Fema
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
21 June 2013
WHAT IS THE LAW ON RESIDENT CO. MAKING PAYMENT TO ANOTHER RESIDENT CO ON BEHALF OF A FOREIGN CO.
21 June 2013
IF PAYER CO IS MADE PAYMENT TO NON RESIDENT FOR ANY TYPE PAYMENT, IT WILL DEDUCT TDS U/S 195
21 June 2013
Mr. Rupes kindly read the question carefully the question has been asked with reference to FEMA.
24 July 2024
Under FEMA (Foreign Exchange Management Act) regulations in India, transactions involving payments made by one resident company to another resident company on behalf of a foreign company are subject to certain guidelines and conditions. Here’s a detailed explanation:
### Overview of FEMA Regulations:
1. **Definition of Resident and Non-Resident:**
- **Resident Company:** A company incorporated in India and whose control and management are wholly situated within India.
- **Non-Resident Company:** A company incorporated outside India.
2. **General Provisions:**
- FEMA regulates transactions involving foreign exchange and payments between residents and non-residents.
- Any payment made by a resident company to a non-resident entity (including a company) typically requires compliance with FEMA regulations, such as obtaining prior approval from the Reserve Bank of India (RBI) or adhering to specified limits and conditions.
3. **Payments on Behalf of a Foreign Company:**
- If a resident company makes a payment to another resident company on behalf of a foreign company, FEMA regulations consider this as a transaction involving foreign exchange implications.
- The resident company acting on behalf of the foreign company must ensure compliance with FEMA provisions related to:
- **Permissible transactions:** Ensuring that the nature of the transaction is permitted under FEMA regulations. Certain transactions may require specific approvals from the RBI.
- **Documentation:** Proper documentation and reporting of the transaction to the authorized dealer bank (AD Bank) through which the transaction is routed.
- **Transfer Pricing:** Compliance with transfer pricing regulations if the transaction involves inter-company payments that affect the transfer of funds outside India.
### Key Points to Consider:
- **Authorized Dealer Bank (AD Bank):** All transactions involving foreign exchange must be routed through an AD Bank, which oversees compliance with FEMA regulations.
- **Reporting Requirements:** Proper documentation, including contracts, invoices, and compliance with reporting requirements to the RBI through the AD Bank, is essential.
- **Tax Implications:** Ensure compliance with Indian tax laws, including withholding tax requirements on payments made to non-resident entities.
### Conclusion:
In summary, while resident companies can facilitate payments on behalf of foreign companies to other resident companies, they must adhere to FEMA regulations governing foreign exchange transactions. This includes obtaining necessary approvals, adhering to reporting requirements, and ensuring compliance with transfer pricing and tax regulations. Engaging with legal and financial advisors experienced in FEMA and international transactions is advisable to navigate these regulatory requirements effectively.
### Overview of FEMA Regulations:
1. **Definition of Resident and Non-Resident:**
- **Resident Company:** A company incorporated in India and whose control and management are wholly situated within India.
- **Non-Resident Company:** A company incorporated outside India.
2. **General Provisions:**
- FEMA regulates transactions involving foreign exchange and payments between residents and non-residents.
- Any payment made by a resident company to a non-resident entity (including a company) typically requires compliance with FEMA regulations, such as obtaining prior approval from the Reserve Bank of India (RBI) or adhering to specified limits and conditions.
3. **Payments on Behalf of a Foreign Company:**
- If a resident company makes a payment to another resident company on behalf of a foreign company, FEMA regulations consider this as a transaction involving foreign exchange implications.
- The resident company acting on behalf of the foreign company must ensure compliance with FEMA provisions related to:
- **Permissible transactions:** Ensuring that the nature of the transaction is permitted under FEMA regulations. Certain transactions may require specific approvals from the RBI.
- **Documentation:** Proper documentation and reporting of the transaction to the authorized dealer bank (AD Bank) through which the transaction is routed.
- **Transfer Pricing:** Compliance with transfer pricing regulations if the transaction involves inter-company payments that affect the transfer of funds outside India.
### Key Points to Consider:
- **Authorized Dealer Bank (AD Bank):** All transactions involving foreign exchange must be routed through an AD Bank, which oversees compliance with FEMA regulations.
- **Reporting Requirements:** Proper documentation, including contracts, invoices, and compliance with reporting requirements to the RBI through the AD Bank, is essential.
- **Tax Implications:** Ensure compliance with Indian tax laws, including withholding tax requirements on payments made to non-resident entities.
### Conclusion:
In summary, while resident companies can facilitate payments on behalf of foreign companies to other resident companies, they must adhere to FEMA regulations governing foreign exchange transactions. This includes obtaining necessary approvals, adhering to reporting requirements, and ensuring compliance with transfer pricing and tax regulations. Engaging with legal and financial advisors experienced in FEMA and international transactions is advisable to navigate these regulatory requirements effectively.
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