Master Circular - FEMA


CA. DIVYANSHU AGRAWAL (M.COM, LLB, ACA)     24 May 2010

CA. DIVYANSHU AGRAWAL
M.COM LLB ACA 
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Dear Friends,

 

This is with reference to one of our client which is a private limited company based in New Delhi and is engaged in EPC business.

 

The client has been invited by one of the Indian company to bid for construction of Plants on EPC basis for its subsidiary company in Egypt. The client is interested in setting up branch office/Project Office in Egypt after winning the bid for construction of abovementioned plant for executing the project.  The regulatory condition to be fulfilled by client is coming from the Master Circular issued by foreign exchange department of Reserve Bank of India.

 

Referring the Master Circular No. 9/2009-10, dated 1-7-2009, issued by foreign exchange department of Reserve Bank of India on “Master Circular on Export of Goods and Services” which states under the heading “Setting up of Offices Abroad and Acquisition of Immovable Property for Overseas Offices” the following conditions which are as follows:

 

·         “At the time of setting up of the office, AD Category-I banks may allow remittances towards initial expenses 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.

·          For recurring expenses, remittances up to ten per cent of the average annual sales/income or turnover during the last two financial years may be sent for the purpose of normal business operations of the office (trading/non-trading)/branch or representative office outside India subject to the following terms and conditions :

-      the overseas branch/office has been set up or representative is posted overseas for conducting normal business activities of the Indian entity;

-      the overseas branch/office/representative shall not enter into any contract or agreement in contravention of the Act, Rules or Regulations made thereunder;

-      the overseas office (trading/non-trading)/branch/representative should not create any financial liabilities contingent or otherwise for the head office in India and also not invest surplus funds abroad without prior approval of Reserve Bank. Any funds rendered surplus should be repatriated to India. “ 

 

We could not find the meaning of initial expenses, recurring expenses and financial liabilities in the abovementioned Master Circular and any other circulars issued by the RBI.

 

Could you please let us know the meaning of these terms highlighted in bold above.

 

Should you have any doubt, please do let us know.

 

Thanks & regards,

CA. Divyanshu Agrawal

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raspreet kaur (job)     24 May 2010

raspreet kaur
job 
 3 likes  55 points

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Initial expenses may mean the Capex required for setting up the branch office.

Recurring expenses may mean the revenue expenditure required for day to day working.

Financial liability may mean loan term liability which may be in the form of loan repayment, guarantee etc.

Views of other members are solicited.


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