Internation Money Transfer

International money transfers for businesses in India

Guide to international money transfers for businesses operating in India.

Businesses having operations in multiple countries may need to send money from one country to another for various reasons. When it comes to international money transfers, businesses operating in India have to be aware of government rules and regulations.

Businesses in India may need to send money outside the country for the following reasons:

a) Foreign businesses operating in India are looking to remit money back to their home country.

or

b) Indian entrepreneurs are looking to invest in businesses overseas either through a joint venture or by forming a wholly owned subsidiary in a foreign country.

There are different rules and regulations to keep in mind when it comes to international money transfers from India in each of the above two instances.

Foreign businesses operating in India.

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Foreign businesses operating in India must be aware of various rules and regulations when it comes to international remittances. There are different remittance procedures to follow which are dependent upon the businesses’ investment models.

Foreign businesses can operate in India in one of the following business structures after appropriate approval from the Reserve Bank of India (RBI). These are:

i) Liaison offices are meant to promote the business interests of the parent business, explore business opportunities and to spread awareness of the company’s services and products. Such entities cannot earn income in India and are not permitted to undertake any business activities. Any expenses that they incur must be met completely through the inward remittance of money from the company’s headquarters outside India. As such, liaison offices are not permitted to remit any money outside India.

ii) Project offices are set up by foreign businesses to execute specific Indian projects. Upon project completion and after meeting Indian tax liabilities, such entities are permitted international remittance of surplus amounts. An important point to bear in mind is that a project office cannot carry out any activity that is not related to the project’s process.

iii) Branch offices are set up by foreign businesses that are engaged in trading or manufacturing activities in India. These represent the parent company but are limited to the operations they can carry out. Examples of non-permissible operations for such branch offices are retail trading activities, processing or manufacturing activities apart from manufacturing inside Specific Economic Zones (SEZs). Profits earned by such branch offices can be repatriated outside India, after relevant taxes are paid. If a branch office is closed down, the winding up proceeds can be repatriated outside India, subject to regulatory procedures and verification of appropriate documents.

Businesses intending to set up any of the above three types of offices need to be aware of the applicable RBI rules and regulations.

iv) Wholly owned subsidiaries. Foreign businesses can set up a wholly owned subsidiary where the foreign company will own 100 % of the subsidiary company in India.

v) Joint ventures. A foreign company can form a strategic alliance with an Indian partner by forming a joint venture entity.

Businesses intending to set up either a wholly owned subsidiary or a joint venture in India, need to be aware of the RBI rules and regulations related to foreign direct investment in India.

Profits remittance by foreign companies’ branch offices:

According to RBI’s exchange control manual, branch offices of foreign businesses need to submit an application to an authorised dealer category-1 bank (having appropriate RBI authorization) to remit profits internationally. The application and additional documents are required such as:

– Certified copy of the specific year’s profit and loss statement

– Certified copy of the year’s audited balance sheet

– Auditor certificate that certifies how the amount to be remitted was calculated and confirmation that all of the branch office income was accrued by sources in India. The auditor certificate should also attest that the requirement of the Companies Act 2013 were met.

– Auditor’s certificate certifying that the branch office in question has carried out business as per RBI approval. Specifically, RBI’s approval number and the approval date is required.

– Auditor’s certificate showing that all Indian tax liabilities have already been met or that the branch office has set aside sufficient funds to meet these liabilities.

– A declaration from the application which states that the profits sought to be remitted were earned through normal business operations and do not include profits that arise from any other source.

Authorised dealers may permit the remittance after application and document approval. The authorised dealers have to make sure that the branch office’s income arises out of RBI-approved activities. They also need to verify all amounts and calculations are correct.

Remitting proceeds from foreign companies that have closed their branch offices:

Remittance application of closing proceeds from a foreign company’s branch office has to be given to a designated authorised dealer category-1 bank, along with specific documents such as:

– RBI approval for the establishment of the branch office

– Auditor’s certificate that indicates how the amount to be remitted has been calculated along with a complete statement of all liabilities and assets.

– Auditor’s certificate confirming that the branch office has met any and all Indian liabilities.

– Auditor’s certificate which confirms that no income accrued from sources outside India still remains unrepatriated to India.

– A confirmation from the parent company/applicant that there are no pending Indian legal proceedings against the branch office.

– A Registrar of Companies report that confirms compliance with all the provisions of Companies Act 2013.

Authorised dealers may permit the remittance after reviewing the application and documents.

A foreign company’s joint ventures, and its subsidiaries’ profits and investments remittance:

A foreign business’ wholly-owned subsidiaries and its joint ventures with Indian partners provide flexibility and a stronger foundation to operate in India. All investments made by foreign businesses are repatriable after payment of applicable taxes with some exceptions. These exceptions might be in a case where the said investment was held or made on a non-repatriable basis or there is a restriction against repatriation in that sector (such as the defence sector).

Dividends and profits (after paying applicable taxes) on any foreign investment can also be remitted outside India. However, these remittances should be made through an authorised dealer category-1 bank.

Indians making international remittances towards a wholly owned subsidiary or joint venture outside India.

Indian businesses can enter into joint ventures with a foreign business entity or set up a wholly owned subsidiary in a foreign country. A wholly owned subsidiary or a joint venture refers to a foreign business entity that is registered, formed or incorporated according to the foreign country’s laws and regulations. Indian businesses wanting to enter into such ventures need to be aware of RBI rules and regulations issued relating to investments in joint ventures and wholly-owned subsidiaries outside India.

All such international remittances have to be routed through a branch of an authorised dealer category-1 bank.

Next steps.

There are stringent rules and regulations governing international money transfers for businesses operating in India. It is recommended that you obtain expert advice to ensure that your business adheres to Indian laws.

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