Executive Summary:
This notification, No. FEMA 10 R/2016-RB, issued on June 01, 2016, amends the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015. The amendment allows Indian startups with overseas subsidiaries to open foreign currency accounts outside India for export earnings. It also allows insurance/reinsurance companies to hold Foreign Currency Accounts outside India for expenses related to their business. These regulations come into force from the date of publication in the official Gazette.
Key Points / Main Content:
* **Short Title and Commencement:**
* These regulations are called the "Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Amendment Regulations, 2016."
* They are effective from the date of publication in the official Gazette.
* **Amendment to Regulation 5:**
* Existing sub-regulation E is renumbered as F.
* Renumbered regulation F(3) is substituted to allow insurance/reinsurance companies registered with IRDA to open, hold, and maintain Foreign Currency Accounts outside India to meet expenses incidental to their business, crediting it with insurance/reinsurance premia received outside India.
* A new sub-regulation E is inserted:
* Indian startups (or entities notified by RBI with Central Government consultation) with overseas subsidiaries can open foreign currency accounts with banks outside India.
* The purpose is to credit foreign exchange earnings from export sales by the entity and/or receivables from export sales of its overseas subsidiary.
* Balances must be repatriated to India within the period prescribed in the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.
* A startup is defined as an entity complying with Notification No. G.S.R 180(E) dated February 17, 2016, issued by the Department of Industrial Policy and Promotion.
* **Amendment to Schedule 1:**
* In Paragraph 1, subparagraph 1, after clause (vi), a new clause (vii) is added:
* Allows payments received in foreign exchange by an Indian startup or notified entity from export sales by the entity or its overseas subsidiaries to be credited to the account.
* Startup definition is consistent with Notification No. G.S.R 180(E) dated February 17, 2016.
Impact Analysis:
* **Indian Startups with Overseas Subsidiaries:**
* Impact: Facilitates easier management of foreign exchange earnings from exports and receivables of overseas subsidiaries, providing flexibility in international trade.
* Action Required: Comply with the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016, and repatriate balances within the prescribed period as per Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.
* **Insurance/Reinsurance Companies Registered with IRDA:**
* Impact: Allows for the efficient handling of foreign exchange for expenditures related to insurance/reinsurance business carried on outside India.
* Action Required: Ensure compliance with regulations while opening, holding, and maintaining foreign currency accounts.
* **Reserve Bank of India:**
* Impact: Oversees and regulates foreign exchange transactions related to foreign currency accounts held by Indian residents, including startups and insurance/reinsurance companies.
* Action Required: Monitor and enforce compliance with the amended regulations.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's monetary policy and foreign exchange.
Foreign Exchange Management Act, 1999: An act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Foreign Currency Accounts by a person resident in India Regulations, 2015: Regulations pertaining to foreign currency accounts held by individuals residing in India.
Insurance Regulatory and Development Authority of India: A regulatory body in India responsible for regulating and developing the insurance industry.
Foreign Exchange Management Export of Goods and Services Regulations, 2015: Regulations governing the export of goods and services from India and related foreign exchange management aspects.
Central Government: The executive branch of the Government of India.
Department of Industrial Policy and Promotion, Ministry of Commerce and Industry: A department under the Ministry of Commerce and Industry, Government of India, responsible for formulation and implementation of industrial policy and promotion of foreign investment.
Mumbai, Maharashtra: The financial capital of India, located in the state of Maharashtra.
RESERVE BANK OF INDIA
FOREIGN EXCHANGE DEPARTMENT
CENTRAL OFFICE
MUMBAI 400 001
Notification No. FEMA 10 (R)/(1)/2016-RB June 01, 2016
Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment)
Regulations, 2016
In exercise of the powers conferred by Section 9 and clause (e) of sub-section (2) of section 47 of the Foreign Exchange
Management Act, 1999 (42 of 1999), the Reserve Bank of India makes the following amendments in the Foreign
Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015 [Notification No.
FEMA 10(R)/2015-RB dated January 21, 2016], namely:
1. Short Title & Commencement:-
(i) These Regulations may be called the Foreign Exchange Management (Foreign Currency Accounts by a person
resident in India) (Amendment) Regulations, 2016.
(ii) They shall come into force from the date of publication in the official Gazette.
2. Amendment to Regulation 5
A. The existing sub-regulation (E) shall be re-numbered as (F).
B. In the re-numbered regulation (F), the existing sub-regulation (3) shall be substituted by the following namely:
“Insurance/reinsurance companies registered with Insurance Regulatory and Development Authority of India
(IRDA) to carry out insurance/reinsurance business may open, hold and maintain a Foreign Currency Account
with a bank outside India for the purpose of meeting the expenditure incidental to the insurance/reinsurance
business carried on by them and for that purpose, credit to such account the insurance/reinsurance premia
received by them outside India.”
C. After the existing sub-regulation (D), the following shall be inserted namely:-
“(E) Accounts in respect of Startups
An Indian startup or any other entity as may be notified by the Reserve Bank in consultation with the
Central Government, having an overseas subsidiary, may open a foreign currency account with a bank
outside India for the purpose of crediting to it foreign exchange earnings out of exports/ sales made by
the said entity and/ or the receivables, arising out of exports/ sales, of its overseas subsidiary.
Provided that the balances in the account shall be repatriated to India within the period prescribed in
Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 dated January 12,
2016, as amended from time to time, for realization of export proceeds.
Explanation: For the purpose of this sub-regulation a ‘startup’ means an entity which complies with
the conditions laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by
Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of
India.”
3. Amendment to Schedule 1
In Paragraph 1, in sub-paragraph (1), after the existing clause (vi), the following shall be inserted namely:-
“vii) Payments received in foreign exchange by an Indian startup, or any other entity as may be notified by the
Reserve Bank in consultation with the Central Government, arising out of exports/ sales made by the said
entity or its overseas subsidiaries, if any.Explanation: For the purpose of this schedule a ‘startup’ means an entity which complies with the conditions
laid down in Notification No. G.S.R 180(E) dated February 17, 2016 issued by Department of Industrial Policy
and Promotion, Ministry of Commerce and Industry, Government of India.”
(J. K. Pandey)
General Manager (Officer- in- charge)
Foot Note:-
The Principal Regulations were published in the Official Gazette vide G.S.R. No.96 (E) dated January 21, 2016 in Part
II, Section 3, sub-Section (i).
Published in the Official Gazette of Government of
India – Extraordinary – Part-II, Section 3,
Sub-Section (i) dated 01.06.2016- G.S.R.No.570(E)