/ Foreign Clients · Profit Repatriation · Updated 2026-10-13
Repatriate profits, dividend vs royalty vs FTS vs buyback.
Foreign parent with profitable Indian subsidiary — how to get the cash out. Four main routes: dividend, royalty, Fees for Technical Services (FTS), buyback. Each has different tax rate, FEMA compliance, and defensibility. Section 195 TDS applies to all; treaty rate varies by DTAA. Post DDT abolition (April 2020), tax is in the shareholder's hands — typically ~10-15% withholding under treaty vs 20% default. Here's the practitioner's decision framework.
Written by CA Durgesh Chavda
Chartered Accountant (ICAI) · Founder, Bharat Quantum Prospera · US incorporation, India-US DTAA, FEMA ODI, NRI taxation, cross-border structuring · LinkedIn
/ The four repatriation routes
Decision table.
1. Dividend
- Post April 2020: DDT abolished. Dividend taxable in foreign parent's hands — Section 195 TDS 20% default; 10-15% under DTAA with TRC + Form 10F.
- Pre-conditions: Indian subsidiary must have distributable profits (per Companies Act Section 123); must pass solvency test.
- Board resolution + sometimes AGM declaration.
- FEMA: current account transaction — permitted via AD bank without special approval.
- Form 15CA + 15CB mandatory.
2. Royalty / License Fee
- Parent licenses IP (brand, patent, technology, software) to Indian subsidiary; subsidiary pays royalty.
- Section 115A: 20% TDS default; 10% under most DTAAs with TRC + Form 10F.
- Deductible in Indian subsidiary's P&L (unlike dividend which is not).
- Transfer pricing scrutiny — must be benchmarked.
- FEMA: current account; subject to Reserve Bank Automatic Route limits (typically 5% of domestic sales for brand; 8% of exports for brand).
3. Fees for Technical Services (FTS) / Management Fee
- Parent provides services (management, consulting, IT, HR) to Indian subsidiary.
- Section 115A: 20% TDS default; 10% under DTAA.
- Deductible in Indian subsidiary's P&L subject to benefit test + TP arm's-length.
- Common adjustment target in TP scrutiny if lacking substance.
4. Buyback / Capital Reduction
- Indian subsidiary buys back shares from foreign parent.
- Section 115QA: buyback tax 20% + surcharge on distributed income (effectively ~23.3%).
- Receipt in parent's hands = capital gain — often non-taxable in India for foreign parent (Section 10(34A) exempts buyback-related income).
- FEMA: subject to pricing guidelines; must be at fair value.
- Companies Act: 10%-25% maximum buyback limits + 2-year gap between buybacks.
- Complex but useful for large one-time repatriation.
/ Choosing the right route
Decision factors.
For small recurring repatriation (USD 100K-1M annually):
- Dividend if India has profit history + distributable reserves. Simplest, lowest friction.
For loss-making Indian subsidiary that still needs to repatriate:
- Dividend impossible (no profits).
- Royalty / FTS acceptable — parent charges for services / IP. Must be TP-defensible.
- Capital reduction possible but one-off.
For brand / IP-heavy groups:
- Royalty is natural — parent owns brand, licensed to Indian subsidiary.
- 5% of domestic sales benchmark typical; TP benchmarking supports.
For large one-time repatriation (USD 10M+):
- Buyback / capital reduction may be more tax-efficient than dividend (buyback tax 20% on distribution amount vs 20% TDS on dividend amount — roughly similar but can be optimised).
- Also provides cap table cleanup.
Deemed dividend (Section 2(22)(e)) trap:
- If Indian subsidiary gives loan / advance to parent (or shareholder with 10%+ holding), treated as deemed dividend.
- Avoids by: proper documentation (interest-bearing commercial loan, FEMA ECB compliance), repayment schedule.
/ Treaty rates for key countries
DTAA WHT.
| Country | Dividend (DTAA) | Royalty (DTAA) | FTS (DTAA) |
|---|---|---|---|
| USA | 15% (25% hold); 25% else | 10-15% | 10-15% |
| UK | 10% (10% hold); 15% else | 10-15% | 10-15% |
| Singapore | 10% (25% hold); 15% else | 10% | 10% |
| Mauritius | 5% (10% hold); 15% else | 15% | 10% |
| UAE | 10% | 10% | 10% |
| Netherlands | 10% | 10% | 10% |
| Germany | 10% | 10% | 10% |
Rates indicative; verify specific DTAA article + beneficial ownership + GAAR implications before relying.
Must-haves for treaty rate: TRC from parent's country + Form 10F (electronic post Oct 2023) + No-PE declaration (where applicable).
/ Execution workflow
What repatriation actually involves.
- Confirm distributable profits (for dividend) or arm's-length pricing (for royalty / FTS).
- Board / shareholder resolution: Indian subsidiary's board/AGM declares dividend / approves royalty rate / FTS contract.
- Documents from foreign parent: TRC + Form 10F + PAN (if available).
- Form 15CA + 15CB: filed on Indian e-filing portal before remittance. See 15CA/CB guide.
- TDS deduction: at treaty rate (or 20% if TRC/Form 10F missing).
- Section 195 TDS deposit: by 7th of next month.
- Form 27Q quarterly return: by 31 Jul / 31 Oct / 31 Jan / 31 May.
- AD bank processing: with 15CA acknowledgement + 15CB attached, bank releases SWIFT.
- Payee receives net remittance in foreign bank account.
- Form 16A issued to foreign payee for TDS credit (if payee files Indian ITR to claim refund where applicable).
Last updated: 2026-10-13.
/ Ready when you are
Need to repatriate profits from Indian subsidiary to foreign parent?
Dividend, royalty, FTS, buyback - each has different tax rate + TP risk + FEMA compliance. BQP: route recommendation + Form 15CA/CB + Section 195 execution + annual compliance. Scope-based.
FAQ
Common questions, answered.
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