Friday, August 26, 2011

Provisions Related to remittance of money for Setting up of Offices Abroad and Acquisition of Immovable Property for Overseas Offices by Indian Entities and Persons


Provisions Related to remittance of money for Setting up of Offices Abroad and Acquisition of Immovable Property for Overseas Offices by Indian Entities and Persons

At this era of Globalization where free trade is permitted in almost all the countries, there must be some regulations to control the International transactions in terms of procedure, quantity, foreign exchange. In India the Export trade is regulated by the Directorate General of Foreign Trade (DGFT) and its regional offices, functioning under the Ministry of Commerce and Industry, Department of Commerce, Government of India. Policies and procedures required to be followed for exports from India are announced by the DGFT, from time to time. But since the exchange of foreign currency involves all around role of Reserve Bank of India is also there, being the Central Bank and regulatory authority for monetary policy of the country.

AD category I banks are always involved in the Import Export transactions as the mandatory requirement to exchange the money through them.  AD Category – I banks may conduct export transactions in conformity with the Foreign Trade Policy in vogue and the Rules framed by the Government of India and the Directions issued by Reserve Bank from time to time.

If a person wanted to establish a offices abroad and/ or wanted to acquire some properties he needs to comply with some regulations prescribed by the Reserve Bank of India for money remittances to be made.

Any reference to the Reserve Bank should first be made to the Regional Office of the Foreign Exchange Department situated in the jurisdiction where the applicant person resides, or the firm / company functions, unless otherwise indicated. If, for any particular reason, they desire to deal with a different office of the Foreign Exchange Department, they may approach the Regional Office of its jurisdiction for necessary approval.

Setting up of Offices Abroad and Acquisition of Immovable Property for Overseas Offices and Remittance of money in that regard.

(i)                 At the time of setting up of the office, AD Category – I banks may allow remittances towards initial expenses up to fifteen per cent of the average annual sales/income or turnover during the last two financial years or up to twenty-five per cent of the net worth, whichever is higher.

(ii)               For recurring expenses, remittances up to ten per cent of the average annual sales/income or turnover during the last two financial years may be sent for the purpose of normal business operations of the office (trading / non-trading) / branch or representative office outside India subject to the following terms and conditions:

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 Indi for its business and for residential purpose of its staff.(v)

(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.