Foreign Technology Transfer Fees and Royalties in India

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By Cherry Bansal, Accounts Associate, Dezan Shira & Associates

Feb. 3 – As India develops into an important market for foreign investors, we’ve seen a significant increase in the volume of questions that our firm is regularly asked to deal with. An important issue that is beginning to crop up concerns royalty payments for licensed component parts, and technology transfer fees. In fact, since December 2009, there have been no limits regarding lump sum payments and royalties payable, however the method of calculation needs attention to detail in order to structure the invoicing process correctly.

Lump sum payments and royalty payments are subject to the compliance of FEMA (Current Account Transactions) Rules (2000) under which it is necessary to consider the ex-factory sale price of the product minus the cost of standard bought-out components and landed cost of imported components.

To properly calculate royalty payments, it needs to be conducted on the basis of the net ex-factory sale price of the product, exclusive of excise duties, minus the cost of the standard bought-out components and the landed cost of imported components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc.

Clients needing assistance with the calculation of technology transfer and royalty payments in India may contact Dezan Shira & Associates at india@dezshira.com or visit www.dezshira.com for further details of our services.