Problems relating to Trade and Investment on India

Problems relating to Trade and Investment on India

11. Restriction on profits remittance abroad
Issue	Issue details	Requests	Reference

(1) Restrictions on Remittance Abroad	- Control on foreign exchange remittance is excessively severe. A huge amount of materials and documents must be signed and submitted to the authority after going through complicated procedures. - RBI strictly controls the scope of expense items that can be remitted abroad. While a Japanese enterprise desires to remit to Japanese enterprise (a sales company) in settlement of foreign exchange gains/losses, RBI does not allow such remittance, because the allowable expense items for remittance abroad do not include such expenses.	- It is requested that GOI simplifies the procedures at the time of external remittance. - It is requested that GOI expands the scope of applicable items for external remittance.	- RBI Regulations
	(Action) - On payment of import, approvals of both RBI and MCI are required if the usance terms exceed 6 months under the External Commercial Borrowing ("ECB"). Advance payment for import is also subject to approval and must satisfy the two conditions that the remittance is made to the supplier direct, and bank guarantee is obtained if the advance amount exceeds 100,000 U.S. dollars. - RBI's approval is required for remittance exceeding the following ceilings: --Payment for consulting service received from abroad: 1 million U.S. dollars per project; --Payment for trademark licensing or franchising fees: 2% on the export amount or 1% on the domestic sales; --Payment for pre-joint venture expenses: 100 thousand U.S. dollars. - Prior approval of Reserve Bank of India (RBI) must be obtained to remit to Japan the balance of the local assets after liquidating the local subsidiaries, etc. in India. - As a condition under Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 (FEMR), RBI's prior approval is required to draw foreign exchange for remittances for purchase of trademark or franchise in India. (Item 16 of Schedule III to FEMR).- GOI, under the real demand principle, strictly controls Foreign Exchange Transactions between resident and non-resident. No offshore market exists in India. Only domestic banks are authorised to intervene in non-resident's Rupee transactions, provided, however, that FRB authorisation upon the domestic bank's transactions with a non-resident is strictly restricted to spot trading based upon real demand. - Press Note No. 8 of December 2009 repeals the advance approval requirement on payments of royalty, technical transfer fees, and trademark licence fees, provided, however, that GOI levies withholding taxes of 10% (on locally incorporated enterprises with PAN (Permanent Account Number) and 20% (on enterprises without PAN). In addition, service tax 5.3% and R&D tax 5% become payable and are accordingly deducted from the remittance amount. - On 14 August 2013, Central Bank of India reduced the cap for the amount of individual's external remittance down to INR75,000 from INR200,000 per annum. - The tax reform under the national budget 2015 amended the punitive provisions so that 10% preferential withholding tax (under the tax treaty) applies in receipt of consideration for Foreign Funded Enterprises (FFEs) provision of technical assistance (with PAN), and 20%, if without PAN.
	(Improvement) - Foreign exchanges in the event of immigration and remittance of gift, donation, personal travel, etc. are all liberalized, provided however that, the caps continue to apply even today. Items not included in the list may be remitted abroad if such remittance corresponds to the transaction in the current account, and by the applicant's presenting to an authorised money exchanger, namely, a bank, an appropriate set of documents, certifying that the remittance is not for payment of the current account, and that all taxes and dues payable have been completely paid. - Remittance is not restricted for payment of the principal of debt and of imported input goods. - Under the FEMA provisions, any person is authorised to sell and buy freely foreign currencies, excepting the transactions restricted by the Central Government. For the purpose of restrictions, the transaction on the current account is classified into the following 3 categories: 1) The first category relates to the totally restricted items such as remittance of the winning number of a lottery, revenue on a horse race, exporter's commission on the share equity investment into a JV or a wholly owned subsidiary ("WOS"); 2) The second category includes the specified items, which may be remitted only upon the GOI's approval. The major items added to a few items relating to remittance in the public sector enterprises relate to a multi-modal carrier's remittance to its overseas' agent, remittance of container detention charge exceeding the rate authorised by the competent authority, and payment of royalties under the technical cooperation agreement in excess of the statutory rates of 5% on domestic sales and 8% on export sales or the lump-sum payment in excess of 2 million in US dollars; and 3) The third category relates to those which are probably most employed in effect, namely, remittance requiring the discharge of foreign exchange as well as the RBI's prior approval; or foreign exchange in excess of the specified amount. A considerable liberalisation is in progress in this category of payment as well. The following are some of the items on which the specified minimum are raised: up to US$25,000 the limit amount of foreign currency which a traveler is authorised to accompany; up to US$1 million on the payable amount for consulting service procured abroad, up to US$100,000 on the discharge of foreign currency for employment or immigration abroad; and up to US$100,000 on the amount of remittance for pre-incorporation expenses incurred by the Indian enterprise. Moreover, remittance is also liberalised for use of trademarks in India and for franchising in India, provided however that, the RBI's prior approval must be obtained for remittance of trademark licence fee or for franchising. Remittance of royalty/lump-sum under a technical collaboration agreement, if within the statutory limits, can be made without the RBI's prior approval, even when the agreement is not registered with RBI. - A foreign bank, in so far as it observes the Banking Regulation Act of 1949 is authorised to remit profits and surpluses to its headquarters. Furthermore a bank may issue credit cards without the RBI approval. A bank may offer an unlimited foreign currency-rupee swap with the express purpose of hedging the risks for the foreign exchange fluctuation on the depositor's debt in foreign currencies. - RBI has transferred most of its power concerning foreign exchange to the authorised money exchangers. - An Indian enterprise is authorised to employ foreign nationals and pay their earned wages in foreign currency. Up to 75% of the earned wages received in India may be remitted abroad. - The withdrawal of capital after payment of capital gain tax is authorised. Remittance in return of dividend is authorised. Dividend is not taxed on its recipient. Thus, under the current taxation system, the withholding tax on the remittance of dividend is not levied and collected, provided however that, the enterprise distributing dividend is obligated to pay the dividend distribution tax of 13.07%. More than 60 days' delay is not authorised on remittance of dividends and lease payments. The only document required for remittance, if any, is the income tax permit to confirm completion of payment for all taxes and dues payable in India prior to the remittance abroad. - Foreign institutional investors ("FII's") are authorised to convert transfer from the rupee account to the foreign currency account and vice versa. Furthermore, FII's are entitled to remit abroad capital, capital gain, dividend, interest revenue, and remuneration gained on sales of rights, free of all taxes and without requiring approvals. - In February 2006, amended Japan-Indian Tax Treaty was concluded. The withholding tax rate is reduced to 10% on dividends on investment, interests, licensing and technical fees. - By MOF Notification of 10 July 2006, Foreign Exchange Management (Current Account Transactions) Rules, 2000 was amended, deleting "Schedule III, Item number 16 and the entry relating thereto". With this Notification, authorized dealer category (AD) banks are able to let individuals to draw foreign exchange for remittances for purchase of trademark or franchise in India without prior RBI approval. - RBI Circular 14 of 28 November 2006 has repealed the requirement on Authorized Dealer, Category-I banks to obtain RBI's prior approval to draw foreign exchange for remittances for purchase of trademark or franchise in India. - On 30 April 2007, RBI issued Circular No. 46 Foreign Exchange Management Act (FEMA), 1999 - Current Account Transactions - Remittance for consultancy services - Liberalisation. Amendment under Circular No.46 has increased the limit of the sum of remittance to US$10,000,000 per project by Indian companies executing infrastructure projects to home country for any consultancy service procured from outside India. The same Circular defines the infrastructure development project subject to this Circular as: (I) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport, (vi) industrial parks, and (vii) urban infrastructure (water supply, sanitation and sewage projects). Accordingly, AD Category - I banks may allow remittances on behalf of Indian companies in such cases up to US$10 million per project, after verifying the bonafide of the transaction. In all other cases, the existing limit of US$1 million per project for any consultancy service procured from outside India will continue. Amendment under Circular 47 authorises remittance of the sum of money, which is higher of the amount less than 5% of the total investment amount, or US$100,000 per project after approval by the statutory auditor. Under amended regulations, Authorized Dealer, Category-I banks are entitled to authorise Indian enterprises to remit foreign currency abroad in repayment of expenses incurred prior to incorporation of enterprises within the new limit through approval of the statutory auditor. This Circular amends Regulation 5 of Regulations for Normal Transactions that require RBI's prior approval to draw foreign currency (I) to pay the sum of money in excess of US$1 million per project for consultancy service provided from abroad and (ii) to draw foreign currency exceeding US$100,000 in repayment of tax paid prior to incorporation. - Since 2007, GOJ has sought that GOI repeals or deregulates restriction in royalty payments on several occasions for negotiation of Japan-India EPA on issues covering investment and service rates. Furthermore, in February 2009, The Japanese Association of Commerce and Industry in India requested the repeal of the Technical Collaboration Guideline on the trademark licence. As a result, in December 2009, GOI repealed the cap on lump sum fee and royalty percentage, permitting payments for royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name based upon the foreign technical transfer agreement and trademark licence agreement on the automatic route i.e. without any approval of GOI. (Press Note No. 8, 2009 series). - On 16 December 2009, Department of Industrial Policy & Promotion (MCI) published Press Note No. 8, 2009 series titled "Liberalization of Foreign Technology Agreement Policy" (made effective on the same date). The Press Note dispensed with the GOI's approval and removed the cap on the amounts for payments of royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name, provided, however, that, "all such payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended from time to time." It further provides: "A suitable post-reporting system for technology transfer/ collaborations and use of trade mark/ brand name will be notified by the Government separately." Moreover, a post notice is a mandatory requirement for technical transfer and licence for use of trademark.

(2) Complex Procedures for External Monetary Receipt

- RBI controls remittance from abroad, for example, by requiring complex procedures such as submission of individual contracts.

- It is requested that RBI streamlines the procedures.