If a person resident in India desires to enter into overseas market, he can enter either by establishing branch office or liaison office outside India or he can form an independent Company outside India. The Company formed outside India may be in the form of wholly owned subsidiary or Joint Venture Company.
A person resident in India being a Firm or Company or Body Corporate registered in India are eligible to establish a branch outside India. A general permission is available for opening of Bank Account for the purpose of meeting the Branch Expenses abroad subject to following limits/conditions:
The overseas branch or office has been set up or representative is posted overseas for conducting Normal Business Activities of the Indian Entity.
AD Category – I banks may allow remittance 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.
AD Category – I banks may allow remittance up to ten per cent of the average annual sales/income or turnover during the last two financial years.
Remittance out of funds held in EEFC Account
If the remittance to the Account maintained abroad is made out of the funds held in EEFC Account then above restriction on remittance shall not apply.
100% EOUs or Units in EPZs and Hardware/Software Technology Parks
In the case of newly established 100% EOUs or Units in EPZs and Hardware/Software Technology Parks, exchange may be released as per their estimated requirements for initial as well as recurring expenses on verification of suitable documentary evidence during the first two years of their operation. From third year onwards, exchange may be released as per item (a) or (b) above. Thus for first two years such units can get more foreign exchange released than the limits for other Indian companies.
Acquisition of Immovable Property
Purchase of immovable property and other asset for the normal business operations of the overseas branch office shall not be treated capital account transaction, hence, no RBI approval required.
Acquisition of immovable property outside India by way of lease, not exceeding a period of five years by the overseas branch or office is permitted without obtaining RBI approval.
Waiver of GR in certain Cases
Firms/companies wishing to take Indian goods such as floor covering, furniture and other items for office use may approach Reserve Bank for grant of GR waiver in respect of such exports.
Application to the AD Banker
The Indian firm/companies should submit applications to their bankers (authorised dealers) in form OBR along with the particulars of their turnover duly certified by their auditors and also a declaration to the effect that they have not approached/would not approach any other authorised dealer for the facility being applied for. The application form OBR needs to be filled in with necessary details along with supporting documents. After which the foreign exchange is released by the authorised dealer (bank).
The recurring (expenditure) remittance facilities are allowed initially for a period of two years only, after obtaining confirmation from the applicant that they have completed all legal and other formalities in India and abroad in connection with the opening of trading/non-trading office or for posting a representative abroad.
The general terms and conditions for opening the offices abroad normally are:
a. The overseas office should not create any financial liabilities contingent or otherwise for the head Office in India.
b. Exchange released by the authorised dealer should be strictly utilized for the purpose(s) for which it is released. They unused exchange may be repatriated to India under advice to the authorised dealer.
c. The details of bank account opened in the overseas countries should be promptly reported to authorised dealer.
d. The approval granted for the purpose should be made valid for 6 months from the date thereof, within which time the applicant should open its overseas office or post representative abroad. In case the overseas office is not opened or the representative is not posted abroad within this period, intimation in writing to the effect should be sent to the authorised dealer immediately after expiry of 6 months period. Fresh application for release of exchange should be submitted to the authorised dealer as and when the overseas office is desired to be opened.
e. Profits, if any, earned by the overseas office/s should be repatriated to India.
f. The renewal of remittance facility after two years may be granted, provided proper accounts of utilization of foreign exchange released are furnished to the authorised dealer.
g. The following statements should be submitted by the applicant to the authorised dealer:
A. A statement showing details of initial expenses incurred together with suitable documentary evidence, wherever possible, within three months from the date of release of exchange for that purpose.
B. Annual account of trading/non-trading office abroad duly certified by statutory Auditors/Chartered Accountants.
Temporary Site/Project Offices Abroad
Indian firms/companies executing contracts/projects abroad with the approval of the appropriate authority are permitted under a general permission granted by Reserve Bank to set up site/project offices abroad provided that such offices are maintained out of project receipts and remittances from India are not required. These offices are required to be closed down and surplus foreign exchange earnings repatriated to India after completion of the project.
Credit facilities for overseas trading offices of Indian companies
Reserve Bank considers, on merits, request from Export Houses/Trading Houses/Star Trading Houses/Super Star Trading Houses to avail of fund based/non-fund based facilities for their trading offices abroad from overseas banks. Application in such cases should be made to the Chief General Manager, Reserve Bank of India, Exchange Control Department (Export Division), Mumbai together with full particulars of the exchange facilities availed of for maintenance of the overseas office concerned, full details of terms and conditions subject to which the facilities are being extended by the overseas bank and the need for availing of the credit facilities by the overseas trading office.
Application for permission to post a representative/ Establish office/branch overseas
The application is to be made in form OBR to the Bank with supporting documents.
The estimates of foreign exchange expenditure should be given in units of foreign currency and the appropriate rupee equivalent furnishing the exchange rate applied.
Documents to be submitted along with the Form OBR.
Correspondence, if any, in original together with photocopies regarding the arrangement made in foreign country for posting of representative/establishment of branch/office.
Bank certificates, in form BCX (certificate of export),together with photocopies thereof for the immediately preceding four calendar half years in support of export realizations.
In the case of a trading branch, cash flow statement in the Performa attached indicating the value of stock to be held, percentage of marked-up price and projected income and expected profit margin should be furnished.
SOME OF THE DETAILS TO BE PROVIDED IN THE APPLICATION
Author is a Company Secretary from Delhi and can be contacted @ email@example.com/ 08430645653