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?
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:
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.
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.
919848915177
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
Details
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With effect from
16-12.2009, after issue of Press Note 8 (2009 series)
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Lump sum payments
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No limit now
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Royalty payable
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No limits - subject to FEMA (Current Account Transactions) Rules, 2000
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Duration of royalty payments
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No Limits
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Royalty limits are
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Net of taxes and are calculated according to standard conditions
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