Obtaining Technology Collaborations with India
Feb. 20 – India’s technology prowess and large consumer market is attracting transfers in both technology products and services. While India encourages both the transfer of technology and technical services it lays down certain ground rules for the import, sales and export of technology from Indian soil.
Below are some of the rules and regulations governing technology collaborations for foreign firms in India:
a. Technology Licensing
Technology licensing to Indian companies is permitted and encouraged under Indian exchange control regulations. Payment of royalties up to certain limits is permitted without any prior regulatory approvals. These limits are lump-sum royalties of US$2 million, and recurring royalties of 5 percent on domestic sales and 8 percent on export sales, based on the net ex-factory sales price of the products. The lump-sum royalties are payable in three installments of one-third on signing of the technology transfer agreement, one-third on transfer of technology, and the balance one-third on commencement of commercial production. These royalty payments may be grossed-up for withholding taxes. For hiring of foreign technicians, no permission is required from the RBI even if it is not explicitly mentioned in the approved agreement.
Technology transfer/licensing agreements falling within the above payment limits do not require any prior regulatory approvals. These agreements would only need to be registered with the Reserve Bank of India.
Under Indian tax laws, tax is required to be deducted at source from the gross royalty payments.
b. Trademark License
The Government of India has allowed payment of royalties towards use of trademarks. Royalties of 1 percent on domestic sales and 2 percent on export sales may be paid towards use of a trademark without any prior regulatory approvals. Payment of royalties in excess of these limits would require the consent of the Reserve Bank of India.
c. Technical Services
In general, the transfer of technicians to India and the payment of technical services fees are permitted without any prior regulatory approvals. Payment could be made for technical services rendered in or outside India. The quantum of fees should be reasonable and relative to the type and extent of technical services. The authorized dealer (i.e. bank) has the discretion to refer any application for remittance to the RBI for specific approval.