenance expenses of a patient going abroad for medical treatment or check-up abroad or for accompanying as attendant to a patient going abroad for medical treatment/ check-up (without any RBI approval – Para 8 of Schedule III to FEM CAT Rules, 2000, as amended from time to time).
3. A resident individual can make remittances for studies up to the estimates from the institutions abroad or USD 100,000, whichever is higher (without any RBI approval – Para 10 of Schedule III to FEM CAT Rules, 2000, as amended from time to time). This is over and above the remittance limit of USD 75,000 which can be made under the LRS route for the same.
4. A resident individual can also make all other remittances (other than donation and gifts) as stipulated under Schedules III to FEM CAT Rules, 2000, as amended from time to time. 
5. A resident individual can also carry out other permissible current account transactions (transactions which are not explicitly prohibited under Schedule I, or restricted under Schedules II and III, to FEM CAT Rules, 2000, as amended from time to time) without any limits through an AD Bank in India subject to the AD bank verifying the bonafides of the transaction (para 6 to Annex 1 of ADMA Circular No.11 dated May 16, 2000).

 
Therefore notwithstanding the revised guidelines and reduction in the LRS limit these guidelines do not affect genuine transactions. 

 Acquiring Immovable Property Abroad

Resident individuals are permitted to make remittances for acquiring immovable property within the annual limit of USD 75000 for already contracted cases, i.e. only for those contracts which were entered into on or before the date of the circular, i.e., August 14, 2013, subject to satisfaction of the genuineness of the transactions by the AD bank. Such cases should be immediately reported post facto to the Reserve Bank of India by the A D banks.

RBI/2013-14/222 A.P. (DIR Series) Circular No.32 dated 4th September 2013

R.V.Seckar

rvsekar2007@gmail.com

919848915177

Advance Remittance – Import of services

Authorised Dealers (Category-I banks) may allow advance remittance for import of services. However, where the amount exceeds USD 500,000 or its equivalent, a guarantee from a bank of International repute situated outside India or a guarantee from an Authorised Dealer in India, if such a guarantee is issued against the counter-guarantee of a bank of International repute situated outside India, should be obtained from the overseas beneficiary. 

The Authorised Dealer should also follow up to ensure that the beneficiary of the advance remittance has fulfilled his obligations under the contract or agreement with the remitter in India.

In the case of a Public Sector Company or a Department /Undertaking of the Government of India /State  Governments, approval from the Ministry of Finance, Government of India for advance remittance for import of services without bank guarantee for an amount exceeding USD 100,000 (US Dollars one hundred thousand only) or its equivalent is required. 

R.V.Seckar

rvsekar2007@gmail.com

919848915177

Issue of Guarantee- Import of services

Authorised Dealer may issue guarantee on behalf of their customers importing services, provided :

a.  the guarantee amount does not exceed USD 500,000

b.  the AD Category –I Bank is satisfied about the bonafides of the transaction.

c.  the AD Category –I Bank ensures submission of documentary evidence for import of services in the normal course.

d.  the guarantee is to secure a direct contractual liability arising out of a contract between a resident and a non-resident.

In the case of a Public Sector Company or a Department /Undertaking of the Government of India /State  Governments, approval from the Ministry of Finance, Government of India for issue of guarantee for an amount exceeding USD 100,000 (US Dollars one hundred thousand only) or its equivalent is required.

In case of invocation of the guarantee, the Authorised Dealer is required to submit to the Chief General Manager-in-Charge, Foreign Exchange Department, Foreign Investments Division (EPD), Reserve Bank of India, Central Office, Mumbai- 400001 a report on the circumstances leading to the invocation of the guarantee.

Can a Indian Company can extend loan or guarantee to its WOS or JV Company in Abroad?

An Indian Company can extend loan  to its JV / WOS and 100 per cent of guarantees issued to or on behalf of the JV/WOS.

The investments are subject to the following conditions:

a) The Indian party / entity may extend loan / guarantee only to an overseas concern in which it has equity participation. Indian entities may offer any form of guarantee - corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that:

i) All financial commitments including all forms of guarantees are within the overall ceiling prescribed for overseas investment by the Indian party i.e. currently within 400 per cent of the net worth as on the date of the last audited balance sheet of the Indian party;

ii) No guarantee is 'open ended' i.e. the amount and period of the guarantee should be specified upfront; and

iii) As in the case of corporate guarantees, all guarantees are required to be reported to the Reserve Bank, in Form ODI-Part II. Guarantees issued by banks in India in favour of WOSs / JVs outside India, would be outside this ceiling and would be subject to prudential norms, issued by the Reserve Bank (DBOD) from time to time.

The Indian party should not be on the Reserve Bank’s Exporters' caution list / list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body.

All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party.

GENERAL RESTRICTION FOR OPENING OF BRANCH / LIAISON /PROJECT OFFICE IN INDIA BY A FOREIGN ENTITY

GENERAL RESTRICTION FOR OPENING OF BRANCH  / LIAISON /PROJECT OFFICE IN INDIA BY A FOREIGN ENTITY.

 

No citizen of Afghanistan, Pakistan , Iran ,Bangladesh , Sri Lanka and China can establish in India  branch /Liaison / project office  or any other form of business without prior approval from Reserve Bank .

No branch/Liaison/branch office is allowed to be established in India by the partnership or proprietorship business set up abroad.

Business entities from Nepal are allowed to set up a Liaison office in India under the general permission category of Reserve Bank of India.

Branch / Project offices of a foreign company , excluding a Liaison Office are permitted to acquire property for their own use and to carryout permitted /incidental activities but not for leasing or renting out the property.

However, entities from Bangladesh, Pakistan, Sri Lanka, Afghanistan, Bhutan, Iran or China are not permitted to buy immovable property in India even for Branch office purpose. These entities are allowed to lease such property for a period of not exceeding five years.

Authorised Dealers are permitted to open non-interest bearing INR current accounts in India by the Branch /Project /Liaison Offices.

With a specific approval from the Central Office of the Reserve Bank, transfer of assets of Branch / Liaison Office to subsidiaries or other Liaison /Branch Offices is allowed.

Branch Offices of foreign entities are permitted to remit outside India any profit earned by such branch in India by netting off applicable Indian taxes , on submission of the following documents to the satisfaction of the Authorized dealer through whom such remittance is made;

·         A Certified copy of the audited Balance Sheet and Profit and Loss account for the relevant year.

·         A Chartered Accountant certificate certifying

a)    The manner of arriving at the remittable profit

b)   That the entire remittable profit has been earned by undertaking the permitted activities.

c)    The profit does not include any profit on revaluation of the assets of that branch .

R.V.Seckar

rvsekar2007@gmail.com

919848915177

Procedure for Establishment of Project Office in India

Establishment of Project Office in India

 Reserve Bank of India has given special permission to foreign companies to open project offices in India provided they have secured a contract from an Indian Company to execute a project in India and

·         The project is directly funded by way of inward remittance from abroad;

·         The project is funded by a multilateral or bilateral International Financing Agency ;

·         The Project has been cleared by an appropriate authority

·         A company or entity in India awarding the contract has been sanctioned by a Public Financial Institution or a bank in India for the project.

In case, if the above criterion have not been met, then such foreign entity has to approach the Reserve Bank of India, Central Office, for approval. 

Obligations on the part of Designated AD Category -1 Bank

AD Category -1 banks can open non-interest bearing Foreign Currency Account for Project Offices in India subject to the following:

·         The Project office has been established in India, with a specific/general permission of Reserve Bank of India , having the requisite approval from the concerned Project Sanctioning Authority .

·         The contract, under which the project has been sanctioned, specially provides for payment in foreign currency.

·         Two foreign currency accounts can be opened by each project office, usually one in home currency and the other in the USD, provided both are maintained with the same AD category -1 bank.

·         Only project related expenses will be allowed as a permissible deduction.

·         It is the AD who has been given power to decide whether an expense is a project related one or not. Further, the concurrent auditor of AD banker will have to scrutinize the nature debits and credits on continuous basis.

·         The foreign currency account of such project office has to be closed on the closure of such project office.

If the foreign contractor is having many project offices for different projects in India , for inter-project transfer of funds , prior approval from  the regional offices concerned under whose jurisdiction the project office is situated  is needed.

Procedure for Closure of Branch or Liaison Office or project office

Procedure for Closure of Branch or Liaison Office or Project Office

 

While closing down the Branch or Liaison offices, the company has to approach the designated AD Category -1 bank with the following documents:

Permission to remit winding up proceeds of branch/office (Other than Project Office)—

(1) A branch or office established in India by a person resident outside India may, for making remittance of its winding up proceeds, apply to the Authorised Dealer concerned supported by the following documents, namely :

(A) copy of the Reserve Bank’s permission for establishing the branch/office in India;

(B) Auditors certificate :—

(i) indicating the manner in which the remittable amount has been arrived and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;

(ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees etc. of the branch/office have been either fully met or adequately provided for;

(iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained unrepatriated to India; and

(iv) confirming that the branch/office has complied with all regulatory requirements stipulated by the Reserve Bank of India from time to time regarding functioning of such offices in India.

(C) no-objection or Tax clearance certificate from the Income-tax authority for the remittance;

(D) confirmation from the applicant that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance; and

(E) a report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the office in India.

(2) On consideration of the application made under sub-regulation (1), the authorised dealer concerned may permit the remittance subject to the directions issued by the Reserve Bank in this regard, from time to time.”

Obligations on the part of Designated AD Category -1 Bank

 

AD banker has to ensure that the LO/ BO had filed their respective Annual Activity Certificates with RBI for the previous years in respect of the existing Liaison / Branch Office.  It is the duty of the bank to obtain such confirmation in this regard from the Central Office of the Reserve Bank in cases of BO and the regional offices concerned in the case of LOs. 

Designated AD Category-1 Bank has to report winding up of such BO/LO to the Reserve Bank ( Central office for BO and regional office in case of LO’s ) along with  a declaration stating that all the required documents were submitted by BO / LO which have been duly scrutinised and found to be in order. If the documents are not found in order or cases are not covered under delegated powers, the AD –Category – 1 bank may forward the required application to the Reserve Bank with their remarks for necessary action.

From the Company Law point of view , Form 52 has to be filed with MCA.

For winding up project office, the following procedure is required to be followed:

a. For establishing a project office in India where  prior approval has been taken from Reserve Bank of India , following steps should be taken

1. Sumit an application to the respective regional office of the Reserve Bank of India
   a request for winding up of Project Office .

The application for winding up shall be submitted along with the following documents:

1. Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s) for establishing the project office.

1. A Chartered Accountant's certificate :
   
   1. indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets;
   2. confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the office have been either fully met or adequately provided for;
   3. Confirming that no proceeds accruing from sources outside India has remained un-repatriated to India.

• No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance 
 
• confirmation from the parent entity that no legal proceedings in any Court in India are pending against the Liaison Office and there is no legal impediment to the remittance

• A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the project office in India.

• On receipt of approval from regional office of Reserve Bank of India, AD category bank 1 can allow the remittance of funds.

PROCEDURE FOR OPENING OF BRANCH OFFICE/ LIAISON OFFICE IN INDIA

PROCEDURE FOR OPENING OF BRANCH OFFICE/ LIAISON OFFICE IN INDIA

Any foreign company wants to set up a Liaison office in India should get prior approval from RBI by submitting a form namely Form FNC.

Approval for such branch office / Liaison office is being given under two routes.

Reserve Bank Route:

Where 100% FDI is allowed under automatic route. Application has to be made to RBI. Reserve Bank will look into the following additional criteria for according its approval for Branch/ Liaison office in India by foreign entities.

·         For Branch Office – The foreign entity should have a profit track record of immediately preceding five years in its home nation with a net worth of minimum of $100,000 or its equivalent.

·         For Liaison office - The foreign entity should have a profit track record of immediately preceding three years in its home nation and with a minimum net-worth of $50000 or equivalent.

Government of India Route:

The foreign companies that not fall under 100% FDI under automatic route. Application may be from foreign non-profit organisations, non-government organisations, foreign government departments, foreign government bodies.

The Application for BO / LO should be forwarded in Form FNC through a designated AD Category -1 BANK  along with the following and should be addressed to

                          

                         The Chief General Manager –in-Charge,

                          Reserve Bank of India m

                         Foreign Exchange Department,

                         Foreign Investment Division,

                         Central Office, Fort, Mumbai -400 001

Along with the following documents:

• ·         Certificate of Registration or Incorporation or Memorandum & Articles of Association duly attested by Notary Public / Indian Embassy in the country of incorporation

• ·         Latest Audited Balance Sheet of the Applicant Company or entity.

• If any applicant do not fulfill the above mentioned eligibility criteria and if they are subsidiaries of other companies, they can submit a Letter of Comfort from their parent company provided that the parent company fulfills the eligibility yardstick as mentioned above.

It should be noted that an applicant cannot directly submit his application to RBI and he should forward the same through his banker a AD-Category -1 bank

.

Once the application is approved by RBI , it will allocate a Unique Identification Number (UIN) to the applicant. PAN number should also be obtained by such LO/BO from Income-Tax authorities in India.

Liaison Office

A liaison office or a representative office is on which can undertake only liaison activities so that it can act as a channel of communication between representatives in India and Head Office in abroad. A Liaison office is not authorised to do any business activity in India and hence cannot earn any income in India.  To meet any expenses in India, funds should be remitted through normal banking channels as inward remittance.  The permission for liaison office is initially granted for three years and renewal of approval can be made from time to time by an AD Category I bank for another 3 years provided the following documents are submitted.

·         The LO should have submitted the Annual Activity Certificates for the previous three years.

·         The banking account of LO with AD Category -1 bank has been operated in tune with the conditions and terms as mentioned in the approval letter.

In normal scenarios, extension of LO is being granted within one month of receipt of application.

Branch Offices

   Foreign companies who engaged in manufacturing or trading activities can set up a branch office in India with specific approval from the Reserve Bank of India.  Such branch offices are allowed to represent the parent or group companies and to undertake the following activities in India.

• ·         Export / import of goods

• ·         Rendering any consultancy or professional service

• ·         Rendering services in information technology and development of software in India.

• ·         Carrying out any research work, in areas in which the parent company is engaged.

• ·         Representing parenting company in India and acting as selling or buying agent in India.

• ·         Promoting financial or technical collaborations between Indian companies and overseas group company or parent company.

• ·         Rendering technical support to the products supplied by group or parent companies.

• ·         Foreign airline or shipping company

Restricted Activities:

·         Branch office is not allowed to engage in retail trading activities in India .

·         No manufacturing or processing activities is permitted to carry out by a branch office in India.

·         Profits earned by the Branch office are freely remittable from India subject to payment of applicable taxes.

Annual Activity Certificate should be submitted by the Branch / Liaison Office duly certified by a Chartered Accountant either at the end of 31^st March or before 30^th April of every year to the designated AD Category I bank with a copy to the Directorate General of Income Tax (International Taxation), New Delhi.

Can an Indian Resident acquire shares of a foreign company to become a director ?

Qualification shares to become a director in a Foreign company by an Indian Resident

Reserve Bank has given general permission to a resident individual to acquire foreign securities to the extent of the minimum number of qualification shares required to be held for holding the post of Director provided such shares do not exceed 1% of the paid-up capital of the overseas company and the amount to be remitted for such shares does not exceed USD 20,000 in a calendar year.

Now , 1% of the paid-up capital of the overseas company has been removed vide RBI Circular 
RBI/2011-12/474 A. P. (DIR Series) Circular No.97 dated 28 March 2012.

March 28, 2012Since the necessity of having certain qualification shares by an individual to be appointed as a Director of the company is governed by the law of the host country, it has been decided to remove the existing cap of 1 (one) per cent on the ceiling for resident individuals to acquire qualification shares for holding the post of a Director in the overseas company. Accordingly, henceforth, remittance shall be allowed from resident individuals for acquiring the qualification shares for holding the post of a Director in the overseas company to the extent prescribed as per the law of the host country where the company is located. The limit of remittance for acquiring such qualification shares shall be within the overall ceiling prescribed for the resident individuals under the Liberalized Remittance Scheme (LRS) in force at the time of acquisition.

R.V.Seckar

rvsekar2007@gmail.com

919848915177