Navigating FX and Foreign Remittance Restrictions in India
The Challenges
Foreign remittance restrictions prevented the client from being paid
The wrong Incoterm was used for the shipment
India has bureaucratic import regulations
E-invoices cannot be amended once submitted
Related parties cannot sell to Indian sister companies
Our Solution
Our client and their buyer had no way to get their tech out of India’s customs. As soon as we were approached and understood the transaction structure, we knew the shipment required more than a standard Importer of Record (IOR) service. We needed to re-export their tech and correctly structure the re-import with our local invoicing solution, while still acting as the IOR. This would enable:
- A local procurement order from the buyer in Indian rupees,
- The elimination of currency fluctuation risk,
- VAT recovery for the end user using a local invoice,
- The mitigation of related-party risks between the buyer’s US and Indian entities, and
- TecEx to take on customs risks and reduce the risk of a stuck shipment.
The Result
“With the right transaction structure, we ensured that our client in America could be paid in dollars, while the buyer in India was able to obtain a local invoice in rupees, avoiding currency fluctuations. The end user also received the local procurement documentation required to support VAT recovery.”
– Cesare Chiappini, Client Success Manager at TecEx
Foreign Exchange | The Problem IOR Alone Doesn’t Solve
Leveraging an Importer of Record is optimal when your tech goods are purchased domestically through a local transaction and then shipped internationally. The IOR integrates seamlessly into this supply chain to take on trade compliance burdens, manage logistics and routing, obtain necessary documentation and certifications, and get tech where you may not have a local entity.
Complications can arise when the buyer and seller of the goods are separated by borders, making the transaction no longer domestic. Different currencies are now involved, along with various soft inefficiencies. This can introduce challenges, including foreign remittance restrictions, VAT inefficiencies, related-party risks, and foreign exchange fluctuations.
When remittance controls are in place, the end user often finds that the goods are now in their country, but they are unable to pay their vendor. They’ll need to deal with costly documentation and a re-exportation of the tech – something we needed to assist our client with.
On the other hand, the transaction may not be optimized for VAT efficiencies, so the end user will be unable to recover their VAT after importing the goods. This happens when they cannot produce a local procurement order and a local invoice. Import taxes on technology products can be high, up to 25% in India, leading to sunk costs of tens or hundreds of thousands of dollars.
When related parties are involved, something our client’s buyer considered to resolve their issue, additional risks arise. Customs in India tend to flag these imports and investigate their value.
Do You Need an Import Solution That Goes Beyond IOR?
Our shipping experts can create a tailored solution to help you navigate foreign remittance restrictions with optimized transaction structuring for forex efficiency in challenging import locations.
Foreign Remittance Restrictions and Import Challenges in India
The Reserve Bank of India (RBI), like many banks, imposes strict forex controls on the outward remittance of USD from India to protect the rupee. Successfully remitting funds out of India to pay a foreign seller requires extensive reporting and documentation mandated by the RBI and the Foreign Exchange Management Act (FEMA). For example, importing software into India requires a Chartered Accountant (CA) certificate, whereas a local purchase does not.
In addition, foreign remittances for advance payments, which many tech resellers require, are strictly monitored and controlled. If an advance payment exceeds certain thresholds, the local entity in India may need to obtain a standby Letter of Credit or bank guarantee from an international bank. On the other hand, if the import fails to arrive within the contractual period, the advance must be repatriated to India.
With TecEx enabling our client’s buyer in India to obtain a local invoice, domestic transaction regulations could be followed with minimal bureaucratic requirements.
Facilitating a Forex-Efficient Import into India
Our client’s tech was stuck in customs, unable to move, and unpaid for. Once your documentation for an import to India is incorrect, there’s no recourse while the goods are in-country.
To structure the transaction for forex efficiency, we first needed to re-export the goods. As they’d been imported under the FOB Incoterm, only the consignee could remit funds to the American-based seller. Because of foreign remittance restrictions, the end user could not pay the American manufacturer. To enable an international payment, we had to arrange for the asset management hardware to be shipped out of India and optimize the re-import from the US.
With our specialized local invoicing solution, TecEx enabled the international transfer of goods between our client and their buyer. By entering the transaction flow, we could extend the reach of the US seller and facilitate a local sale for the end user. Here’s how the process went after the tech was incorrectly imported and the buyer had no way to pay our client:
Obtain the necessary documentation and re-export the tech to the US.
Determine the correct Incoterm for the shipment.
Enter the transaction flow between the vendor and the end user.
Import the gear to India, where the buyer receives a local invoice in rupees.
Ensure the vendor receives payment in dollars.
With a local invoice, the buyer could now recover VAT on the high-value tech gear. Foreign exchange fluctuations were avoided because the end user could pay in rupees, while our client was paid in dollars. Related-party risk was also mitigated as the buyer’s US sister company did not need to purchase the goods on its behalf.
By pairing this specialized local invoicing solution with our unmatched Liability Cover, the client was thoroughly protected in the event of anything going wrong. Offered on a shipment-by-shipment basis, this solution covers 110% of the value of your tech gear from pick-up to final delivery (or beyond, at your request).
Are You Looking To Extend Your Reselling Capabilities?
Submit this form, and our experts will get in touch to help you explore our solutions for forex efficiencies in challenging import destinations with foreign remittance restrictions.
