The opening and liberalization of the Indian economy to global trade and investment has seen the gradual lowering of barriers with which the foreign investors are confronted across various sectors. Another step in this direction was taken recently by the Indian Government when it cancelled the restrictions on the amounts that can be paid by Indian firms to their foreign counterparts as royalties and fees for technology transfers and for the use of trademarks and brand names.

Until recently, the payment by Indian residents to non-residents without prior regulatory approval was limited to a lump sum fee of USD $2 million, as well as royalty payments at a maximum rate of 5% of the value of domestic sales and 8% of the value of exports. Royalties for the use of trademarks and brand names were limited to 1% of the value of domestic sales and 2% of the value of exports. Higher royalty rates were subject to the prior approval of the Reserve Bank of India (RBI).

On December 16th, 2009, the Indian Government announced the removal of abovementioned restrictions. The Government has decided to permit, with immediate effect, payments for royalties, lump sum fees for transfers of technology, and payments for use of trademarks and brand names without the need for prior governmental approval . Only post-reporting of the payments will be required*.

This is good news for the foreign players in various sectors, including those in high- tech, those other companies licensing their proprietary technologies, and franchisers licensing the use of their trademarks. These foreign entities can now charge the fair market value for their intellectual property.

It is expected that these regulatory changes will encourage foreign players to enter the Indian market in collaboration with Indian companies, thus benefitting both the foreign companies and the Indian economy.
For further information relating to this update, please contact:
 Daniel Siegel, Adv. (Daniel@zag-k.co.il).

* Press Note 8 (2009 Series) by the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion (FC Section), F. No 5(6)/2009-FC.