Money Transfer from India for Business Setup in the US - Deposits in US Bank

Making Payments in the US and Depositing Money in your US Company's Bank Account

How to bring money from India to USA? When setting up your company in the US from India or investing in an existing US company from India, you will be transferring money from India to USA essentially for minimal 2 purposes: 1) either you have to pay a professional who is providing you with services to form your company in the US or assist in the acquisition of a US company, or 2) deposit money in the seller's or your newly formed company's bank account in the US.

Transfer or remittance of money from India to any foreign country, for example in the US, for the purposes of setting up a US Company or investment in an existing US Company comes under an Overseas Direct Investment (‘ODI’) – which can happen in 2 ways, the best way to send money from india to USA i.e., via an Automatic Route (i.e. no government approvals required only reportings necessary) or the Approval Route (where Indian Central bank approvals are required). Most activities are covered under the Approval Route only, but advice should be sought before making the remittances.

When you are making a payment to a service provider in the US (for any reason mentioned above), one way, of course, is using your credit card and there are no issues doing that, but your consultant may also accept other modes of payment like payment gateways, etc. However, to register/purchase a company in the US, money transfer from India to USA is via traditional banking channels such as bank transfers.

Now, to address some of the most frequently asked questions, we have listed some key aspects when the transfer of money to the US has to happen through your bank account in India -

Frequently Asked Questions

Q.1. Can I, as a resident of India, remit or transfer money to the US for setting up my company there?

A.1. Yes, a resident Indian can remit, up to the limit prescribed by the Reserve Bank of India from time to time (USD 250,000 as of now), in any financial year under a specific scheme known as the Liberalized Remittance Scheme (LRS).

This payment can be for several reasons:

1. For the payment of the fees to the CPA assisting you with the business setup process
2. To deposit money in the newly registered US company's bank account. This is the initial share capital contribution that you can make to start your company. In general, all the banks (brick-mortar) have some minimum amount requirement for which you would want to deposit the money in the account. If you go below the minimum monthly balance requirement in your bank, you will be charged a fee for that month.
3. To buy the shares of an existing US company.

 

Q.2. Who other than an individual is eligible to transfer money towards setting up a company in the US and making it operational?

A.2. Broadly, any company incorporated in India or a Partnership or a Limited Liability Partnership (LLP) is eligible to transfer money to the US to pay any service provider assisting you with the process, or deposit money in its company's bank account or purchase shares of a US company. So, if you have a company/LLP in India, you may transfer this money through the account of that Indian company or LLP as well - in this case, the US company will become a subsidiary of the Indian company and will be seen as an investment for India reporting purposes.

The limits up to which the payment or investments can be made should be consulted with experts before deciding on the quantum of investment – presently it is up to 400% of the net worth as per the latest audited financials.

 

Q.3. What are the permissions available to individual residents in India for the transfer of money to start a company abroad?

A.3. As mentioned before, default permission has been granted to individual persons resident in India for opening a company abroad by purchasing shares from the following sources – 

1. Out of funds held in an account known as (Resident Foreign Currency) Account – this is typically applicable for NRIs who have returned to India from the US and want to hold the money in USD which are brought back from the US in USD;
2. As bonus shares on existing holding of foreign currency shares;
3. When not permanently resident in India, then from the foreign currency resources outside India.

 

Q.4. Any other aspects to be considered while making the transfer from the Indian bank account?

A.4. The individual sending the money should have maintained the bank account with the bank for a minimum period of one year prior to the remittance. If the remiiter is a new customer of the bank, then the bankers will carry out due diligence on the operations and maintenance of the account, before allowing the remittance from the bank account. 

 

Q.5. Can the overseas direct investment be made in any sector/activity or whether there any sector-specific prohibitions?

A.5. ODI can be made in any genuine business activity except certain sectors such as Real Estate, Financial Products, etc. Real estate and banking business are the prohibited sectors for overseas direct investment. Real estate business means buying and selling of real estate or trading in Transferable Development Rights (TDRs) - however, there are but does not include development of townships, construction of residential/commercial premises, roads or bridges.

 

Q.6. What is the procedure to be followed to make remittances to open a US company?

A.6. It is required to fill up Form-ODI duly supported by the documents listed therein, i.e.,

1. A certified copy of the Board Resolution (to be signed by the Directors/Partners)
2. Statutory Auditors Certificate
3. Valuation report (if applicable) as per the valuation norms and
4. Authorized banker for making the remittance.

 

Q.7. Where to find Form-ODI and how to file?

A.7. Form ODI-Part I is to be certified by the statutory auditor and submitted to the banker. However, if the certification of the investment is being made by an Indian resident person, the certification is not mandatory. There is another Form A2 which is to be submitted along with this form which is basically an application for withdrawal of foreign exchange from the Indian remitter bank.

 

Q.8. What are the periodical compliances after the remittance is made for the setting up of the US company? (regulatory compliance)

A.8. A simple Statement of Foreign Assets and Liabilities and an Annual Performance Report is to be filed every year with the RBI – the filing requirements vary and depend on the method of investment i.e. whether made by the investor in individual name or made by the Indian Company or LLP, etc.

Non-compliance with submission of the Annual Performance Report or Statement of Foreign Assets and Liabilities is viewed seriously and a penalty of Rs. 10,000 is levied.

 

Q.9. Is prior registration with the Indian Reserve Bank necessary for automatic sectors?

A.9. No prior approvals with the Indian Reserve Bank is necessary for making direct investments under the automatic route.

 

Q.10. What are the Indian permissible sources for remittances to open the US company?

A.10. Remittances are usually made by drawl of foreign exchange from a bank in India.

 

Q.11. After you remit the money for the US company from India, what are your obligations?

A.11. You need to comply with the following – 

1. You should ensure that you receive share certificates or any other documentary evidence of your investment in the US company and submit the same to the banker within 6 months;
2. You should repatriate to India, all money which is receivable by you from the US company, like dividend, royalty, technical fees, etc.;
3. You should submit an Annual Performance Report (‘APR’) to the Reserve Bank every year through the banker;
4. You should report the details of the decisions taken by the US company regarding diversification of its activities /setting up of further subsidiaries/alteration in its shareholding pattern within 30 days of the approval of those decisions by the concerned competent authority in the USA. These are also to be included in the relevant Annual Performance Report; and
5. In case of sale of the US company, sale proceeds of the sale should be repatriated to India immediately and documentary evidence should be submitted to the Reserve Bank through the banker.

 

Q.12. Whether any permission is required to sell the acquired shares in the USA?

A.12. By default, general permission is also available to sell the shares so purchased or acquired.