Executive Summary:
This document is a notification from the Reserve Bank of India regarding amendments to the Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015. It allows Indian startups with overseas subsidiaries to open foreign currency accounts outside India for export earnings, subject to repatriation timelines. The regulations came into force on June 1, 2016, 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 came into force on the date of publication in the official Gazette (June 1, 2016).
* **Amendment to Regulation 5:**
* Subregulation E is renumbered as F.
* Renumbered subregulation F(3) is substituted to allow insurance/reinsurance companies registered with IRDA to maintain foreign currency accounts for incidental expenditure and credit premium received from outside India.
* Subregulation E is inserted to allow Indian startups (or entities notified by the Reserve Bank) with overseas subsidiaries to open foreign currency accounts outside India for export earnings and receivables.
* Balances in these accounts 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 180E 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, clause vii is inserted.
* Clause vii allows payments received in foreign exchange by an Indian startup (or entity notified by the Reserve Bank) from export sales by the entity or its overseas subsidiaries to be credited to the foreign currency account.
* The definition of "startup" in this schedule is the same as in the amendment to Regulation 5.
Impact Analysis:
**Indian Startups with Overseas Subsidiaries:**
* Impact: Startups are now permitted to open foreign currency accounts outside India to manage export earnings and receivables from their overseas subsidiaries.
* Action Required: Startups must ensure that they meet the definition of a "startup" as per Notification No. G.S.R 180E and must repatriate the balances in the foreign currency account within the stipulated timeframe as per the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.
**Insurance/Reinsurance Companies registered with IRDA:**
* Impact: Insurance/Reinsurance companies are allowed to maintain foreign currency accounts for incidental expenditure and credit premium received from outside India.
* Action Required: To ensure operations are in compliance with the renumbered subregulation F(3).
**Reserve Bank of India:**
* Impact: Responsible for overseeing and regulating the new provisions related to foreign currency accounts for startups and insurance/reinsurance companies.
* Action Required: To notify other entities besides startups, in consultation with the Central Government, that can avail of this provision.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market and issuing notifications related to foreign exchange management.
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 issued by the Reserve Bank of India pertaining to foreign currency accounts held by Indian residents.
Foreign Exchange Management Export of Goods and Services Regulations, 2015: Regulations related to the export of goods and services and the realization of export proceeds.
Mumbai, Maharashtra: The city where the Central Office of the Foreign Exchange Department of the Reserve Bank of India is located.
Insurance Regulatory and Development Authority of India: A regulatory body that regulates and develops the insurance industry in India.
Department of Industrial Policy and Promotion, Ministry of Commerce and Industry: A department of the Government of India responsible for formulation and implementation of industrial policy and promotion of investments.
G.S.R. 180E: A notification issued by the Department of Industrial Policy and Promotion defining the conditions to be met by a startup.
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RESERVE BANK OF INDIA
(Foreign Exchange Department)
(CENTRAL OFFICE)
NOTIFICATION
Mumbai, the 1st June, 2016
No. FEMA10(R)/(1)/2016-RB
Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) (Amendment)
Regulations, 2016
G.S.R. 570(E).—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:¹Hkkx IIµ[k.M 3(i)º Hkkjr dk jkti=k % vlk/kj.k 3
1. Short Title and 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.”
[F. No. 1/13/EM/2016]
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).
Uploaded by the Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064
and Published by the Controller of Publications, Delhi-110054.