.
ESTABLISHMENT OF OVERSEAS
OFFICES BY
INDIAN COMPANIES
In the globalised
scenario where the Companies export products and/or execute projects abroad, it
is inevitable for Indian firms and companies to open offices in foreign
countries. Such offices can be doing trading activities or non-trading
activities such as liaison work, marketing etc. The Indian firms and companies
may post a representative abroad for promotion of their business.
Such companies have
to comply with the laws of the foreign country where they are opening offices.
Since opening office abroad involves by an Indian company the use of foreign
exchange outside India, such Indian companies have to follow procedures
prescribed by the Reserve Bank of India.
The Indian companies can also
participate in overseas Joint Ventures (J/V). "Joint
Venture (JV)" means a foreign entity formed, registered or incorporated in
accordance with the laws and regulations of the host country in which the
Indian party makes a direct investment.
They can also set
up wholly owned subsidiaries (WOS) abroad. "Wholly Owned
Subsidiary (WOS) "means a foreign entity formed, registered or
incorporated in accordance with the laws and regulations of the host country,
whose entire capital is held by the Indian party.
Under automatic
route the Company (Indian Party) can invest up to 400% of the net worth (paid
up capital + free reserves) in the overseas JV/WOS. However if the investment
is made through EEFC (Exchange Earners’ Foreign Currency) Account the limit of
400% is not applicable. The investment has to be routed through normal banking
channels and the same has to be reported to RBI in Form ODI in the stipulated
time frame.
The approval of RBI
is required in case of investment exceeding the above limit.
Note that under the
automatic route there is no need to have track record in India before making
the investment. That mean to say a new Company without having any past track
records can make investment. But under approval route past track record is one
of the criteria for RBI while considering the application. Start ups may not be
in a position to get the approval of RBI.
No prior permission of Reserve Bank is
required to open offices (trading or non-trading) abroad or post
representatives abroad by Indian firms/companies.
The Indian
firm/companies should submit applications to their bankers (authorized
dealers) in form OBR along with the particulars of their turnover duly
certified by their auditors and also a declaration to the effect that they have
not approached/would not approach any other authorized dealer for the facility
being applied for. The application form OBR needs to be filled in with
necessary details along with supporting documents. After which the
foreign exchange is released by the authorized dealer (bank).
Foreign
Exchange released by the Bank
Authorized
dealers may release exchange towards initial expenditure as also for
recurring expenses of the office as under, provided the applicant fulfils the
following conditions:
Category
|
Initial
Expenditure
|
Recurring Expenditure (per annum)
|
|
(a) EEFC Account(Exchange Earners’
Foreign Currency account)
|
No limit for remittances
out of EEFC funds.
|
No
limit for holders’ remittances out Of EEFC funds.
|
|
Firms/companies not having EEFC
accounts or not having sufficient funds EEFC accounts.
|
Up to 15% of the average annual
sales / income or turnover during the last two financial years or up to 25%
per cent of the net worth, whichever is higher
|
Up to 10% of their average
annual sales/income turnover during last two years.
|
|
|
|
In the case of
newly established 100% EOUs or Units in EPZs and Hardware/Software Technology
Parks, exchange may be released as per their estimated requirements for initial
as well as recurring expenses on verification of suitable documentary evidence
during the first two years of their operation. From third year onwards,
exchange may be released as per item (a) or (b) above. Thus for first two years
such units can get more foreign exchange released than the limits for other
Indian companies.
The recurring
(expenditure) remittance facilities are allowed initially for a period of two
years only, after obtaining confirmation form the applicant that they have
completed all legal and other formalities in India and abroad in connection
with the opening of trading/non-trading office or for posting a representative
abroad. The renewal of remittance facility after two years may be granted,
provided proper accounts of utilisation of foreign exchange released are
furnished to the authorized dealer.
You may note that
if you are a new Company you may not be able to get the approval of Authorized
Dealer to open offices aboard.
The Firstever overseas branch office in India was the East India Company Limited of Britishers.
The general terms and conditions for
opening the offices abroad normally are:
a.
The overseas office should not create
any financial liabilities contingent or otherwise for the head Office in India.
b.
Exchange released by the authorized
dealer should be strictly utilized for the purpose(s) for which it is released.
They unused exchange may be repatriated to India under advice to the authorized
dealer.
c.
The details of bank account opened in
the overseas countries should be promptly reported to the authorized dealer.
d.
The approval granted for the purpose
should be made valid for 6 months from the date thereof, within which time the
applicant should open its overseas office or post representative abroad. In
case the overseas office is not opened or the representative is not posted
abroad within this period, intimation in writing to the effect should be sent
to the authorized dealer immediately after expiry of 6 months period. Fresh
application for release of exchange should be submitted to the authorized
dealer as and when the overseas office is desired to be opened.
e.
Profits, if any, earned by the overseas
office/s should be repatriated to India.
f.
The following statements should be
submitted by the applicant to the authorized dealer:
A.
A statement showing details of initial
expenses incurred together with suitable documentary evidence, wherever
possible, within three months from the date of release of exchange for that
purpose.
B.
Annual account of trading/non-trading
office abroad duly certified by statutory Auditors/Chartered Accountants.
Temporary Site/Project Offices Abroad
Indian
firms/companies executing contracts/projects abroad with the approval of the
appropriate authority are permitted under a general permission granted by
Reserve Bank to set up site/project offices abroad provided that such offices
are maintained out of project receipts and remittances from India are not
required. These offices are required to be closed down and surplus foreign
exchange earnings repatriated to India after completion of the project.
Credit facilities for overseas trading
offices of Indian companies
Reserve Bank considers,
on merits, request from Export Houses/Trading Houses/Star Trading Houses/Super
Star Trading Houses to avail of fund based/non-fund based facilities for their
trading offices abroad from overseas banks. Application in such cases should be
made to the Chief General Manager, Reserve Bank of India, Exchange Control
Department (Export Division), Mumbai together with full particulars of the
exchange facilities availed of for maintenance of the overseas office
concerned, full details of terms and conditions subject to which the facilities
are being extended by the overseas bank and the need for availing of the credit
facilities by the overseas trading office.
Application
for permission to post a representative in Overseas Branch Office
Establish office/branch overseas
· The
application is to be made in form OBR to the Bank with
supporting documents.
· The
estimates of foreign exchange expenditure should be given in units of foreign
currency and the appropriate rupee equivalent furnishing the exchange rate applied.
Documents to be submitted along with
the Form OBR
Correspondence, if any, in original
together with photocopies regarding the arrangement made in foreign
country for posting of representative/establishment of branch/office.
Bank certificates, in form BCX
(certificate of export), together with photocopies thereof for the immediately
preceding four calendar half years in support of export realizations.
Other Conditions to be followed
a) The overseas branch/office has been set up or representative is
posted overseas for conducting
normal business activities of the Indian entity;
b) The overseas branch/office/representative shall not enter into any
contract or agreement in contravention of the Act, Rules or Regulations made
there under;
c) The overseas office (trading / non-trading) / branch /
representative should not
create any financial liabilities, contingent or otherwise, for the head office
in India and also not invest surplus funds abroad without prior approval of the
Reserve Bank. Any funds rendered surplus should be repatriated to India.
(iii) The details
of bank accounts opened in the overseas country should be promptly reported to
the AD Bank.
(iv) AD Category – I banks may also allow remittances by a company
incorporated in India having overseas offices, within the above limits for
initial and recurring expenses, to acquire immovable property outside India for
its business and for residential purpose of its staff.
(v) The overseas office / branch of software exporter company/firm
may repatriate to India
100 per cent of the contract value of each ‘off-site’ contract.
(vi) In case of companies taking up ‘on site’ contracts, they should repatriate the profits of
such ‘on site’ contracts after the completion of the said contracts.
(vii) An
audited yearly statement showing receipts under ‘off-site’ and ‘on-site’
contracts undertaken by the overseas office, expenses and repatriation thereon
may be sent to the AD Category – I banks.
Courtesy : CS Vivek
Hegde,B.com, ACS, CWA
