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ECOVIS info

March 2013

Issue II Volume 2

Persons

of Indian Origin

An opportunity for

foreigners to buy?

Preparation

is everything

www.ecovisrkca.com Issue II Volume 2

Persons of Indian Origin (PIO)

What is PIO Card?

Persons of Indian Origin

Card (PIO Card) is a form of

identification issued to a Person of

Indian Origin who holds a passport

in another country other than

Afghanistan, Bangladesh, Bhutan,

China, Nepal, Pakistan, Sri Lanka.

What is the Eligibility for

getting the PIO Card?

Every person of Indian origin who

is a citizen of another country,

NOT being a citizen of any country

that may be specified by the Gov-

ernment of India from time to

time, will be eligible to apply for

PIO Card if:

(i) the person at any time held an

Indian passport; or

(ii) the person or either of his/

her parents or grandparents

or great grand Parents was

born in, and was permanently

resident in India, provided

further that Neither was at any

time a citizen of any of the

aforesaid excluded countries;

or

(iii) The person is the spouse of a

citizen of India or a person of

Indian origin covered under (i)

or (ii) above.

Presently, the specified coun-

tries in this regard are Paki-

stan, Bangladesh, Sri Lanka,

Bhutan, Afghanistan, China

and Nepal. Citizens of these

countries are not eligible to get

PIO cards.

What are the benefits to a

PIO Card- holder? The PIO cardholders is entitled to

the following benefits:

i.) A multiple entry, multi-purpose

visa for visiting India. PIO Card

itself is treated as a Visa;

ii.)No separate Student/ Employ-

ment /Business visa will be re-

quired for admission in colleges/

institutions or taking up employ

ment, business, etc in India;

iii.)Special counters for speedy im-

migration clearance at designated

Immigration check posts;

iv.)Exemption from registration

with local police authorities for

continuous stay upto 180 days in

India ;

v.)Parity with Non-resident Indians

(NRIs) in economic, financial and

educational fields except for ac-

quisition of agricultural land or

plantations;

vi.)PIO Card can be used as identity

proof for applying for a (I) PAN

card, (II) driving license and (III)

opening of Bank account in India, if

the PIO card holder resides in India.

Note: i. In the event of continuous

stay in India exceeding 180 days,

the PIO Cardholder must get him-

self/herself registered, within 30

days of the expiry of 180 days, with

the concerned jurisdictional FRRO/

FRO.

What are the different types

of accounts which can be

maintained by PIO?

If a person is PIO, she/he can, with-

out the permission from the Reserve

Bank, open, hold and maintain the

different types of accounts given

below with an Authorized Dealer in

India, i.e. a bank authorized to deal

in foreign exchange. NRO Savings

accounts can also be maintained

with the Post Offices in India.

However, individuals/ entities of

Bangladesh and Pakistan require

prior approval of the Reserve Bank.

Types of accounts which can

be maintained by an NRI /

PIO in India

A. Non-Resident Ordinary

Rupee Account (NRO Ac-

count)

NRO account may be opened/ main-

tained in the form of current, saving,

recurring or fixed deposit accounts.

Savings Account - Normally

maintained for crediting legiti-

mate dues /earnings / income

such as dividends, interest etc.

Banks are free to determine the

interest rates.

Term Deposits - Banks are free

to determine the interest rates.

Interest rates offered by banks

on NRO deposits cannot be

higher than those offered by

them on comparable domestic

rupee deposits.

Account should be denominated in

Indian Rupees.

-Author Deepa Rathi, Director, Ecovis RKCA

http://en.wikipedia.org/wiki/Non-resident_Indian_and_Person_of_Indian_Origin

http://en.wikipedia.org/wiki/Non-resident_Indian_and_Person_of_Indian_Origin

http://en.wikipedia.org/wiki/Afghanistan

http://en.wikipedia.org/wiki/Bangladesh

http://en.wikipedia.org/wiki/Bhutan

http://en.wikipedia.org/wiki/China

http://en.wikipedia.org/wiki/Nepal

http://en.wikipedia.org/wiki/Pakistan

http://en.wikipedia.org/wiki/Sri_Lanka


What are the permissible

credits to such NRO ac-

count?

Permissible credits to NRO account

are :

a) Transfers from rupee accounts of

non-resident banks,

b) Remittances received in permit-

ted currency from outside India

through normal banking chan-

nels,

c) permitted currency tendered by

account holder during his tempo-

rary visit to India,

d) legitimate dues in India of the

account holder like current in-

come e.g. rent, dividend, pen-

sion, interest, etc., sale proceeds

of assets including immovable

property acquired out of rupee/

foreign currency funds or by way

of legacy/ inheritance.


debits allowed to such NRO

account?

a) Eligible debits allowed to such

NRO account are all local pay-

ments in rupees including pay-

ments for investments as speci-

fied by the Reserve Bank and

remittance outside India of cur-

rent income like rent, dividend,

pension, interest, etc., net of ap-

plicable taxes, of the account

holder.

b) PIO may remit from the balances

held in NRO account an amount

not exceeding USD one million

per financial year, subject to

payment of applicable taxes.

● The limit of USD 1 million per

financial year includes sale

proceeds of immovable properties

held by NRIs/PIOs.

Other important points:

a) The accounts may be held jointly with residents and / or with non- resident Indian. b) The NRO account holder may opt for nomination facility. c) Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.

B. Non-Resident (External)

Rupee Account (NRE Ac-

count)

NRE account may be in the form of

savings,

current,

recurring or

fixed deposit accounts.

Such accounts can be opened only

by the non-resident himself and not

through the holder of the power of

attorney.

PIO may be permitted to open

NRE account with their resident

close relatives (relative as de-

fined in Section 6 of the Com-

panies Act, 1956) on ‘former or

survivor’ basis. The resident

close relative shall be eligible to

operate the account as a Power

of Attorney holder in accor-

dance with the extant instruc-

tions during the life time of the

PIO account holder.

Account will be maintained in

Indian Rupees.

● Balances held in the NRE ac

count are freely repatriable.

● Accrued interest income and

balances held in NRE accounts

are exempt from Income tax

and Wealth tax, respectively.

● Authorized dealers/authorized

banks may at their discretion/

commercial judgment allow

for a period of not more than

two weeks, overdrawing in

NRE savings bank accounts, up

to a limit of Rs.50,000 subject

to the condition that such over

drawings together with the

interest payable thereon are

cleared/repaid within a period

of two weeks, out of inward

remittances through normal

banking channels or by transfer

of funds from other NRE/

FCNR accounts.

● Savings - Banks are free to de-

termine the interest rates.

● Term deposits – Banks are free

to determine the interest rates of

term deposits of maturity of one

year and above. Interest rates of-

fered by banks on NRE deposits

cannot be higher than those of-

fered by them on comparable do-

mestic rupee deposits.


credits to such NRE ac-

count? Permissible credits to NRE ac-

count are inward remittance to

India in permitted currency, pro-

ceeds of account payee cheques,

demand drafts / bankers' cheques,

issued against encashment of for-

eign currency, where the instru-

ments issued to the NRE account

holder are supported by encash-

ment certificate issued by AD

Category-I / Category-II, transfers

from other NRE / FCNR ac-

counts, sale proceeds of FDI in-

vestments, interest accruing on

the funds held in such accounts,

interest on Government securities/

dividends on units of mutual

funds purchased by debit to the

NRE/FCNR(B) account of the

holder, certain types of refunds,

etc.



debits to such NRE account?

a) Eligible debits are local disburse-

ments, transfer to other NRE / FCNR

accounts of person eligible to open

such accounts, remittance outside

India, investments in shares / securi-

ties/commercial paper of an Indian

company, etc.

b) Loans up to Rs.100 lakhs can be

extended against security of funds

held in NRE Account either to the

depositors or third parties.

c) Such accounts can be operated

through power of attorney in favor of

residents for the limited purpose of

withdrawal of local payments or re-

mittances through normal banking

channels to the account holder him-

self.

C. Foreign Currency Non

Resident (Bank) Account –

FCNR (B) Account

● FCNR (B) accounts are only in the

form of term deposits of 1 to 5

years

● Account can be in any freely con

vertible currency.


debits to such FCNR ac-

count? a) All debits permissible in respect of

NRE accounts, including credit of

sale proceeds of FDI investments,

are permissible in FCNR (B) ac-

counts also.

b) Loans up to Rs.100 lakh can be

extended against security of funds

held in FCNR (B) deposit either to

the depositors or third parties.

Other important points: a) The interest rates are stipulated

by the Department of Banking Operations and Development, Reserve Bank of India. In respect of FCNR (B) deposits of all ma-turities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturi-ties (as against LIBOR/SWAP rates plus 100 basis points effec-tive from close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective cur-rency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months.

b) When an account holder be comes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him. c) Terms and conditions as applicable to NRE accounts in respect of joint accounts, repatriation of funds, opening account during tempo- rary visit, operation by power of attorney, loans/overdrafts against security of funds held in accounts, shall apply mutatis mutandis to FCNR . Also PIO can open joint account with a resident close relative (relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative will be eligi Ble to operate the account as a Power of Attorney holder in accor dance with extant instructions dur ing the life time of the PIO account holder.

Is the permission of the Re-

serve Bank required for

opening the various ac-

counts, mentioned above,

by Bangladesh / Pakistan

individuals/entities? Opening of accounts by individu-

als/entities of Bangladesh / Paki-

stan nationality requires prior ap-

proval of the Reserve Bank. All

such requests may be referred to

the Chief General Manager-in-

Charge, Foreign Exchange Depart-

ment, Foreign Investment Division,

Reserve Bank of India, Central

Office, Mumbai - 400 001.

Can an individual resident

Indian borrow money from

his close relatives outside

India? Yes, an individual resident Indian

can borrow sum not exceeding

USD 250,000 or its equivalent

from his close relatives staying

outside India, subject to the condi-

tions that:

i. the minimum maturity period

of the loan is one year;

ii The loan is free of interest;

And

iii The amount of loan is received

by inward remittance in free

foreign exchange through nor

mal banking channels or by

debit to the NRE/FCNR(B) ac

count of the PIO.


credits to such FCNR ac-

count? All credits permissible in respect of

NRE accounts, including credit of

sale proceeds of FDI investments,

are permissible in FCNR (B) ac-

counts also.

Can an individual resident

lend money to his close relative

who is PIO? Yes, an individual resident can lend

money by way of crossed cheque /

electronic transfer within the overall

limit of USD 200,000 per financial year

under the Liberalised Remittance

Scheme, to meet the borrower’s per-

sonal or business requirements in India,

subject to conditions. The loan should

be interest free and have a maturity of

minimum one year and cannot be remit-

ted outside India.

Can an individual resident re-

pay loans of close relative who

is PIO to banks in India? Yes, where an authorised dealer in In-

dia has granted loan to a Person of In-

dian Origin than such loans may also be

repaid by resident close relative

(relative as defined in Section 6 of the

Companies Act, 1956), of the Person of

Indian Origin by crediting the bor-

rower's loan account through the bank

account of such relative.

Page 4

What are the other facilities

available to PIO?

A. Investment facilities for PIO

They may, without limit, pur-

chase on repatriation basis: ● Government dated securities / Treas-

ury bills

● Units of domestic mutual funds;

● Bonds issued by a public sector

undertaking (PSU) in India.

● Non-convertible debentures of a

company incorporated in India.

● Perpetual debt instruments and

debt capital instruments issued by

banks in India.

● Shares in Public Sector Enter

prises being dis-invested by the

Government of India, provided the

purchase is in accordance with

the terms and conditions stipu-

lated in the notice inviting bids.

● Shares and convertible debentures

of Indian companies under the

FDI scheme (including automatic

route & FIPB), subject to the

terms and conditions specified in

Schedule 1 to the FEMA Notifica-

tion No. 20/2000- RB dated May

3, 2000, as amended from time to

time.


of Indian companies through

stock exchange under Portfolio

Investment Scheme, subject to the

terms and conditions specified in

Schedule 3 to the FEMA Notifi-

cation No. 20/2000- RB dated

May 3, 2000, as amended from

time to time.

PIO may, without limit,

purchase on non-

repatriation basis : ● Government dated securities /

Treasury bills

● Units of domestic mutual funds

● Units of Money Market Mutual

Funds

● National Plan/Savings Certificates

● Non-convertible debentures of a

company incorporated in India


of Indian companies through stock

exchange under Portfolio Invest

ment Scheme, subject to the terms

and conditions specified in Sched

ules 3 and 4 to the FEMA Notifi

cation No. 20/2000- RB dated

May 3, 2000, as amended from

time to time.

● Exchange traded derivative cont

racts approved by the SEBI, from

time to time, out of INR funds

held in India on non-repatriable

basis, subject to the limits pre-

scribed by the SEBI.

Note: PIO are not permitted to

invest in small savings or Public

Provident Fund (PPF).

B. Investment in Immov-

able Property

● PIO other than citizen of Paki

stan, Bangladesh, Sri Lanka,

Afghanistan, China, Iran, Nepal

and Bhutan may acquire im

movable property in India other

than agricultural land/ planta

tion property or a farm house

out of repatriable and / or non-

repatriable funds.

● The payment of purchase price,

if any, should be made out of

(i) funds received in India through

normal banking channels by

way of inward remittance from

any place outside India or

(ii) funds held in any non-resident

account maintained in accor

dance with the provisions of the

Act and the regulations made by

the Reserve Bank.

Note : No payment of purchase

price for acquisition of immov-

able property shall be made

either by traveller’s cheque or

by foreign currency notes or by

other mode other than those

specifically permitted as above.


● PIO may acquire any immovable prop

erty in India other than agricultural

land / farm house plantation property,

by way of gift from a person resident in

India or from a person resident outside

India who is a citizen of India or from a

person of Indian origin resident outside

India.

● PIO may acquire any immovable prop

erty in India other than agricultural

land / farm house plantation property,by

way of inheritance from a person resi

dent outside India who had acquired

such property in accordance with the

provisions of the foreign exchange law

in force at the time of acquisition by

him or the provisions of these Regula

tions or from a person resident in India

● A PIO may transfer any immovable

property in India to a person resident in

India.

● A PIO may transfer any immovable

property other than agricultural or plan

tation property or farm house to a per

son resident outside India who is a citi

zen of India or to a person of Indian

origin resident outside India.

In respect of such investments, PIO’s

are eligible to repatriate:

● The sale proceeds of immovable prop

erty in India if the property was ac

quired out of foreign exchange sources

i.e. remitted through normal banking

channels / by debit to NRE / FCNR (B)

account.

● The amount to be repatriated should not

exceed the amount paid for the property

in foreign exchange received through

normal banking channel or by debit to

NRE account (foreign currency equiva

lent, as on the date of payment) or debit

to FCNR (B) account.

● In the event of sale of immovable prop

erty, other than agricultural land / farm

house / plantation property in India, by

a person resident outside India who is a

citizen of India / PIO, the repatriation

Page 5


of sale proceeds is restricted to not

more than two residential properties

subject to certain conditions.

● If the property was acquired out of

Rupee sources, PIO may remit an

amount up to USD one million per

financial year out of the balances

held in the NRO account (inclusive

of sale proceeds of assets acquired

by way of inheritance or settle

ment), for all the bonafide purposes

to the satisfaction of the Authorized

Dealer bank and subject to tax

compliance.

● Refund of (a) application / earnest

money / purchase consideration

made by house-building agencies/

seller on account of non-allotment

of flats / plots and (b) cancellation

of booking/deals for purchase of

residential/commercial properties,

together with interest, net of taxes,

provided original payment is made

out of NRE/FCNR (B) account/

inward remittances.

Repayment of Housing Loan

of PIOs by close relatives of

the borrower in India Housing Loan in rupees availed of by

NRIs/ PIOs from ADs / Housing Fi-

nancial Institutions in India can be

repaid by the close relatives in India

of the borrower.

C. Facilities to returning

PIOs

● Returning NRIs/PIOs may con-

tinue to hold, own, transfer or

invest in foreign currency, foreign

security or any immovable prop-

erty situated outside India, if such

currency, security or property was

acquired, held or owned when

resident outside India

● The income and sale proceeds

of assets held abroad need not

be repatriated.

Resident Foreign Currency

Account

● Returning PIOs may open, hold

and maintain with an authorised

dealer in India a Resident For

eign Currency (RFC) Account

to transfer balances held in

NRE/FCNR(B) accounts.

● Proceeds of assets held outside

India at the time of return can

be credited to RFC account.

● The funds in RFC accounts are

free from all restrictions re

garding utilisation of foreign

currency balances including

any restriction on investment in

any form outside India.

You can contact the author Ms Deepa Rathi for any doubts at the email id

[email protected] / [email protected]

Disclaimer notice: The above laws are not limited or restricted to FEMA, RBI and other applicable laws in In-

dia. The above article does not constitute an offer or acceptance of an offer, nor shall it form any part of a le-

gally binding contract. It is recommended that professional advice be taken based on specific facts and circum-

stances. No representation or warranty is made as to the accuracy of completeness of the information and no

liability can be accepted for any loss arising from its use.

● RFC accounts can be main

tained in the form of current or

savings or term deposit ac

counts, where the account

holder is an individual and in

the form of current or term de

posits in all other cases.

Page 5


RFC accounts are permitted to be

held jointly with the resident close

relative(s) as defined in the Com-

panies Act, 1956 as joint holder

(s) in their RFC bank account on

‘former or survivor basis’. How-

ever, such resident Indian close

relative, now being made eligible

to become joint account holder

shall not be eligible to operate the

account during the life time of the

resident account holder.

Fun at work


An opportunity for foreigners to buy?

Taxation and other costs have to be kept in mind when deciding on purchasing property.

Due to the real estate and eco-

nomic crisis in Spain, real estate

prices have fallen, even in prime

locations. As a result, Germans

now have what appear to be fa-

vorable opportunities to buy

properties in Spain. Should one

take a chance now, or wait to see

how things develop? That is the

question many prospective buy-

ers are asking themselves now.

Many foreign and resident inves-

tors are still hesitating, because

real estate prices are expected to

fall even further. Once the econ-

omy starts picking up, one could

consider

reacting swiftly and purchas-

ing property in preferred loca-

tions.

In any case, private buyers

would be well advised to

weigh the pros and cons care-

fully before coming to a final

decision. Anyone buying a

vacation home in Spain just to

use it once to four times a year

should be doing so for pleasure

and not purely as an invest-

ment.Spanish tax authorities

impose considerable taxes on

any property purchases – in the

form of the TIP (real-estate

transfer tax) at a rate of at

least 7% to 8% of the purchase

price. If a company handles the

purchase of a building site, as

much as 21% in value added tax

plus stamp duty of 1.5% to

2.5% can be added (see table).

The real-estate transfer tax is

charged to the customer, as is

the value added tax. Of less im-

portance, relatively speaking, is

the municipal capital gains tax,

usually only a few hundred or a

thousand euros.

Notary fees are money well spent.

A notarized bill of sale and an entry

made in the land register are not

necessary to validate the purchase of

real estate in Spain. However, it is

highly recommended if you want to

save yourself some nasty surprises.

There have been cases of real estate

having been sold several times over.

Trying to get your money back is a

long ordeal. When the services of a

notary are employed to have the

real estate recorded in the land

register, the transaction can be

regarded as watertight.

Private individuals who own real

estate in Spain are responsible for

filing their own income tax re-

turns. Not only rental income

earned is taxable (at a rate of

24.75% of the gross rental reve-

nue), but also personal use, at a

rate of 24.75% on 1.1% - 2% of

the cadastral value. Spanish mu-

nicipalities also impose property

tax, at rates of 0.6% to 1.3% of

the cadastral values.

The Spanish inheritance tax law

and the gift tax may be time

bombs waiting to go off for for-

eign owners of Spanish estate if

they are not familiar with the

Spanish tax system. Therefore

expert advice is essential.

Author

Joerg Hörauf, ECOVIS Barcelona, Spain, [email protected]

Co-Author

Larsen Lüngen, ECOVIS Köln/Krefeld/Düsseldorf, Germany,

[email protected]

mailto:[email protected]

“Anyone buying a vacation home in Spain just to use it once to four times a year should be doing so

for pleasure and not purely as an investment.”


Costs, assuming normal purchase transaction


Preparation is everything

Due to new laws and regula-

tions, 2012 was a year of

change for foreign companies

in China. During the annual

compliance process, the Chi-

you are in compliance , with the

requirements of your tax entity.

But don’t look at it as just another

burden on your company. Rather,

it is a great chance to optimize

your structure

save money and implement

control mechanisms to avoid

fraud. This article points out the

main issues to consider for your

annual compliance process in

China.

Overview of annual compliance work

1st level: Annual Audit

Local Chinese GAAP

The first round in annual compli-

ance is the annual audit. All for-

eign- invested enterprises

(representative office, WFOE,

joint venture or FICE) are re-

quired to prepare annual state-

ments including balance sheets,

income statements and cash flow

statements for the annual audit,

based on Chinese GAAP. The

annual financial statements and

the relevant accounting records

need to be audited by a Chi-

neselicensed CPA firm. Many

International GAAP International companies need con-

solidated financial statements for

group consolidation. Therefore, the

local Chinese entity should facilitate

a special purpose audit of the finan-

cial statements in line with the Inter-

national Standards on Auditing (ISA)

by December 31, 2012. It should be

prepared according to the internal

accounting principles of headquarters

(IFRS, US GAAP or HK GAAP).

The results of this audit are reported

in standard format or in a reporting

package as defined by headquarters.

problems occur due to incom-

plete monthly bookkeeping and

accounting. Try to adjust your

accounting before the audit.

“Compliance with tax regulations isn’t just a burden, it’s a great chance to optimize your

structure, save money and implement control mechanisms.”

Richard Hoffmann, Partner Ecovis Beijing, China, [email protected]

mailto:[email protected]

2nd level: Annual foreign currency audit

and inspection

Every foreign enterprise in China needs to go

through a “Foreign Currency Inspection” (FCI)

for the period ending on December 31, 2012.

This inspection is facilitated by an authorized

CPA firm, and the findings are summarized in a

report. This report is required for the annual in-

spection of the State Administration for Foreign

Exchange (SAFE). Each company is responsible

for preparing the Statement of Foreign Inves-

tors’ Equity of Foreign Invested Enterprise, ac-

cording to the regulations of the State Admini-

stration of Foreign Exchange.

3rd level: Annual tax audit and clearances

According to the requirements of the tax authorities,

each foreign entity must participate in an annual tax

clearance. Its main component is the annual Corpo-

rate Income Tax clearance. The costs and profits are

listed to evaluate taxable profit or loss. Outstanding

tax liabilities must be cleared.

4th level: Annual combinative inspection

Each foreign entity must facilitate an annual

combined audit from various authorities. These

are the same authorities who approve the regis-

tration of the company (e.g. AIC, MOFCOM,

Financial Bureau, Customs, Tax Authorities,

etc.). Each of these authorities must confirm that

the foreign company is in compliance. Upon rele-

vant approvals, the foreign entity can proceed

with its business in China.

Disclaimer This material and the information contained herein prepared by ECOVIS RKCA is intended to provide

general information on a particular subject or subjects and is not an exhaustive treatment of such subject

(s). None of ECOVIS RKCA members, its member firms, or their related entities is, by means of this

material, rendering professional advice or services. The information is not intended to be relied upon as

the sole basis for any decision which may affect you or your business. Before making any decision or

taking any action that might affect your personal finances or business since each business differs you

should consult your professional advisor individually. We shall not be responsible for any loss whatsoever

sustained by any person who relies on this material.

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