And its applicability on Unincorporated Joint Ventures (‘UJVs’) of foreign companies with Indian entities in India
The concept of SNRR account was initially introduced by Reserve Bank of India (‘RBI’) for registered Foreign Portfolio Investors (‘RFPI’). It allowed an RFPI to open an SNRR with Authorised Dealer (‘AD’) Banks in India for routing the receipt and payment relating to purchase and sale of securities under the Portfolio Investment scheme.
However, the scope of SNRR Account was relaxed in the year 2016 wherein RBI permitted ‘any person resident outside India, having business interest in India’ to open SNRR Account in INR with AD Banks. It permitted bonafide transactions in rupees subject to such conditions as may be prescribed under Deposit regulations of RBI in this regard.
Although, the scope of SNRR Account was widened to ‘any person outside India’, it was still unclear as to which type of business transactions may be routed through SNRR Account. To bring more clarity to the scope of SNRR account, the RBI amended Foreign Exchange Management (Deposit) Regulations, 2016 . And clarified the scope for which SNRR Account can be opened in India.
The said amendment clarified that ‘business interest’ as mentioned in the scope of SNRR account shall include certain other INR activities i.e., money can be kept in SNRR account for not only bonafide business transactions but also for following :
Also, the SNRR account can be used for obtaining income tax refunds by Non-residents, who do not hold any other current account in India
RBI further permitted the Unincorporated Joint Ventures (‘UJV’) of foreign companies/entities, with Indian entities, executing a contract in India to open a non-interest bearing SNRR account for the purpose of undertaking transactions in the ordinary course of business of UJV.
Practically, the AD-banks nowadays permit UJVs to open SNRR account, for executing its contract in India, with a nomenclature specific to the purpose for which account has been opened. However, it is still unclear whether the same account can be used by same foreign entities for undertaking separate permitted transactions in India.
Basis the interpretation of RBI guidelines and FAQs issued in this regard, foreign entities may have to open a separate SNRR account for undertaking other permitted transactions. However, the foreign entities/Non-resident may explore an option of seeking clarification from RBI in this regard.
In our experience, SNRR account may be opted by such foreign entities/non-residents who have been awarded service contracts in India. These may not be capital intensive projects, and do not require physical presence in India. SNRR could also be used by the foreign company to obtain their income tax refunds in India, specially where foreign entity does not have any other bank account in India.
Unincorporated Joint Ventures (UJV), a widely used form of entity used for infra projects participations, are allowed to open SNRR accounts. Hence, AD bank may find it more apt to set up SNRR accounts of UJV than normal current accounts.
SNRR accounts are typically allowed only for specific purposes. Hence, in case a foreign company has long terms plans, and intend to set up branch office or representative office, SNRR may not be useful.
Given the above, a foreign entity can consider opening SNRR account for its business purposes, in the following circumstances: