Private Client Series
Series 1 | Article 5
In an increasingly interconnected world, Resident Indians are seeking opportunities beyond borders, including managing their finances internationally. For Indian residents, the Liberalised Remittance Scheme (“LRS”) offers a pathway to open overseas foreign currency accounts, facilitating global financial transactions. This article provides a guide to establishing such accounts under the LRS framework.
A Resident Indian may open, maintain, and hold an overseas foreign currency bank account without having to take prior approval of the Reserve Bank of India. A Resident Indian may not open an overseas foreign currency account in any of the countries notified as NCCTs (non-cooperative countries and territories) by the Financial Action Task Force or countries specifically identified by the Reserve Bank of India.
The foreign account can be established either in an individual capacity or jointly with a relative who also adheres to LRS regulations. This account serves as a conduit for all remittances under the LRS for Resident Indians. The annual remittance limit of USD 250,000, as per the LRS guidelines, is applicable for transactions conducted through the overseas foreign currency bank account. This is to say that the remittances to the overseas bank account fall within the threshold. However, funds carried over in a subsequent financial year, do not.
State Bank of India, ICICI Bank, Axis Bank, Bank of Baroda, to name a few amongst the better known Indian banks have branches / subsidiaries in countries other than India. Naturally, foreign banks operating in India such as DBS Bank, HSBC, Deutsche Bank, etc. have branches / subsidiaries in various countries. Generally speaking, this gives Resident Indians a number of options in opening and maintaining overseas bank accounts.
The actual opening of the account in an overseas jurisdiction will require a Resident Indian to comply with the laws and procedures of the bank and the overseas jurisdiction. These include standard documentation and anti-money laundering checks.
You may give thought to the following while selecting the right bank for you:
Reputation and Stability: Opt for a bank with a strong reputation and stability, preferably one that is well-established and recognised internationally. A reputable bank is more likely to offer reliable services and a secure banking environment.
Global Presence and Network: Choose a bank that has a wide global presence and a robust network of branches or correspondent banks in countries where you may conduct financial transactions. This ensures accessibility and convenience for managing your overseas account. This allows you to hedge against sudden sovereign risk shocks.
Currency Options: Consider banks that offer a variety of currency options for your foreign currency account. Ensure that the bank supports the currencies relevant to your financial needs and transactions.
Account Fees and Charges: Evaluate the fee structure associated with opening and maintaining the overseas account, including transaction fees, service charges, and any other applicable expenses. Compare these fees across different banks to choose the most cost-effective option.
Online Banking Services: Check if the bank provides reliable and user-friendly online banking services for managing your overseas account remotely. Seamless online access can greatly facilitate fund transfers, account monitoring, and other banking activities.
Customer Support: Assess the quality of customer support offered by the bank, especially for international clients. Prompt and efficient customer service can be crucial, particularly when dealing with cross-border transactions or resolving issues related to your overseas account.
Regulatory Compliance: Ensure that the bank complies with all regulatory requirements and guidelines governing foreign currency accounts and remittances in both the host country and India. Compliance with regulations ensures legal clarity and minimises the risk of regulatory issues. Look for banks that have automated their reporting processes, which will save you both time and money.
Security Measures: Verify the security measures implemented by the bank to safeguard your funds and personal information. Look for features such as encryption, multi-factor authentication, and fraud detection mechanisms to enhance the security of your overseas account.
Specialised Services: Consider banks that offer specialised services tailored to the needs of international clients, such as foreign exchange services, investment advisory, wealth management, and customised financial solutions. A number of foreign banks have India Desks which deal with and advise ultra high net worth individuals and family offices on their global wealth management.
Liaison Offices or Group Company in India: While this may not be a priority, having a bank with a liaison office or group company in India may help navigate and explain regulatory and reporting requirements. It may also allow you to extend the preferred relationship you may enjoy in India with the overseas bank.
There are several reporting requirements once you have opened an overseas foreign currency account which we will deal with in a later article. Please seek the advice of your lawyer and tax consultant before opening an overseas foreign currency account. You may consult them not only on your reporting requirements, but also the tax implications and possible treaty benefits in assessment.
About the Author
Pranay Mangharam is a founding member of MZD Legal Consultancy. He leads the firm's private client; technology; and transaction advisory practices. Pranay advises high-net-worth individuals, closely held businesses, and family offices on a range of private matters including their investments, succession planning, transborder holdings, etc. He can be contacted at pranay@mzdlegal.in
About MZD Legal Consultancy
MZD Legal Consultancy is a boutique law firm in Mumbai, India. The firm was established in 2011 and comprises professionally qualified lawyers with varied levels of experience and expertise in specific practice areas. To know more, click here www.mzdlegal.in