check list Establishment of overseas offices by Indian firms/companies

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).

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:

	Category	Initial Expenditure	Recurring Expenditure (per annum)
(a)	EEFC Account(Exchange Earners’ Foreign Currency account)	No limit for remittances out of EEFC funds.	No limit for holders remittances out Of EEFC funds.
(b)	Firms/companiesnot having EEFCaccounts or nothaving sufficientfunds EEFC accouts.	Up to 2% of their average annual sales/income turnover during last two years.	Up to 1% of their average annual sales/income turnover during last two years.

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:

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 utilised 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 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 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