Coupon Accepted Successfully!

How to take money out – offshore repatriation of income

Foreign investors usually make returns on income on their investment through dividends on profits of the Indian company, royalties for license or transfer of trademarks and know-how, or gains from sale of shares.

Typical concerns faced by foreign investors on taking money out from investee companies, or exit-related issues are represented by the following questions:
  • What are the ways in which revenues can be taken out of investee companies in order to make a return?  
  • What kinds of internal approvals are required before profits are declared or remuneration paid out to the foreigner?
  • Once the foreigner has been paid in India, what is the mechanism to repatriate income offshore? Are there any conditions for repatriating money offshore?
  • Are there any lock-in requirements on the investment?
A foreign investor receives payments from an Indian company typically by one of the following modes, depending on the type of the commercial arrangement between the parties:
  1. Dividends or interest – on equity shares and preference shares respectively;
(b)        Consultancy fees;
(c)        Trademark license fees;
(d)       Royalty for technology transfer; and
(e)        Sale of the securities

If FDI is routed into an Indian company, profits on equity shares may be repatriated through payment of dividend, and on convertible instruments through payment of interest, in the manner described below.

Repatriation of Dividends: Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be). The repatriation is governed by the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.

Repatriation of Interest: Interest on fully, mandatorily & compulsorily convertible debentures is also freely repatriable without any restrictions (net of applicable taxes). The repatriation is governed by the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.

Consultancy, trademark license fees: The payment of periodic remittances by way of consultancy or license fees is governed by the Foreign Exchange Management (Current Accounts Transactions) Rules 2000 (Current Accounts Transactions Rules). As per the Current Accounts Transactions Rules, remittance exceeding US $ 1,000,000 per project for any consultancy service procured from outside India, or any remittance for purchase of trademark or franchise in India will require the approval of the Reserve Bank of India.

Royalty or lumpsum payments for technology transfer: Prior to 16 December 2009, lumpsum payments were limited to US $2 million and royalty payments were capped at 5% on domestic sales and 8% on export. Post 16 December 2009, these limits have been removed. There are no restrictions on lumpsum payments, and royalty amounts are now subject to the Current Accounts Transactions Rules only.

Remittance of sale proceeds

Remittance of sale proceeds of shares and securities is governed by The Foreign Exchange Management (Remittance of Assets) Regulations, 2000 (Remittance Regulations). As per the Remittance Regulations, an AD Category-I bank can allow the remittance of sale proceeds of a security (net of applicable taxes) to the seller of shares resident outside India, provided that:
  • the security has been held on repatriation basis,
  • the sale of security has been made in accordance with the prescribed guidelines and
  • NOC / tax clearance certificate from the Income Tax Department has been produced.  
Price of securities sold by one foreigner to another is not regulated by RBI, since no foreign exchange inflow or outflow takes place in such a transaction. 

Test Your Skills Now!
Take a Quiz now
Reviewer Name