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Royalty allowed in tech alliances

New Delhi, June 25: The government has decided to allow all companies which have entered into foreign technology collaboration agreements to make royalty payments through the automatic approval route without any restriction on the number of years.

At present, only wholly-owned subsidiaries are permitted to make royalty payments of up to 8 per cent on exports and 5 per cent on domestic sales to their offshore parent companies on the automatic route, without any restriction on the duration of the royalty payments.

Other companies are allowed to make royalty payments for only seven years from the date of commencement of commercial production or 10 years from the date of signing the technical collaboration agreement, whichever is earlier.

“All companies, irrespective of the extent of foreign equity in the shareholding, may henceforth make royalty payments at 8 per cent on exports and 5 per cent on domestic sales without any restriction on the duration of the royalty payments. The ceiling on payment of lump sum fee or royalty on the automatic route will continue to apply in all cases,” a press note said.

The government is reported to have taken this step in pursuance of its commitment to progressively liberalise the foreign direct investment (FDI) regime.

As part of this effort, overseas investment norms for companies has been eased in this year’s budget, while allowing prepayment of foreign loans over $ 100 million. Overseas investment under the automatic route is now allowed for companies with a proven track record, even it is not planned in the core business.

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