Restrictions on royalty payments removed

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royalty payments
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On 16 December the Indian government issued press note 8 of 2009, which concerns the liberalization of remittances made for technology collaborations.

The press note removes restrictions on outbound remittances for royalties and lump sum fees that are paid for technology transfers and the use of trademarks and brand names. Indian companies seeking to make payments to foreign technical collaborators can now directly approach their authorized banks to make the necessary remittances.

Under the earlier regulatory norms, various payments made by Indian residents to non-residents for technology transfers – including lump sum fees of up to US$2 million, and royalty payments of 5% on domestic sales and 8% on exports – could be made without any prior approvals. In addition, royalty payments of up to 2% on exports for the use of trademarks and 1% on domestic sales were permitted (although, under the rules of the Foreign Exchange Management Act, 1999, these were considered to be current account transactions). Any payments in excess of the specified caps required prior government approval.

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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.

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