Legal compliance for bank on remittance in foreign exchange
This query is : Resolved
18 March 2016
Sir,
What are the legal compliance and documentation for bank, when bank remitted the amount of interim dividend declared by any indian private company. Remittance will be made in foreign exchange.
02 August 2024
When a bank remits an amount of interim dividend declared by an Indian private company to a foreign entity, there are specific legal and regulatory compliance requirements under the Foreign Exchange Management Act (FEMA) and other applicable regulations in India. Below are the key compliance aspects and required documentation:
### **Legal Compliance for Bank Remittance of Interim Dividend**
#### **1. Foreign Exchange Management Act (FEMA) Compliance**
**1.1 **Permissible Remittances**:
- **Dividend Remittance**: Under FEMA, remittances of dividends to foreign shareholders are permissible. The remittance must comply with the regulations set by the Reserve Bank of India (RBI).
**1.2 **Adherence to FEMA Regulations**:
- **Regulation**: The remittance must adhere to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017.
**1.3 **Tax Compliance**:
- **Withholding Tax**: Ensure that the Indian company has complied with the applicable withholding tax requirements before remitting the dividend. The Indian company should deduct tax at source (TDS) on the dividend and deposit it with the tax authorities.
#### **2. Documentation Required by the Bank**
**2.1 **Application for Remittance**:
- **Form A2**: The Indian company must fill out and submit Form A2 to the bank. This form is used for remittance of foreign exchange and includes details of the transaction, including the amount and purpose of the remittance.
**2.2 **Dividend Declaration Proof**:
- **Board Resolution**: A certified copy of the board resolution of the Indian company declaring the interim dividend.
- **Dividend Declaration**: A copy of the dividend declaration and the corresponding payment advice.
**2.3 **Tax Compliance Documents**:
- **Tax Deducted at Source (TDS)**: Proof of tax payment on the dividend, such as a challan or TDS certificate.
**2.4 **Shareholder Details**:
- **Details of Foreign Shareholder**: Information about the foreign shareholder to whom the dividend is being remitted, including their bank account details, and any necessary identification or KYC (Know Your Customer) documents.
**2.5 **Reserve Bank of India (RBI) Approval**:
- **Automatic Route**: For most dividend remittances, approval under the automatic route is sufficient. However, for any specific case requiring prior RBI approval, ensure that it is obtained.
**2.6 **Corporate Documents**:
- **Certificate of Incorporation**: A copy of the Indian company’s Certificate of Incorporation.
- **Memorandum and Articles of Association**: Relevant documents that may be required by the bank to verify the company’s details.
**2.7 **Others**:
- **Bank's Due Diligence**: Banks may require additional due diligence documentation depending on their internal policies and regulatory requirements.
### **Steps for Compliance**
1. **Preparation of Documents**: Gather all required documentation including board resolutions, TDS proof, and Form A2.
2. **Submission to Bank**: Submit the completed Form A2 and all supporting documents to the bank for processing the remittance.
3. **Tax Compliance**: Ensure that TDS has been correctly deducted and deposited with the Indian tax authorities.
4. **RBI Regulations**: Verify that the remittance complies with RBI regulations and seek approval if necessary.
### **Summary**
1. **Adherence to FEMA Regulations**: Ensure compliance with FEMA regulations for remittance of dividends.
2. **Documentation**: Provide Form A2, proof of dividend declaration, TDS compliance, shareholder details, and corporate documents.
3. **Bank Procedures**: Follow the bank’s procedural requirements for processing foreign exchange remittances.
For detailed guidance, it is advisable to consult with a financial or legal advisor specializing in foreign exchange regulations to ensure all compliance requirements are met effectively.
### **Legal Compliance for Bank Remittance of Interim Dividend**
#### **1. Foreign Exchange Management Act (FEMA) Compliance**
**1.1 **Permissible Remittances**:
- **Dividend Remittance**: Under FEMA, remittances of dividends to foreign shareholders are permissible. The remittance must comply with the regulations set by the Reserve Bank of India (RBI).
**1.2 **Adherence to FEMA Regulations**:
- **Regulation**: The remittance must adhere to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, and the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017.
**1.3 **Tax Compliance**:
- **Withholding Tax**: Ensure that the Indian company has complied with the applicable withholding tax requirements before remitting the dividend. The Indian company should deduct tax at source (TDS) on the dividend and deposit it with the tax authorities.
#### **2. Documentation Required by the Bank**
**2.1 **Application for Remittance**:
- **Form A2**: The Indian company must fill out and submit Form A2 to the bank. This form is used for remittance of foreign exchange and includes details of the transaction, including the amount and purpose of the remittance.
**2.2 **Dividend Declaration Proof**:
- **Board Resolution**: A certified copy of the board resolution of the Indian company declaring the interim dividend.
- **Dividend Declaration**: A copy of the dividend declaration and the corresponding payment advice.
**2.3 **Tax Compliance Documents**:
- **Tax Deducted at Source (TDS)**: Proof of tax payment on the dividend, such as a challan or TDS certificate.
**2.4 **Shareholder Details**:
- **Details of Foreign Shareholder**: Information about the foreign shareholder to whom the dividend is being remitted, including their bank account details, and any necessary identification or KYC (Know Your Customer) documents.
**2.5 **Reserve Bank of India (RBI) Approval**:
- **Automatic Route**: For most dividend remittances, approval under the automatic route is sufficient. However, for any specific case requiring prior RBI approval, ensure that it is obtained.
**2.6 **Corporate Documents**:
- **Certificate of Incorporation**: A copy of the Indian company’s Certificate of Incorporation.
- **Memorandum and Articles of Association**: Relevant documents that may be required by the bank to verify the company’s details.
**2.7 **Others**:
- **Bank's Due Diligence**: Banks may require additional due diligence documentation depending on their internal policies and regulatory requirements.
### **Steps for Compliance**
1. **Preparation of Documents**: Gather all required documentation including board resolutions, TDS proof, and Form A2.
2. **Submission to Bank**: Submit the completed Form A2 and all supporting documents to the bank for processing the remittance.
3. **Tax Compliance**: Ensure that TDS has been correctly deducted and deposited with the Indian tax authorities.
4. **RBI Regulations**: Verify that the remittance complies with RBI regulations and seek approval if necessary.
### **Summary**
1. **Adherence to FEMA Regulations**: Ensure compliance with FEMA regulations for remittance of dividends.
2. **Documentation**: Provide Form A2, proof of dividend declaration, TDS compliance, shareholder details, and corporate documents.
3. **Bank Procedures**: Follow the bank’s procedural requirements for processing foreign exchange remittances.
For detailed guidance, it is advisable to consult with a financial or legal advisor specializing in foreign exchange regulations to ensure all compliance requirements are met effectively.
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