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​Making life easier for Start-Ups. RBI clarifications under FEMA

RBI clarifications under Foreign Exchanges Management Act (FEMA) for start-ups for issues of shares against legitimate payments owed by start-ups and accepting payments by foreign subsidiaries of such start-ups against export and other dues.

As announced in sixth Bi Monthly monetary policy statement for 2015-16 by RBI regarding clarification for some existing regime, to help to doing business in India and to facilitate start-ups, RBI has now clarified following issues.

  • Any Indian start-up having foreign subsidiaries are allowed to open and maintain foreign currency account abroad to collect and pool foreign currency earning against exports/ sales.
  • The balances in this foreign currency account should be repatriated to India within the prescribed time limits of realisation of export dues.
  • Start-ups are also permitted to use online payments gateway service providers (OPGSPs) for realisation of overseas payments against export/sales with a maximum limit of USD 10000 per transactions.
  • A contractual arrangement to facilitate above transactions should be in place among Indian Start-up, its foreign subsidiary and customer.
  • Under existing provision of FEMA/ FDI guidelines, Indian Company can issues shares against any legitimate payments owed by the Company for which no prior permission required from RBI/ Government for making payments.
  • Thus Indian Starts-up can also issues shares against such legitimate payments due to overseas suppliers/ customer such as charges against consulting fees, payments against IPR use, payments against Dividend and interests, payments against import etc., without any prior permission subject to tax withholding provisions as per Income tax act, 1961.
  • Indian Start-ups can issues sweat equity to foreign investors/ parties as per scheme either as per regulation under SEBI guidelines for listed companies or under Companies Act 2013 for other companies, subject to FDI sectorial guidelines.

Above is summary of Notification issues by the RBI (AP(Dir) -52 and AP (Dir) 51 dated 11.02.2016. It may also be noted that these are not new or amended guidelines for the subject matter, but clarification of existing guidelines. 

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