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Foreign Remittance to Companies- What’s the big deal ?

Foreign Remittance to Companies- What’s the big deal ?

Remittance is a collective phrase used to indicate transfer of money from a country to other countries. Depending upon whether the money is being sent or received, it is termed as inward or outward remittance.

Technically, it is a process through which a foreign bank/company transfers the fund to the domestic bank account in the home country. The process is initiated at the foreign nation and takes place with the consent of the customer.

illustrations

Typically, non-resident Indians send money either to support their families back home or for business and investment purposes. One of the many ways of remitting money is for investing in companies. Non-resident Indians promote companies in their home countries. Alternatively they invest money in already existing companies. For this purpose they remit money (from the country in which they reside) to the country in which the company is incorporated.

Remittance to companies attracts compliance

In the Indian scenario, reporting to RBI is mandatory under FEMA regulations since foreign money comes from across countries into India. If a company is accepting foreign capital, and if allotment of shares are involved, the provisions of the Companies Act, 2013 will have to be additionally complied with. Both regulations stipulate timelines that have to be adhered to. Likewise there is reporting compliance for outward remittance also.

What companies should know when receiving foreign capital

 It is imperative upon companies to verify a few essentials before accepting foreign capital:

  • Whether the specific industry falls under the Governments’ FDI schemes;
  • Whether the government has set sectoral caps of investment;
  • Whether 100% FDI is allowed or whether FDI is absolutely not allowed;
  • Whether investments into the industries is allowed under the automatic route or otherwise.

Reporting compliance by companies accepting foreign capital under automatic route

 flowchart

All reporting happens through the AD category 1 branch of the bank where the company has an account, and which receives the remittance of share capital.

Foreign outward remittance

While the above reporting / compliance is applicable to foreign inward remittance, compliance exists for remittance from India to other countries also i.e., outward remittance. The government announced the Liberalised remittance scheme to facilitate such outward remittance. Under the FEMA regulations, a resident individual is permitted to acquire shares (including bonus shares) or debt instruments of companies abroad, subject to the rules and regulations contained in FEMA. This will also require certification from a CA as well as filing with the IT department.

Penal consequences

Non reporting for failure to report the transaction will invite penal provisions under FEMA. The Company shall have to apply to RBI for compounding of contravention under FEMA. Alternatively, the company make a suo motu application for compounding the delay or contravention. However, companies would benefit in the long run by complying with all reporting requirements rather than invite penal provisions, as such contraventions will come become glaring when the foreign investor wants to repatriate dividends or capital on a later date.

Conclusion

Both foreign inward and outward remittances are closely and continuously monitored by the government to ensure that there is no misuse of funds in the garb of remittance. Remittance – inward or outward require reporting / compliance at various levels. While it is not possible to gather and understand complex and ever changing FEMA laws, individuals and companies (in particular) can seek expert opinion in complying and keeping up with the FEMA laws as and when the need arises.  

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