Many Indian companies have opened subsidiaries abroad when all that they required was a collection bank account. This is often felt necessary for the purpose of collecting payments from customers either through bank transfers or through online transactions.
Reserve Bank of India, strangely, is positively inclined towards Indians opening companies abroad but does not seem inclined to encourage Indians to open collection accounts in foreign banks.
RBI regulates opening of bank accounts outside India,in terms of section 9 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015.
Permissible bank accounts by Indian residents in foreign banks for carrying on normal business and incidental transactions can be broadly classified into five categories:
a) Accounts of authorized dealers or their branches
b) Account by a company/ firm in the name of its office/ branch/ representative outside India
c) Exporter’s bank account
d) Bank account for Overseas Direct Investment
e) Accounts for other purposes
A quick brief glance at each is as follows:
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- An authorized dealer in India may open, hold and maintain with his branch or head office or correspondent outside India, a Foreign Currency Account for the purpose of transacting foreign exchange business and other matters incidental thereto, in accordance with the provisions of the Act or the rules or regulations made or the directions issued thereunder.
- A branch outside India of a bank incorporated in India may open, hold and maintain with a bank outside India, a Foreign Currency Account for the purpose of carrying on normal banking business outside India, subject to compliance with the directions or guidelines issued from time to time by the Reserve Bank, and the regulatory authority in the host country.
(B) Branch Office Account
An Indian entity may open, hold and maintain in the name of its office or its branch set up outside India or its representative posted outside India, a foreign currency account with a bank outside India by making remittances from India for the purpose of normal business operations of the branch or representative; provided that:
- Branch / office / representative may buy office equipment and other assets required for normal business operations. Funds required for this may be remitted by the Indian entity from India as a current account transaction.
- However, transfer or acquisition of immovable property outside India, other than by way of lease not exceeding five years, by the overseas branch/ office/ representative will be subject to RBI regulations.
Notably, the above facility cannot be used by e-commerce companies who are, for example, in the business of providing an e-commerce platform to foreign sellers and buyers and wish to establish a collection account in a foreign country without establishing a branch office or representative in that country.
(C) Exporters’ Account
An Indian exporter who has undertaken a construction contract or a turnkey project outside India or who is exporting services or engineering goods from India on deferred payment terms may open, hold and maintain a Foreign Currency Account with a bank outside India, provided that:
a) approval as required under the Foreign Exchange Management (Export of goods and services) Regulations, 2015 has been obtained for undertaking the contract/ project/ export of goods or services, and
b) the terms and conditions stipulated in the letter of approval have been duly complied with.
(D) Account for Overseas Direct Investment
An Indian party may open, hold and maintain Foreign Currency Account abroad for the purpose of making overseas direct investments subject to the following terms and conditions:
a) The Indian party is eligible for making overseas direct investment in terms of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 as amended from time to time
b) The host country regulations stipulate that the investment into the country is required to be routed through a designated account.
c) The account shall be opened, held and maintained as per the regulation of the host country.
d) The remittances sent to the account by the Indian party should be utilized only for making overseas direct investment into the Joint Venture/ Wholly Owned Subsidiary (JV/ WOS) abroad.
e) Any amount received in the account by way of dividend and/ or other entitlements from the subsidiary shall be repatriated to India within 30 days from the date of credit.
f) The Indian party should submit the details of debits and credits in the account on yearly basis to the designated AD bank with a certificate from the Statutory Auditors of the Indian party certifying that the account was maintained as per the host country laws and the extant FEMA regulations / provisions as applicable.
g) The account so opened shall be closed immediately or within 30 days from the date of disinvestment from JV/ WOS or cessation thereof.
(E) Other Purposes’ Accounts
Some other relevant cases where Indian residents are allowed to maintain bank accounts abroad are as follows:
(1) Funds raised by External Commercial Borrowings (ECB) or through American Depository Receipts (ADRs) or Global Depository Receipts (GDRs)
(2) Resident individuals may open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the Liberalized Remittance Scheme. The account may be used for putting though all transactions connected with or arising from remittances eligible under LRS.
(3) A shipping or airline company incorporated in India may open, hold and maintain with a bank outside India, a Foreign Currency Account for the purpose of undertaking transactions in the ordinary course of its business.
(4) Life Insurance Corporation of India or General Insurance Corporation of India and its subsidiaries may open, hold and maintain with a bank outside India, a Foreign Currency Account for the purpose of meeting the expenditure incidental to the insurance business carried on by them and for that purpose, credit to such account the insurance premia received by them outside India.
(5) A person resident in India who has gone out of India to participate in an exhibition/ trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/ trade fair. Provided that the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/ trade fair.
(6) A person resident in India who has gone abroad for studies may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India.
(7) A person resident in India who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India.
(8) (i) A citizen of a foreign State, resident in India, being an employee of a foreign company or a citizen of India, employed by a foreign company outside India and in either case on deputation to the office/ branch/ subsidiary/ joint venture/ group company in India of such foreign company may open, hold and maintain a foreign currency account with a bank outside India and receive the whole salary payable to him for the services rendered to the office/ branch/ subsidiary/ joint venture/ group company in India of such foreign company, by credit to such account, subject to payment of taxes, as applicable in India.
(ii) A citizen of a foreign State resident in India being in employment with a company incorporated in India may open, hold and maintain a foreign currency account with a bank outside India and remit the whole salary received in India in Indian Rupees, to such account, for the services rendered to such an Indian company, subject to payment of taxes, as applicable in India.
Types of accounts
A Foreign Currency Account with an Authorized Dealer in India under RBI Regulations may be opened, held and maintained:
a. in the form of current or savings or term deposit account in cases where the account holder is an individual, and in the form of current account or term deposit account in all other cases.
Provided that the EEFC account shall be opened, held or maintained in a manner as prescribed by the Reserve Bank from time to time.
b. singly or jointly in the name of person eligible to open, hold and maintain such account.
About the Author
Author is Neeraj Bhagat, FCA helping foreign companies in setting up and closure of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. He is also founder of Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm established in the year 1997 with its head office at New Delhi.
Author Bio
Can a foreign currency account be opened abroad and then the funds deposited by the buyer be brought into India along with fund origin certificate anti money laundering clearance by the foreign bank where such an account is opened ?
What are, or where can I find, regulations for foreign accounts opened at USA brokerages, by Indians and receiving gifts from blood relatives living in USA? What, if any , limits apply?
Thank you!
Regarding point E(6): person who has gone for studies abroad for a fixed duration (like a 2 year or 4 year course): Does this mean that the person continues to be treated as a ‘resident Indian’ for Indian banking purposes? FEMA seems to imply that, when it says “resident student”. Can you please clarify?