foreign trade, nr is and international business

5 DECEMBER 09 www.afterschoool.tk 1

FOREIGN TRADE, NRIs AND INTERNATIONAL BUSINESS

by :

DR. T.K. JAIN

AFTERSCHO☺OL

centre for social entrepreneurship

sivakamu veterinary hospital road

bikaner 334001 rajasthan, india

[email protected]

mobile : 91+9414430763


IMPORTANT INFORMATION DOCUMENTS

EXIM POLICY HANDBOOK OF IMPORT AND EXPORT

PROCEDUREFEMA

EXCHANGE CONTROL MANUALSFEDAI DOCUMENTS


IMPORTANT DOCUMENTS AT THE TIME OF IMPORT

IMPORT LICENSEFOREIGN EXCHANGE CONTROL COPY

BILL OF ENTRY FOR HOME CONSUMPTION

CUSTOMS ASSESSMENT CERTIFICATE OR POSTAL ASSESSMENT FORM


OPENING L/C Importer will approach his bank for opening an

L/CL/C = Letter of credit

the bank of the importer will give a guarantee about payment to the bank of the exporter

under L/C. When the exporter exports, he can obtain immediate payment from his bank on producing L/C of the importer's bank. The

banks will have transaction between themselves.


Difference between packing credit and L/C

Packing credit is issued to exporter, but L/C is issued to importer. Packing credit covers all the expenditure till export, L/C covers the price of

import = and as per this the exporter gets payment as soon as he exports. The bank of the importer provides this facility to the importer

against some charges.


Foreign exchange requirements

Importer requires foreign exchange for imports. The banker / authorised dealer

provides foreign exchange after looking at the necessary documents like import licence etc. The foreign exchange must be used for the purpose for which it has been obtained. The banker / authorised dealer has to ensure that

only that amount is released which is actually required.


Mode of payment

Authorised dealers will ensure that payment regarding impor is made in account. Cash

payments are not permitted. In case advance payment is made, physical

goods must come in 3 months. If the amount is more than $25000 then there must be a

guarantee from some international bank. Proper EC copy must be submitted by the

importer


Time limit for settlement

Import payments must be settled within 6 months from the date of import. If it is more than 6 months, then it will be treated as ECB

(external commercial borrowing) and will require prior permission of RBI/ Government


Export remittances

The exporter has to declare exports to RBI and has to ensure that payments are received within

time and as per approved methods of payments. Payments can be collected through

bank account / international credit card / FCNR / NRE account / escrow account etc


Exports that dont require declarations....

Demonstrations / sales promotions (UPTO 2% OF TOTAL EXPORTS ONLY) , gifts (upto 1 lakhs), exports for reimports only, goods sent for repairs, goods less than 25000 rupees in value, samples, publicity material, personal

goods of travellers.


What is consignment export ?

Consignment means you are sending goods to someone for trade on your responsibility – and

if goods are not sold, they are your property and you may get it back. Consignment export means sale or return back. It has to be settled

in 6 months.


Exports requiring RBI approval

Examples : project exports, export as contract against imports, elongated payment period,

exports relating to agrements of government of India or other governments


Remittances relating to exports...

These include : agency commission, export claims etc.


SEZ

If you are operating from SEZ you are permitted to have foriegn currency account

with an authorised dealer


Authorised dealers

These are listed with RBI as per FEMA, they have to obtain RBI permission for some

specified business transactions. Example: they cannot give guarantee in favour of exporters

without RBI permission unless that exporter is listed as non-caution exporter.


Forfaiting

Factoring and forfaiting can be undertaken by EXIM bank / authorised dealers. Under this

they collect payments regarding export receivables against commission.


New trends....

Indian companies are now permitted to have foreign exchange accounts in other countries

and to have properties in other coutnries (with prior approval from RBI) and they can acquire businesses / firms in other countries also as per

their business requiremetns (as per govt. Policies) .


PEM

PEM stands for Project Export memorandum – when companies are entering into project

exports, they have to follow guidelines relating to this. Project exports generally has deferred payments - therefore prior permission must

obtained before enteringi into PEM.


Other provisions

Authorised dealers have to ensure that they get copesof GR Form and other documents

required andforeign currency is used for acutal import / export and all required documents are

submitted.


FDI

Upto 100% Foreign Direct Investment is permitted under automatic route in many

sectors. Investors will have to inform regional office of RBI in 30 days of remittances. In

some sectors industrial licence is required and in some sectors, FDI is not permitted. But in

most of the sector, now it is permitted including atomic energy etc.


Shares issue to NRIs

Within 30 days of share issue to Non-residents, FC – GPR form has to be submitted. They have

to submit all the details like they have implemented all the provisions of companies

act & FEMA for this purpose.


Transfer from NR

Now non residents can transer shares to other non-residents / residents and such transfer can be for consideration / as a gift. This tranfer can be only to an NRI / resident Indian. They

can also sell it in stock exchanges through brokers. They will have to take NOC from

income tax department


Tranfer by residents

As per RBI notification of 2000, residents can also tranfer to non-residents – as per FEMA – so long as it is in automatic route. You have to keep in mind SEBI (Substantial acquisition of

shares and takeover) regulation 1997 + required regulations under IRDA or other such

laws.


Permission from RBI

If it is not falling in automatic route, apply for permission to RBI with a copy of FIPB approval and details like pric, mode of

payment etc. Price must not be lower than the higher of the average weekly high / low of last

6 months. FC-GPR form with details of existing shareholding must also be submitted.


FDI in different modes

FEMA regulations 2000 give schedule I which gives list of industries for which automatic route is there. It doesnt requre prior RBI permission, for othe industries, take prior

permission from RBI. Rate of dividend should not exceed SBI prime lending rate + 300 basis points. For other sectors take permission from

SIA / FIPB/ RBI for investments.


PORTFOLIO INVESTMENT

FIIs including asset management companies, mutual funds, hedge funds etc. Are permitted to invest in shares in India. FII have to invest in ratio of 70:30 in equity and debt when they

invest in India, they are also permitted to invest as 100% debt.


Limits for FII investment

An NRI / PIO can buy upto 5% in a company. All NRI/PIO/OCB can invest upto 10% in a

company. A single FII can invest upto 10% in a company and all FIIs together can invest upto

24% in a company. Companies can raise this limit by passing board resolution and special

resolution in general meeting subject to sectoral cap (like 49'% or 74% etc.)


FII dealings

FII can deal through stock exchanges without RBI permission, but if they are dealing without

stock exchanges, they have to obtain permission from RBI.


NRI dealings

NRIs have to deal through NRE /FCNR account only. Sometimes they are permitted to

deal in NRO account also – when they are investing on non-repatriation basis.


PERMITTED FIIs

FOLLOWNG CAN REGISTER AS FII WITH RBI & SEBI:

banks, pension funds, hedge funds, mutual funds, insurance companies, investment funds

etc.


ECB

External commercial borrowings : Indian comapnies can raise loans from other countries through various routes like : FRN (floating rate

note), ECP (euro commercial paper), FCCB (foreign currency convertible bond), NIF (note

issue facility), syndicate loan, etc.


ECB MECHANISMS

Companies engage in many ECB mechanisms like :

arbitragehedging

underwriting fund raising etc.


ADR /GDR

American depository receipt / Global depository receipt are permitted by RBI as per scheme of 1993, companies can also sponsor issue of ADR / GDR. Infosys, Wipro etc. Are some of the companies which went for ADR /

GDR during 1990s. After ADR/ GDR company will have to submit return in proforma as per annexure C of RBI

notification 2000.


Royalty / technical fees

Upto $2million of royalty upto 5% of domestic sale or 8% of export sale is permitted

as royalty.


EEFC account

Exchange Earners Foreign Currency account – a person who has earned foreign currency can retain 50% of the foreign currency earned in EEFC account with authorised dealers. This

account can be used for current account transactions or for permitted capital account

transactions.


RFC account

Resident foreign currency account – if an NRI is returning India for ever, he can keep his

foreign currency in RFC account and there are no restriction on use of funds in RFC account.


RFC (DOMESTIC) ACCOUNT

A Resident who lives in India but receives foreign exchange payments / honorarium can open RFC (Domestic) account for retaining

such payments.


Liberalised Remittance Scheme

Residents can use upto $25000 for payments for permitted transactions per annum in this

scheme Foreign Exchange Management (current account transactions) rules 2000

schedule I and II.


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