Repatriation of Profits by Foreign Companies from India — FEMA and Tax Compliance

Foreign companies investing in India — whether through wholly-owned subsidiaries, joint ventures or branch offices — eventually need to repatriate profits back to their home country. India's framework for profit repatriation is governed by FEMA (Foreign Exchange Management Act), the Income Tax Act and RBI regulations. Here is the complete guide.

Routes for Foreign Company Profit Repatriation

1. Dividend from Indian Subsidiary:

• A foreign parent company that owns shares in an Indian subsidiary receives dividends — the most common repatriation route
• Indian company pays dividend after board declaration and approval
• Withholding tax (TDS) under Section 195 is deducted at 20% (plus surcharge and cess) on dividend paid to non-residents — unless a lower rate is prescribed under the applicable DTAA (Double Tax Avoidance Agreement)
• DTAA rates: USA: 15-25%; UK: 15-25%; Singapore: 10-15%; Mauritius: 5-10% — depending on the shareholding and treaty provisions

2. Branch Profit Remittance:

• Foreign companies operating through a branch in India can remit after-tax profits
• Branch profits are first taxed at 40% (for companies incorporated in countries without DTAA) in India
• Remittance is possible after tax payment — no additional tax on the remittance itself for most DTAA countries

3. Royalties and Fees for Technical Services:

• Foreign parent can charge the Indian entity royalties and technical service fees
• Withholding tax: 10% under Section 115A (or DTAA rate, whichever is lower)
• These are deductible by the Indian entity (reducing its taxable profit)

FEMA Compliance for Dividend Repatriation

• Dividend repatriation is freely allowed (current account transaction under FEMA)
• Route: Indian company's bank account → Authorized Dealer (AD) bank → foreign parent's account abroad
• AD bank requires documentary evidence: board resolution, dividend vouchers, TDS challan, Form 15CA/15CB

Form 15CA and 15CB — Mandatory for Repatriation

• Form 15CB: Certificate from a Chartered Accountant confirming the nature of payment, applicable DTAA provisions, withholding tax deducted and TDS rate applied
• Form 15CA: Declaration by the remitter (Indian entity) uploaded on the income tax portal — referencing the 15CB certificate
• Both must be filed on the IT portal before the AD bank processes the foreign remittance

Conclusion

Profit repatriation from India requires careful tax planning (withholding tax optimization using DTAA) and FEMA compliance (Form 15CA/15CB, AD bank clearance). SPOTON provides comprehensive international tax and FEMA advisory for foreign companies operating in India. Contact us for expert cross-border tax and compliance services.