presentation on export and import regulations by ca. sudha g. bhushan

Presentation on Exports and Import

Presentation on Import and Export

The Chamber of Tax Consultants

Basic Intensive Study Course on FEMA

21 Oct 2016 || M.C. Ghia Hall, Mumbai

BY CA. Sudha G. Bhushan Associate Director – International Transaction Advisory Services

Taxpert Professionals

Index of the Presentation

• Exports • Ecosystem of Exports

• Foreign Trade Policy 2015-2020

• Foreign Exchange Management Act,1999

• Export related sections

• Notification No. 9, 6,14 and 23

• Balance Sheet Assessment

• Practical Aspects

• Imports • Ecosystem of Imports

• Practical Aspects

• Repatriation of dues and obligations


EXPORT

The Eco System of Exports

G

ove

rnin

g R

eg

ula

tio

ns

Foreign Exchange Management Act, 1999

Foreign Trade Policy and the Rules framed by the Government of India

Foreign Exchange Management (Export of Goods and Services) Regulations, 2015

FED Master Direction No. 16/2015-16 Master Direction on Export of Goods and Services

FEM (Manner of Receipt and Payment) Regulations, 2016

FEM (Realisation, Repatriation and surrender of foreign Exchange) Regulations, 2000

Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015

Foreign Trade Policy

Notified under Section 5 of Foreign Trade (

Development & Regulation)Act, 1992

Handbook of Procedures

For Five years 2015-20

Two new Scheme introduced in

FTP 2015 -2020

-MEIS and SEIS

Skill India Paperless Processing

Chapter 1 : Legal Framework and Trade

Facilitation

Chapter 2: General Provisions regarding imports and exports

Chapter 3 : Exports from India Schemes

Chapter 4: Duty exemption/remission

Schemes

Chapter 5 : Export Promotion capital

Goods Scheme

Chapter 6: EOU, EHTPs STPs,

Biotechnology Park

Chapter 7: Deemed Exports

Chapter 8: Quality complaints and trade

disputes

Chapter 9 : Definitions

Foreign Trade Policy 2015-2020

Regulatory Frame

work

Foreign Exchange

Management Act, 1999

Regulations CG/RBI

Rules - Central Government

Notifications

Circulars

Master Circulars

Master Directions

FDI Policy DIPP

Regulatory Framework || FEMA

Scheme of the Act

Chapters Matters Sections

I Preliminary, Preamble and Definitions 1 to 2

II Regulation and management of Foreign Exchange 3 to 9

III Authorised Person 10 to 12

IV Contravention and Penalties 13 to 15

V Adjudication and procedure for appeal 16 to 35

VI Directorate of Enforcement 36 to 38

VII Miscellaneous Provisions 39 to 49

Scheme of the Act || FEMA

Regulators under || FEMA

Regulators under FEMA

Central Government

Ministry of Commerce and Industry

Department of Policy and Promotion

Ministry of Finance

Department of Revenue

Enforcement Directorate

Department of Economic Affairs

Foreign Investment Promotion Board

Reserve Bank of India

Set up in 1958

an Association of Authorised Dealers as a self regulatory body

incorporated under Section 25 of The Companies Act, 1956.

plays a catalytic role for smooth functioning of the markets through closer co-ordination with the RBI

major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market.

Presently some of the functions are as follows:

Guidelines and Rules for Forex Business.

Training of Bank Personnel in the areas of Foreign Exchange Business.

Accreditation of Forex Brokers

Advising/Assisting member banks in settling issues/matters in their dealings.

Represent member banks on Government/Reserve Bank of India/Other Bodies.

Announcement of daily and periodical rates to member banks.

Foreign Exchange Dealer's Association of India

an inter-governmental body established in 1989

by the Ministers of its Member jurisdictions.

a poli -making od which works to generate the necessary political will to bring about national legislative and regulatory reforms.

Objective

To set standards and promote effective implementation of legal, regulatory and operational measures for

• combating money laundering,

• terrorist financing and

• other related threats

to the integrity of the international financial system.

Financial Action Task Force (FATF)

• Established with its head quarters at Tehran, Iran, on December 9, 1974

• at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), for promoting regional co-operation.

• The Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are currently the members of the ACU.

• All eligible transactions between member countries required to be settled through the ACU (for export / import transaction between ACU member countries on deferred payment terms)

Objective

To facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.

Asian Clearing Union (ACU)

Section Vis a Vis the Regulation

Section 7/ Section 47

• Foreign Exchange Management (Export of Goods and Services) Regulations, 2015

Section 8/ Section 10(6)/Section 47

• FEM (Realisation, Repatriation and surrender of foreign Exchange) Regulations, 2000

Section 9/Section 47

• Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015

Section 47

• Foreign Exchange Management (Manner of Receipt And Payment) Regulations, 2000

Main Sections under FEMA relating to Export || Section 2, Section 7, Section 8, Section 9

Section 7

Declaration of Exports

Every exporter of goods: • shall furnish to the RBI or to such other authority

• a declaration in such form and

• in such manner as may be specified,

• containing true and correct material particulars,

• including the amount representing • the full export value or,

• if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in a market outside India;

• furnish to the RBI such other information as may be required by the RBI

for the purpose of ensuring the realisation of the export proceeds by such exporter.

The Reserve Bank may, for the purpose of ensuring that the full export value direct any exporter to comply with such requirements as it deems fit.

Every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services.

Declaration of Exports

Realization and repatriation of foreign exchange

where any amount of foreign exchange is due or has accrued to any person resident in India,

such person shall take all reasonable steps

to realize and

repatriate to India

such foreign exchange

within such period and in such manner as may be specified by the Reserve Bank.

Section 8

FEM (Realisation, Repatriation And Surrender of Foreign Exchange) Regulations, 2000

The Regulation relates to the manner of, and the period for, realisation of foreign exchange, repatriation of realised foreign exchange to India and its surrender.

Index to Regulation:

Short title and commencement

Definitions

Duty of persons to realise foreign exchange due

Manner of Repatriation

Period for surrender of realised foreign exchange

Period for surrender in certain cases

Exemption

Notification 9

Section 9

Exemption from realization and repatriation in certain cases

(a) possession of foreign currency or foreign coins by any person up to such limit as the Reserve Bank may specify;

(b) foreign currency account held or operated by such person or class of persons and the limit up to which the Reserve Bank may specify;

(c) foreign exchange acquired or received before the 8th day of July, 1947 or any income arising or accruing thereon which is held outside India by any person in pursuance of a general or special permission granted by the Reserve Bank;

(d) foreign exchange held by a person resident in India up to such limit as the Reserve Bank may specify, if such foreign exchange was acquired by way of gift or inheritance from a person referred to in clause (c), including any income arising there from;

(e)foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts, inheritance or any other legitimate means up to such limit as the Reserve Bank may specify; and

(f) such other receipts in foreign exchange as the Reserve Bank may specify.

FEM(Possession and Retention of Foreign Currency) Regulations, 2015

The objective of regulation is to keep under control and put limits on possession and retention of foreign currency.

For the purpose of clause (a) and clause (e) of Section 9 of the Act, the Reserve Bank specifies the limits for possession or retention of foreign currency or foreign coin.

A person resident in India but not permanently resident therein may possess without limit foreign currency in the form of currency notes, bank notes and travellers cheques, if such foreign currency was acquired, held or owned by him when he was resident outside India and, has been brought into India in accordance with the regulations made under the Act.


Short title & commencement

Definitions

Limits for possession and retention of foreign currency or foreign coins

Possession of foreign exchange by a person resident In India but not permanently resident therein

Notification 11 R

(1) The Reserve Bank may, by notification, make regulations, to carry out the provisions of this Act and the rules made thereunder.

(2) Without prejudice to the generality of the foregoing power, such regulations may provide for,—

[(a)the permissible classes of capital account transactions involving debt instruments determined under sub-section (7) of section 6, the limits of admissibility of foreign Subs. by Finance Act, 2015 (20 of 2015), dated 14-05-2015 and effective from 9th day of September, 2015, prior to substitution it read as:

(a)the permissible classes of capital account transactions, the limits of admissibility of foreign exchange for such transactions, and the prohibition, restriction or regulation of certain capital account transactions under section 6; e ha ge for such transactions, and the prohibition, restriction or regulation of such capital account transactions under section 6;]

(b) the manner and the form in which the declaration is to be furnished under clause (a) of sub-section (1) of section 7;

(c) the period within which and the manner of repatriation of foreign exchange under section 8;

(d) the limit up to which any person may possess foreign currency or foreign coins under clause (a) of section 9;

(e) the class of persons and the limit up to which foreign currency account may be held or operated under clause (b) of section 9;

(f) the limit up to which foreign exchange acquired may be exempted under clause (d) of section 9;

(g) the limit up to which foreign exchange acquired may be retained under clause (e) of section 9;

["(ga) export, import or holding of currency or currency notes;]

(h) any other matter which is required to be, or may be, specified.

Section 47 || Power to make Regulations

(3)All regulations made by the Reserve Bank before the date on which the provisions of this section are notified under section 6 and section 47 of this Act on capital account transactions, the regulation making power in respect of which now vests with the Central Government, shall continue to be valid, until amended or rescinded by the Central Government.

Section 47 || Power to make Regulations

Shifting of Power

From RBI To Central

Government

Notification 14 FEM(Manner of Receipt and Payment) Regulations, 2016

Regulates and keeps under the control manner of receipt and payment in foreign exchange.

Lays down the conditions for receipt and payment in foreign currency.

Nothing other than that laid down in the regulation shall be accepted.


Short title and commencement

Definitions

Manner of Receipt in Foreign Exchange

Payment for export in certain cases

Manner of payment in foreign exchange

Manner of Payment in certain cases

Items of Balance sheet concerning Export/Import

Export || Definition

Section 2(l) of FEMA defines the term e port as : export , ith its gra atical ariatio s a d

cognate expressions, means—

(i) the taking out of India to a place outside India any goods,

(ii) provision of services from India to any person outside India.

Dee ed Exports refer to those transactions in which goods

supplied do not leave country, and

payment for such supplies is

received either in Indian rupees or

in free foreign exchange.

Are deemed Export as defined in

Chapter 7 of FTP covered under

Export

Export || Definition

FEM(Export of Goods & Services) Regulations, 2015

includes the taking or sending out of goods by land, sea or air, on consignment or by way of sale, lease, hire-purchase, or under any other arrangement by whatever name called, and in the case of software, also includes transmission through any electronic media

Goods : taking outside India

Services : to any person outside India

Software : Includes transmission through any electronic media

On Consignment

Lease, Hire Purchase

Any other arrangement

Exports

Export

Goods

On Consignment Basis

Lease, Hire purchase

Any other arrangement

Software Services

Definitions

Good - not defined under FEMA

Software - not defined under FEMA

Service - Defined under s 2(Zb) the Act

service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, medical assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other information,

but does not include

• the rendering of any service free of charge or

• under a contract of personal ser i e

(1) Every exporter has to file declaration of exports along with documentary evidence with the specified authority in specified period in the specified form.

For goods : Form EDF

For Software : Form Softex

For Services : No Form has been prescribed

(2) Every exporter has to realise the export proceeds within the specified time

(3) The export proceeds should be realised in convertible foreign exchange

(4) Export proceeds can be realised from third party subject to satisfaction of AD Bank regarding the bonafides of transaction

Requirement of Exports

Period of realisation and repatriation of proceeds of

exports

Goods exported to a warehouse established

outside India

within fifteen months from the date of shipment

of goods

Others within nine months from

the date of export

Practical Scenario 1

Export made to DPX

Export Proceeds received from Y LLC?

USA

DPX Y LLC

Invo

ice

Ra

ise

d

Mone

y re

ceived

India

X Ltd

Third Party Payment

Extracts from RBI/2013-14/364, A. P. (DIR Series) Circular No.70 dated November 8 , 2013

Conditions Firm irrevocable order backed by a tripartite agreement should be in place;

Third party payment should come from a Financial Action Task Force (FATF) compliant country and through the banking channel only;

The exporter should declare the third party remittance in the Export Declaration Form;

It would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF;

Reporting of outstandings, by AD Bank shall be shown against the name of the exporter.

In case of shipments being made to a country in Group II of Restricted Cover Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be received from an Open Cover Country.

Liberalisation of third party payment

A. P. (DIR Series) Circular No.70 dated November 8 , 2013

A.P. (DIR Series) Circular No.100 dated February 4, 2014

As stands today Master Direction on Export of Goods and Services

Third Party Payment

Extracts from RBI/2013-14/479 A.P. (DIR Series) Circular No.100 dated February 4, 2014

fir irrevocable order backed by a tripartite agreement should be in pla e may not be insisted upon in case where documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order/ invoice has been produced.

This shall be subject to conditions as under:

(i) AD bank should be satisfied with the bona-fides of the transaction and export documents, such as, invoice / FIRC.

(ii) AD bank should consider the FATF statements while handling such transaction.

Third Party Payment

Extracts from Master Direction on Export of Goods and Services

Firm irrevocable order backed by a tripartite agreement should be in place. Or documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order/ invoice has been produced subject to:

(i) AD bank should be satisfied with the bona-fides of the transaction and export documents, such as, invoice / FIRC.

(ii) AD bank should consider the FATF statements while handling such transaction.

Third party payment should be routed through the banking channel only;

The exporter should declare the third party remittance in the Export Declaration Form and it would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF;

It would be responsibility of the Exporter to realize and repatriate the export proceeds from such third party named in the EDF;

Reporting of outstandings, by AD Bank shall be shown against the name of the exporter.

In case of shipments being made to a country in Group II of Restricted Cover Countries, (e.g. Sudan, Somalia, etc.), payments for the same may be received from an Open Cover Country; and

…

Practical || Scenario 2

Export made to DPX

Master agreement between DPX and X Holding Export Proceeds received from Y LLC

Invoice raised to X Holding

Money

Master Agreement

USA

DPX X Holding

Se

rvic

es r

en

de

red

Invo

ice

Raise

d

Amou

nt rec

eive

d

India

X Ltd

• X Ltd, Exporter, services rendered to DPX

• X Holding is holding co. of X Ltd.

• XX Holding LLC is group co. of X Ltd.

• Master Agreement between DPX and X Holding

• Money received from X Holding

• Money received within 9 months

Practical || Scenario 3 XX Holding LLC

Serv

ices R

endered

Money

Master Agreement

USA

X Holding DPX

Invo

ice

Ra

ise

d

Serv

ice

re

nd

ere

d

Money

India

X Ltd

Realisation of Export Proceeds

Go

vern

ing

Re

gu

lati

on

Foreign Exchange Management (Realisation, repatriation and surrender of foreign

exchange) Regulations, 2000

Foreign Exchange Management (Export of Goods & Services) Regulations, 2015

Foreign Trade Policy 2015-2020


Regulation 9 Notification 23

Period of Realisation

Period of realisation and repatriation of proceeds

of exports

Goods exported to a warehouse established

outside India

within fifteen months from the date of

shipment of goods

Others within nine months

from the date of export

The amount representing the full export value of goods / software/ services exported shall be realised and repatriated to India within nine months from the date of export,

provided that

where the goods are exported to a warehouse established outside India, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is

realised and in any case within fifteen months from the date of shipment of goods;

Duty of persons to realise foreign exchange due :-

A person resident in India to whom any amount of foreign exchange is due or has accrued shall,..take all reasonable steps to realise and repatriate to India such foreign exchange, and shall in no case do or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing -

(a) that the receipt by him of the whole or part of that foreign exchange is

delayed; or

(b) that the foreign exchange ceases in whole or in part to be receivable by him.


Regulation 3 Notification 14

Period of Realisation


Chapter 2 || General provisions Imports and Exports

All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees

but export proceeds shall be realized in freely convertible currency.

What is exporter is not able to realise the export proceeds at all??


Not Realisation of Export Proceeds

Maximum possible efforts

Set off of export receivable against import payables

Application to AD Bank for

Extension of Time

Application to RBI for Extension of

Time

Reduction in Invoice Value

Self Write off Application to RBI

1 2 3 4

5 6 7

Application to AD Bank

AD Category – I banks can extend the period of realization of export proceeds beyond stipulated period of realization from the date of export, up to a period of six months, at a time, irrespective of the invoice value of the export

Conditions

(a) The export transactions covered by the invoices are not under investigation by Directorate of Enforcement / Central Bureau of Investigation or other investigating agencies,

(b) The AD Category – I bank is satisfied that the exporter has not been able to realize export proceeds for reasons beyond his control,

(c) The exporter submits a declaration that the export proceeds will be realized during the extended period,

(d) For extension beyond one year from the date of export, the total outstanding of the exporter should not exceed USD one million or 10 per cent of the average export realizations during the preceding three financial years, whichever is higher.

(e) All the export bills outstanding beyond six months from the date of export may be reported by AD Bank along with the remark that extension has been granted and the date upto which extention is granted.

Extension of Time

In cases where the

exporter has filed suits

abroad against the

buyer, extension may be

granted irrespective of

the amount involved /

outstanding.

Application to RBI

where an exporter has not been able to realize proceeds of a shipment made

within the extended period

for reasons beyond his control,

but expects to be able to realize proceeds if further extension of the period is allowed

He can apply to RBI

application (in duplicate)

to the Regional Office concerned of the Reserve Bank

in form ETX through his AD Category – I bank

with appropriate documentary evidence

Extension of Time

Conditions to be satisfied

(i) AD Category – I banks can approve reduction, if satisfied about genuineness of the request, provided:

(a) The reduction does not exceed 25 per cent of invoice value:

(b) It does not relate to export of commodities subject to floor price stipulations

The exporter is not on the e porters caution list of the Reserve Bank, and

(c) The exporter is advised to surrender proportionate export incentives availed of, if any.

(ii) In the case of exporters who have been in the export business for more than three years, reduction in invoice value may be allowed, without any percentage ceiling, subject to the above conditions as also subject to their track record being satisfactory, i.e., the export outstanding do not exceed 5 per cent of the average annual export realization during the preceding three financial years.

Reduction in Invoice Value

Writing off of Export

Write off of exports

Self Write off

by an exporter 5% of total export proceeds

by Status Holder exporter 10% of total export

proceeds

By Authorised Dealer 10% of total export

proceeds

Reserve Bank of India Cases beyond the above

limits

Write off not possible

Exports to countries with externalization problem

under investigation by agencies

Export Proceeds

If defined under

FEMA ??

Defined under FTP not defined under FEMA

"Status holder" means an exporter recognized as One Star Export House/ Two Star Export House / Three Star Export House / Four Star Export House/ Five Star Export House by DGFT/ Development Commissioner.

Definition of Status Holder

The above rite-off will be subject to conditions that the relevant amount has remained outstanding for more than one year, satisfactory documentary evidence is furnished in support of the exporter having made all efforts to realize the dues, and the case falls under any of the undernoted categories:

(a) The overseas buyer declared insolvent and a certificate from the official liquidator indicating that there is no possibility of recovery of export proceeds has been produced.

(b) The overseas buyer is not traceable over a reasonably long period of time.

(c) The goods exported have been auctioned or destroyed by the Port / Customs / Health authorities in the importing country.

(d) The unrealized amount represents the balance due in a case settled through the intervention of the Indian Embassy, Foreign Chamber of Commerce or similar Organization;

(e) The unrealized amount represents the undrawn balance of an export bill (not exceeding 10% of the invoice value) remaining outstanding and turned out to be unrealizable despite all efforts made by the exporter;

(f) The cost of resorting to legal action disproportionate to the unrealized amount of the export bill or where the exporter even after winning the Court case against the overseas buyer could not execute the Court decree due to reasons beyond his control;

(g) Bills were drawn for the difference between the letter of credit value and actual export value or between the provisional and the actual freight charges but the amounts have remained unrealized consequent on dishonor of the bills by the overseas buyer and there are no prospects of realization.

Conditions of write off

(iv) The exporter has surrendered proportionate export incentives (for the cases not covered under A. P. (DIR. Series) Circular No.03 dated July 22, 2010), if any, availed of in respect of the relative shipments. The AD Category – I banks should obtain documents evidencing surrender of export incentives availed of before permitting the relevant bills to be written off.

(v) In case of self-write-off, the exporter should submit to the concerned AD bank, a Chartered Accountant’s certificate, indicating

the export realization in the preceding calendar year

the amount of write-off already availed of during the year, if any,

the relevant EDF to be written off, Bill No., invoice value, commodity exported, country of export.

that the export benefits, if any, availed of by the exporter have been surrendered.

Conditions of write off

https://rbi.org.in/Scripts/NotificationUser.aspx?Id=5885&Mode=0

























Export Incentive not required to be surrendered

A.P. (DIR. Series) Circular No.03 dated July 22, 2010) || Foreign Trade Policy 2.87

Realization of export proceeds shall not be insisted (and thereby surrender of export incentives) under Foreign Trade Policy, if the Reserve Bank of India (RBI) or any Authorised Ba k (authorised by RBI for this purpose) writes off

the requirement of realization of export proceeds on merits

the exporter produces a certificate from the concerned Foreign Mission of India about the fact of non-recovery of export proceeds from the buyer.

Writing off of Export


(a) Exports made to countries with externalization problem

(b) EDF which are under investigation by agencies like, Enforcement Directorate, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc.

(c) Outstanding bills which are subject matter of civil / criminal suit.

Write off not allowed

For Units in Special Economic Zones (SEZs)


(i) The etti g off of export receivables against import payments is in respect of the same Indian entity and the overseas buyer / supplier (bilateral netting) and the netting may be done as on the date of balance sheet of the unit in SEZ.

(ii) The details of export of goods as well details of details of import of goods / services are documented. The relative EDF will be treated as complete by the designated AD Category – I banks only after the entire proceeds are adjusted / received.

(iii) Both the transactions of sale and purchase are reported separately.

(iv) The export / import transactions with ACU countries are kept outside the arrangement.

(v) All the relevant documents are submitted to the concerned AD Category – I banks who should comply with all the regulatory requirements relating to the transactions.

Netting off export receivables against import payments

AD category –I banks may deal with the cases of set-off of export receivables against import payables, subject to following terms and conditions:

(i) The import is as per the Foreign Trade Policy in force.

(ii) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

(iii) Payment for the import is still outstanding in the books of the importer.

(iv) Both the transactions of sale and purchase may be reported separately in ‘ Returns.

(v) The relative EDF will be released by the AD bank only after the entire export proceeds are adjusted / received.

(vi) The set-off of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for set-off has been obtained from him.

(vii) The export / import transactions with ACU countries should be kept outside the arrangement.

(viii) All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

Set-off of export receivables against import payables


Non-Realisation of Export Proceeds

(a) If an exporter fails to realize export proceeds within time specified by RBI, he shall, without prejudice to any liability or penalty under any law in force, be liable to return all benefits / incentives availed against such exports and action in accordance with provisions of FT (D&R) Act, Rules and Orders made there under and FTP.

(b) In case an Exporter is unable to realise the export proceeds for reasons beyond his control (force majeure), he may approach RBI for writing off the unrealised amount

(c) The payment realized through insurance cover, would be eligible for benefits under FTP.


Financing of Exports in International Trade

1. Forfaiting

2. Factoring

3. Advance against Export

X Country

Importer

Exp

ort

Payment towards exports

Sale of receivables

Payment made

AD Bank/EXIM

Bank

Exporter in

India

Forfaiting/Factoring

Forfaiting is a mechanism, in which an exporter

surrenders his rights

to receive payment against the goods delivered or services rendered to the importer,

in exchange for the instant cash payment from a forfaiter.

For commitment fees and discount fees

EXIM Bank and AD Category – I banks can undertake forfaiting, for financing of export receivables.

Remittance of commitment fee / service charges, etc., payable by the exporter as approved by the EXIM Bank / AD Category – I banks concerned may be done through an AD bank.

Such remittances may be made in advance in one lump sum or at monthly intervals as approved by the authority concerned.

1. Forfaiting \

Factoring is defined as a method of managing book debt, in which a business receives advances against the accounts receivables, from a bank or financial institution (called as a factor). There are three parties to factoring i.e. debtor (buyer of goods), the client (seller of goods) and the factor (financier). Factoring can be recourse or non-recourse, disclosed or undisclosed.

Conditions for Export factoring on non-recourse basis :

• AD banks can factor the export receivables on a non-recourse basis

• AD banks may take their own business decision to enter into export factoring arrangement on non-recourse basis.

• In case the export financing has not been done by the Export Factor, the Export Factor may pass on the net value to the financing bank/ Institution after realising the export proceeds.

2. Factoring \

Regulation 15 of Notification No. FEMA 23 (R)/2015-RB dated January 12, 2016,

Shipment of goods to be made within one year from the date of receipt of advance payment;

Rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;

Documents covering the shipment are routed through the AD Category – I bank through whom the advance payment is received.

3. Advance against Exports

• What if Exporter is not able to export within one year ??

• What is there is need of refund of amount ?























For execution of long term supply contracts for export of goods subject to the conditions as under: (i) Firm irrevocable supply orders and contracts should be in place. The contract with the overseas party/ buyer should be vetted and the same shall clearly specify the nature, amount and delivery timelines of the products over the years and penalty in case of non-performance or contract cancellation. Product pricing should be in consonance with prevailing international prices.

(ii) Company should have capacity, systems and processes in place to ensure that the orders over the duration of the said tenure can actually be executed.

(iii) The facility is to be provided only to those entities, which have not come under the adverse notice of Enforcement Directorate or any such regulatory agency or have not been caution listed.

(iv) Such advances should be adjusted through future exports.

(v) The rate of interest payable, if any, should not exceed LlBOR plus 200 basis points.

(vi) The documents should be routed through one Authorized Dealer bank only.

(vii) Authorised Dealer bank should ensure compliance with AML / KYC guidelines

(viii) Such export advances shall not be permitted to be used to liquidate Rupee loans classified as NPA.

(ix) Double financing for working capital for execution of export orders should be avoided.

(x) Receipt of such advance of USD 100 million or more should be immediately reported to the Trade Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.

(xi) In case Authorized Dealer banks are required to issue bank guarantee (BG) / Stand by Letter of Credit (SBLC) for export performance, then the issuance should be rigorously evaluated as any other credit proposal keeping in view, among others, prudential requirements based on board approved policy.

• a) BG / SBLC may be issued for a term not exceeding two years at a time and further rollover of not more than two years at a time may be allowed subject to satisfaction with relative export performance as per the contract.

• b) BG / SBLC should cover only the advance on reducing balance basis.

• c) BG / SBLC issued from India in favor of overseas buyer should not be discounted by the overseas branch / subsidiary of bank in India.

• Note: AD Category – I banks may also be guided by the Master Circular on Guarantees and Co-acceptances issued by Department of Banking Regulation.

(xii) AD Category – I banks may allow the purchase of foreign exchange from the market for refunding advance payment credited to EEFC account only after utilizi g the e tire ala es held i the e porter s EEFC a ou ts ai tai ed at differe t ra hes/ a ks.

Long term export advance || Upto ten years

Advance for exports which take more than one year to manufacture

AD Category- I banks may allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the e port agree e t provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the following conditions:-

(i) The KYC and due diligence exercise has been done by the AD Category – I bank for the overseas buyer;

(ii) Compliance with the Anti-Money Laundering standards has been ensured;

(iii) The AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bonafide transaction;

(iv) Progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;

(v) The rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;

(vi) There should be no instance of refund exceeding 10% of the advance payment received in the last three years;

(vii) The documents covering the shipment should be routed through the same authorised dealer bank; and

(viii) In the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank.

Long term export advance

Advance against Exports || Reporting

Export of goods on lease / hire

• Prior approval of RBI is required

• Application to the Regional Office concerned of the Reserve Bank

Export made to DPX

Export Proceeds received from Ind Private Limited, India?

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Money received

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Practical Scenario

• Can the money received outside India can be used to payoff the liability outside India?

Money Paid

USA

DPX XYZ Private Limited

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Practical Scenario

Regulation 4 || FEM(Manner of Receipt and Payment) Regulations, 2016

Receipt for export :

(i) in the form of a bank draft, cheque, pay order, foreign currency notes/ travelers cheque from a buyer during his visit to India, provided the foreign currency so received is surrendered within the specified period to the authorized dealer of which the exporter is a customer ;

(ii) by debit to FCNR/ NRE account maintained by the buyer with an Authorised Dealer or an Authorised Bank in India;

(iii) in rupees from the credit card servicing bank in India against the charge slip signed by the buyer where such payment is made by the buyer through a credit card;

(iv) from a rupee account held in the name of an Exchange House with an authorized dealer if the amount does not exceed fifteen lakh rupees per export transaction or an amount prescribed by RBI, in consultation with Government of India in this regard;

(v) In accordance with the directions issued by the Reserve Bank to Authorised Dealers, where the export is covered by the arrangement between the Central Government and the Government of a foreign country or by the credit arrangement entered into by the Exim Bank with a financial institution in a foreign state;

(vi) in the form of precious metals i.e. gold/ silver/ platinum equivalent to value of jewellery exported by Gem & Jewellery units in Special Economic Zones and Export Oriented Units on the condition that the sale contract provides for the same and the value is declared in the relevant EDF.

In addition to above, any person resident in India may also receive any payment for other than exports by means of postal order issued by a post office outside India or by a postal money order issued by such post office.

Repatriation of Export Proceeds

FEM(Realisation, repatriation and surrender of foreign exchange) Regulations, 2000

(1) On realisation of foreign exchange due, a person shall repatriate the same to India, namely

bring into, or receive in, India and -

(a) sell it to an authorised person in India in exchange for rupees; or

(b) retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve Bank; or

(c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the manner specified by the Reserve Bank.

(2) A person shall be deemed to have repatriated the realised foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorised dealer.

Repatriation of Export Proceeds

Form EDF

RBI approval no. & Date, if any

Mode of Realisation

Third Party Payment

Form EDF

Caution list of RBI

• RBI Approval No. : In case of exports made

• under deferred credit arrangement

• or to joint ventures abroad against equity participation

• under rupee credit agreement

• Mode of realisation : Advance realisation

• Third party payment

Form EDF

Exporters’ Caution List Criteria laid down for cautioning/ de-cautioning of exporters

o if any shipping bill against them remains open for more than two years with no extension is granted by AD Category –I bank / RBI. Date of shipment will be considered for reckoning the realisation period.

o where exporter has come to adverse notice of the Enforcement Directorate (ED)/ Central Bureau of Investigation (CBI)/ Directorate of Revenue Intelligence (DRI)/ any such other law enforcement agency

o where exporter is not traceable

o Where the exporter is not making any serious efforts for realisation of export proceeds.

Consequences of being caution listed

Caution listed exporters can export only against having received advance payment

or an irrevocable letter of credit in their favour covering the full value of the proposed exports

AD banks shall not handle the shipping documents of caution listed exporters (except in above 2 cases)

Prior approval from RBI required for issuing guarantees for caution-listed exporters.

Form EDF


IMPORT

The Eco System of Imports

G

ove

rnin

g R

eg

ula

tio

ns

Foreign Exchange Management Act, 1999

Foreign Trade Policy and the Rules framed by the Government of India

FED Master Direction No. 17/2015-16 Master Direction – Import of Goods and Services

FEM (Manner of Receipt and Payment) Regulations, 2016

FEM (Realisation, Repatriation and surrender of foreign Exchange) Regulations, 2000

Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015

Foreign Exchange Management (Current Account Transactions) Rules, 2000

Import

Obligation of Purchaser of

Foreign Exchange

Time Limit for Settlement of

Import Payments

Remittances against

Replacement

Imports

Guarantee for Replacement

Import

Evidence of Import

Payment to third party

Advance remittance

Imports

Free until mentioned in negative list specified in

FTP Declaration Evidence of import

payment for import can also be made by way of credit to non-resident

account of the overseas exporter maintained with a

bank in India

Imports

• remittances against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance.

• AD Category – I banks may permit settlement of import dues

• delayed due to disputes,

• financial difficulties, etc.

• However, interest if any, on such delayed payments, usance bills or overdue interest is payable only for a period of up to three years from the date of shipment

Time Limit for settlement of Trade Payment

Deferred payment arrangements (including suppliers and u ers credit) upto five years, are treated as trade credits for which the procedural guidelines as laid down in the Master Circular for External Commercial Borrowings and Trade Credits may be followed.

Deferred Payment Arrangement

Advance remittance for import of goods without any ceiling || Conditions:

(a) If the amount of advance remittance exceeds USD 200,000 or its equivalent, (a) an unconditional, irrevocable standby Letter of Credit (b) or a guarantee from an international bank of repute situated outside India (c) or a guarantee of an AD Category – I bank in India, if such a guarantee is issued against the

counter-guarantee of an international bank of repute situated outside India, is obtained.

(b) Importer (other than a Public Sector Company or a Department/Undertaking of the Government of India/State Government/s) is unable to obtain bank guarantee from overseas suppliers and the AD Category – I bank is satisfied about the track record and bona fides of the importer, the requirement of the bank guarantee / standby Letter of Credit may not be insisted upon for advance remittances up to USD 5,000,000 (US Dollar five million).

(c) A Public Sector Company or a Department/Undertaking of the Government of India / State Government/s which is not in a position to obtain a guarantee from an international bank of repute against an advance payment, is required to obtain a specific waiver for the bank guarantee from the Ministry of Finance, Government of India before making advance remittance exceeding USD 100, 000.

Advance remittance for import of Goods


AD Category – I bank may allow advance remittance for import of services without any ceiling subject to the following conditions:

(a) Where the amount of advance exceeds USD 500,000 or its equivalent, a guarantee from a bank of international repute situated outside India, or a guarantee from an AD Category – I bank in India, if such a guarantee is issued against the counter-guarantee of a bank of international repute situated outside India, should be obtained from the overseas beneficiary.

(b) For Public Sector Company or a Department/ Undertaking of the Government of India/ State Governments : Approval from the Ministry of Finance, Government of India for advance remittance for import of services without bank guarantee for an amount exceeding USD 100,000 (USD One hundred thousand) or its equivalent would be required.

(c) The beneficiary of the advance remittance should fulfil his obligation under the contract or agreement with the remitter in India, failing which, the amount should be repatriated to India.

Advance remittance for import of Services

Import

Royalty

Legitimate Dues

Conversion of Debt into Equity

Issue of equity shares against import of capital goods/machinery/equipment (excluding second-hand machinery):

Under government route: Amount of imported capital goods/machinery or equipment is allowed to be converted into shares/convertible debentures under the Government route, if the following conditions are satisfied:

(a) The import of capital goods, machineries, etc, made by a resident in India, is in accordance with the Export/Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;

(b) Valuation from independent valuer: There is an independent valuation of the capital goods/machineries/equipment, by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair-value of such imports;

(c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and

(d) Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods.

Against import of capital goods/machinery/equipment

If there is any payment due from Indian entity in regard of royalty payment, lump sum fee payment and any technical know-how the same can be converted into shares under general permission of RBI. The conversion is subject to sectoral caps, pricing guidelines of RBI/SEBI and compliance with applicable tax laws.

Conversion of royalty / lump sum /Know how

Issue of equity shares under the FDI Scheme against legitimate dues

• Equity shares can be issued against any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or RBI under FEMA, 1999 or any rules/regulations framed or directions issued there under, provided that:

• The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines, etc, as amended by RBI, from time to time;

• The sectors falling under government route will need prior approval as required in terms of paragraph 3 of Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000

• Import dues deemed as ECB or trade credit or payable against import of second hand machinery do not have general permission of RBI for conversion.

• The issue of equity shares shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.

Against Legitimate Dues


Firm irrevocable purchase order / tripartite agreement should be in place. However this requirement may not be insisted upon in case where documentary evidence for circumstances leading to third party payments / name of the third party being mentioned in the irrevocable order / invoice has been produced.

AD bank should be satisfied with the bonafides of the transactions and should consider the Financial Action Task Force (FATF) Statement before handling the transactions;

The Invoice should contain a narration that the related payment has to be made to the (named) third party;

Bill of Entry should mention the name of the shipper as also the narration that the related payment has to be made to the (named) third party;

Importer should comply with the related extant instructions relating to imports including those on advance payment being made for import of goods.

Third Party Payment for Import Transactions


MERCHANTING TRADE

Merchanting Trade

Supply of Material

X Country Importer Y Country. Exporter

Import Exp

ort

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xport

Trader in India

Goods acquired should not enter the Domestic Tariff Area

The state of the goods should not undergo any transformation

Merchanting Trade

Note : As per FTP 2015 -20 DTA means area within India which is outside SEZs and EOU/EHTP/STP/BTP

Goods involved in the transactions are permitted for export / import under

the prevailing Foreign Trade Policy (FTP)

One AD Bank Transaction to be

completed within 9 Months

Confirmed orders have to be received by them from

the overseas buyers

Reasonable Profit genuine traders of goods

and not mere financial intermediaries

Advance from Export to be earmarked for Import

one-to-one matching of trade

Merchanting Trade


REPATRIATION

RE

MIT

TAN

CE

S

Non Resident Indian

From the funds in NRE account

Repatriable on request Transfer from NRO account or Current Income subject

to applicable Taxes

From the funds in NRO account

Under Certificate from CA

Form 15CA/15CB

Remittance limited to USD 1 million per financial year

RESIDENT

In General As per FEM (Current Account

Transactions) Rules,2000

Schedule III of CA Rules specifies the limits of

remittance

Under Liberalised remittance scheme

USD 2,50,000* per financial Year (April – March)

LRS facility subsumes limits specified in Sche III of CA

Rules

Repatriation of dues and obligations

Your Questions

Thanks!!

CA. Sudha G. Bhushan Associate Director – International Transaction advisory services Taxpert Professionals 09769033172 [email protected]

mailto:[email protected]

presentation on export and import regulations by ca. sudha g. bhushan

Law