Initiatives for Indian Start-Ups in RBI Policy Statement

In the Sixth Bi-Monthly Monetary Policy Statement for 2015-16 and the press release dated February 2, 2016, the Reserve Bank of India had highlighted the steps being taken with respect to the Government’s initiatives to promote ease of doing business and contribute to an eco-system conducive for growth of entrepreneurship, particularly in respect of the start-up enterprises.

RBI had clarified that guidelines/clarifications have already been issued in areas such as,

I. Online submission of A2 forms for outward remittances

With a view to facilitating miscellaneous remittances and reducing paperwork associated with payment transactions, it has been decided that Authorised Dealer banks, offering internet banking facilities to their customers may allow online submission of Form A2. To start with, remittances on the basis of online submission alone will be available for transactions with an upper limit of USD 25,000 (or its equivalent) for individuals and USD 100,000 (or its equivalent) for corporate, subject to satisfaction of the Authorised Dealer banks as laid down in Section 10 (5) of FEMA.

II. Issue of shares without cash payments

An Indian Company can issue shares against any legitimate payments owed by the Company for which no prior permission is required from RBI/ Government for making payments. Post this clarification, Indian Starts-up can also issue shares against such legitimate payments due to overseas suppliers/ customer such as

• for use or acquisition of intellectual property rights;
• for import of goods;
• for payment of dividends;
• for interest payments;
• for consultancy fees etc.

without any prior permission of RBI. However, the same is subject to tax withholding provisions as per Income Tax Act, 1961 and conditions relating to adherence with FDI policy

III. Acceptance of payments by the Indian start-ups on behalf of their overseas subsidiaries

An Indian Start-up having an overseas subsidiary is allowed to open and maintain Foreign Currency Account (FCA) abroad to collect and pool foreign currency earning against exports/sales. The balances in this FCA should be repatriated to India within nine months of realisation of export dues. Start-ups are also permitted to use Online Payments Gateway Service Providers (OPGSPs) for realization of overseas payments against export/sales with a maximum limit of USD 10000. A contractual arrangement to facilitate above transaction should be in place between Indian Start-up, its overseas subsidiary and customer.

IV. Issue of sweat equity for consideration other than cash

Reserve Bank of India vide Notification No. FEMA. 344/2015 RB dated June 11, 2015 permits Indian companies to issue “sweat equity shares” to the following, who are resident outside India

• its employees/directors; or
• employees/directors of its holding company; or
• joint venture; or
• wholly owned overseas subsidiary/subsidiaries

Such issue, however, will be subject to conditions, inter-alia, that the scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 in respect of listed companies or the Companies (Share Capital and Debentures) Rules, 2014 in respect of other companies and subject to sectoral caps.

The following regulatory changes for easing the cross-border transactions, particularly relating to the operations of the start-up enterprises are proposed to be made, in consultation with the Government of India.

a) Enabling start-up enterprises, irrespective of the sector in which they are engaged, to receive foreign venture capital investment and also explicitly enabling transfer of shares from Foreign Venture Capital Investors to other residents or non-residents;

b) Permitting, in case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months;

c) Simplifying the process for dealing with delayed reporting of Foreign Direct Investment (FDI) related transaction by building a penalty structure into the regulations itself.

In addition, the following proposals are under consideration, in consultation with the Government of India

a) Permitting start-up enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders, etc.;

b) Issuance of innovative FDI instruments like convertible notes by start-up enterprises; and

c) Streamlining of overseas investment operations for the start-up enterprises.

Sources:

https://taxguru.in/rbi/rbi-bimonthly-monetary-policy-statement-201617.html

https://taxguru.in/rbi/fema-compilation-rreturns-reporting-feters-2.html

https://taxguru.in/rbi/issue-shares-cash-payment-sweat-equity-legitimate-payment-owed.html

https://taxguru.in/rbi/clarification-startups-accepting-payment-behalf-overseas-subsidiaries.html

https://taxguru.in/rbi/rbi-announces-regulatory-relaxations-startups.html