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Note on Dividend to Foreign National

January 21, 2011

Note on Payment of dividend to Person outside India

Governing Law:

1. Companies Act, 1956 – Sections 205, 205A, 205C, 206, 206A, 207 2. FDI Policy 3. FEMA (Current Account Transactions) Rules, 2000 4. FEMA (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000

Restrictions, if any, on repatriation: Remittance of dividend is permitted if the foreign investment was as per the approved scheme. Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend Distribution Tax, if any, as the case may be), excepting remittance of dividend requires permission when investment was allowed subject to *dividend balancing condition. So, we need to check whether original investment was subject to dividend balancing condition, if not, there are no restrictions. The rate of dividend on preference shares or convertible preference shares issued under Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 shall not exceed 300 basis points over the Prime Lending Rate of State Bank of India prevailing as on the date of the Board meeting of the company in which issue of such shares is recommended. *Dividend Balancing: Where a company is engaged in any of the industries in the consumer goods sector, specified in Annexure E to Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000, or in any other activity where the condition of dividend balancing has been stipulated in terms of the provisions of Industrial Policy and Procedures notified by Secretariat for Industrial Assistance, the cumulative outflow of foreign exchange on account of payment of dividend over a period of seven years from the date of commencement of commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years. Provided that (a) the restriction under this paragraph shall not apply i) in respect of shares held in such a company by International Finance Corporation (IFC), the Deustche Entwicklungs Gescelschaft (DEG), the Commonwealth Development Corporation (CDC) and Asian Development Bank (ADB). ii) to a company that has completed a period of seven years from the date of commencement of commercial production, (b) in case of an existing company that has issued fresh equity to persons resident outside India under FEMA 20 Regulations, the restriction shall apply to the fresh shares from the date of their issue. List of 22 Industries in respect of which Dividend Balancing is applicable 1. Manufacture of food and food products 2. Manufacture of dairy products 3. Grain mill products 4. Manufacture of bakery products 5. Manufacture and refining of sugar (vacuum pan sugar factories) 6. Production of common salt 7. Manufacture of Hydrogenated oil (Vanaspati) 8. Tea processing 9. Coffee 10. Manufacture of beverages, tobacco and tobacco products 11. Distilling, rectifying and blending of spirits, wine industries, malt liquors and malt, production of country liquors and toddy 12. Soft drinks and carbonated water industry 13. Manufacture of cigar, cigarettes, cheroot and cigarette tobacco 14. Manufacture of wood and wood products, furniture and fixtures 15. Manufacture of leather and fur/leather products 16. Tanning, curing, finishing, embossing and japanning of leather 17. Manufacture of footwear (excluding repair) except vulcanised for moulded rubber or plastic footwear 18. Manufacture of footwear made primarily of vulcanised or moulded products 19. Prophylactics (rubber contraceptive) 20. Motor cars 21. Entertainment electronics(VCRs, Colour TVs, CD Players, Tape Recorders) 22. White goods(Domestic Refrigerators, Domestic Dishwashing Machines, Programmable Domestic Washing Machines, Microwave Ovens, Airconditioners).

Process of repatriation

Interalia, complying the provisions of Companies Act, 1945, Indian companies intending to remit dividend to their non-resident shareholders should make an application to an authorised dealer in Form RCD 1, supported by the particulars of non-resident shareholding in form RCD 2 and other documents prescribed in the form. In case of Interim Dividend application may be made by the company in India to the authorised dealer by letter (in duplicate) enclosing only the form RCD 2 and a copy of the Board Resolution approving the payment of interim dividend. Main documents involved are:

• RCD 1 • RCD 2 • A2 • Board Resolution

As Indian companies are required to remit dividend to all their non-resident shareholders through the normal banking channels, it is not necessary for them to prepare individual dividend warrants for despatch to such non-resident shareholders. [However, dividends due to non-resident shareholders who are not eligible for having the amounts remitted to them abroad or those who wish to have the dividend paid in India for credit to their non-resident accounts, may be paid by issuing individual dividend warrants to their mandatee bankers in India for credit to their Ordinary Nonresident Rupee (NRO) accounts. In cases where dividend is to be credited to NRO accounts of the non-resident investors, there is no need to follow the procedure in above para.]

Procedure followed by Authorised Dealers

(its important to know so that company submits all the relevant information to Authorised Dealers).

• Authorised dealers will verify the particulars with reference to the documents submitted in support of the non-resident shareholding and satisfy themselves that necessary permission of the Reserve Bank has been obtained by the non-resident shareholders for purchase/holding of the shares and/or the company has permission for issue of shares to the non-residents and that the terms of the permission do not prohibit remittance of dividend. • Authorised dealers will also verify that the certificate given in Part 'B' of the form RCD 1 has been properly completed by the company's auditors and specifically confirm on form A2 that they have verified the Reserve Bank's approval for purchase/holding/issue of the shares held by the nonresident beneficiary and it does not prohibit the remittance of dividend. • Authorised dealers will separately forward one copy of the application in form RCD 1 (without its enclosures) to the office of Reserve Bank within whose jurisdiction the Head/Registered Office of the company is situated, after completing the certificate in Part C thereof. • The Indian company/authorised dealers should ensure that the reference number, date, etc. of Reserve Bank's permission and the repatriable/nonrepatriable nature of the shares/debentures/bonds held by the concerned non-residents are incorporated on the counterfoil of the dividend warrants.

Contributors:

  • By admin  gg 2 Comments   

    2 Comments

    Posted by sudhir kochhar on
    • Aug 16 2018
    Reply  
    1) Form A2 cum application 2) 15 CA/ CB. 3) Form RCD 1 and RCD 2 or CA/PCS Certificate in respect of amount payable and the details of calculation. 4) RBI letter confirming taken on record issuance of shares to non resident. In case RBI letter is not available, certificate from CS giving current shareholding pattern of non-residents and stating that (a) the shares has been issued in compliance with companies act/ FEMA guidelines (b) there is no restriction, from any regulator/under any regulatory requirement, in effecting the dividend requested for remittance. (c) necessary reporting to RBI have been done within stipulated timelines.
    Posted by sudhir kochhar on
    • Nov 14 2018
    Reply  
    latest guidelines

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