ESTABLISHMENT OF OVERSEAS OFFICES BY INDIAN FIRMS/COMPANIES.
The
phenomenal success of Indian software companies into export and
other projects abroad for other export businesses have created
a need for Indian firms and companies to open offices in a foreign
country. Such offices can be doing trading activities or non-trading
activities such as liaison work, marketing etc. The Indian firms
and companies may post a representative abroad for promotion of
their exports business.
Such
companies have to comply with the laws of the foreign country
where they are opening offices.
Since
opening office abroad involves by an Indian company the use of
foreign exchange outside India, such Indian companies have to
follow procedures prescribed by the Reserve Bank of India.
We
will in this article discuss the guidelines issued by the Reserve
Bank of India.
The
Indian companies can also participate in overseas Joint Ventures
(J/V). "Joint Venture (JV)" means a foreign
entity formed, registered or incorporated in accordance with the
laws and regulations of the host country in which the Indian party
makes a direct investment.
They
can also set up wholly owned subsidiaries (WOS) abroad. "Wholly Owned Subsidiary (WOS) "
means a foreign entity formed, registered or incorporated in accordance
with the laws and regulations of the host country, whose entire
capital is held by the Indian party.
We
will cover the process and formalities for setting up J/V or WOS
in subsequent articles.
No
prior permission of Reserve Bank is required to open offices (trading
or non-trading) abroad or post representatives abroad by Indian
firms/companies.
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).
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FOREIGN
EXCHANGE RELEASED BY THE BANK
Authorised
dealers may release exchange towards initial expenditure
as also for recurring expenses of the office as under, provided
the applicant fulfils the following conditions:
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Category
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Initial
Expenditure
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Recurring
Expenditure (per annum)
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|
|
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(a)
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EEFC
Account (Exchange Earners’ Foreign Currency account)
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No
limit for remittances out of
EEFC funds.
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No
limit for holders remittances out Of
EEFC funds.
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|
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(b)
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Firms/companies
not having EEFC
accounts or not having
sufficient funds
EEFC accouts.
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Up
to 2% of their average annual
sales/income turnover during
last two years.
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Up
to 1% of their average annual sales/income
turnover during last two
years.
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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.
The
recurring (expenditure) remittance facilities are allowed initially
for a period of two years only, after obtaining confirmation form
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 renewal of
remittance facility after two years may be granted, provided proper
accounts of utilisation of foreign exchange released are furnished
to the authorised dealer.
The
general terms and conditions for opening the offices abroad normally
are:
- The overseas office should not create any financial
liabilities contingent or otherwise for the head Office in India.
- Exchange released by the authorised dealer should
be strictly utilised for the purpose(s) for which it is released.
They unused exchange may be repatriated to India under advice
to the authorised dealer.
- The details of bank account opened in the overseas
countries should be promptly reported to authorised dealer.
- 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.
- Profits, if any, earned by the overseas office/s
should be repatriated to India.
- The following statements should be submitted by
the applicant to the authorised dealer:
- 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.
- 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 realisations.
·
In the
case of a trading branch, cashflow statement in the proforma 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
·
Exporter's
Code Number allotted by Reserve Bank
·
Nature
of the applicant's business in India
·
Particulars
of foreign currency balances/securities, if any, held by the applicant
·
Present
arrangements for applicant’s representation in the country/territory
concerned if any. If there is any agency arrangement, its full
details including the number and date of Reserve Bank's approval
and commission paid during the past three years.
·
Details
of export realisations for the past two years
·
Commodity-wise/country-wise
break up of exports realised in the last two years.
·
Application
is for appointing An agent (on fixed remuneration basis), or
·
For opening a trading branch, or
·
for A
representative liaison office/non-trading branch
·
Place
and country of posting of agent/representative office/branch
·
Territories/countries
to be covered by the proposed agent/representative office/branch
·
Details
of business to be conducted abroad by the agent/representative
office/branch
·
Initial
Establishment Expenses
·
Recurring
expenses per month
© Zarana Khona
2000 email: zarana@indiaitlaw.com
