The Challenge
Repatriating reserves of this size meant getting several compliance requirements right, in sequence, before any funds could leave India:
- Choosing the right route: capital reduction, buyback, and dividend distribution each carry different tax outcomes and procedural timelines, and the wrong choice at this scale is costly to correct.
- Distributable reserves: not every reserve on the balance sheet legally qualifies for distribution under the Companies Act, and this had to be established before any board resolution could be passed.
- Treaty withholding tax: the applicable tax rate on the outbound payment depended on the US parent's treaty eligibility being properly documented in advance.
- FEMA and RBI reporting: an outbound remittance of this size needed complete, accurate documentation to clear the banking channel without delay.
- Timeline: the client wanted the transaction closed within a defined window, which ruled out slower routes.
Our Approach
We assessed the available options and recommended a dividend distribution as the best fit: it kept the transaction inside a well established treaty framework, avoided the longer timeline of a capital reduction, and gave the client a clean, documented position from the start.
1. Recommending the route
We evaluated capital reduction, buyback, and dividend distribution against the client's timeline and tax exposure, and proposed dividend distribution as the structure that met their requirements.
2. Reserves and distributable surplus review
We reviewed the subsidiary's reserves against Companies Act provisions to confirm the quantum legally available for distribution.
3. Tax modelling before execution
We modelled the corporate tax and withholding tax impact of the distribution in advance, so the client's finance team in the US had a confirmed net figure before the board committed to the payout.
4. Treaty rate confirmation
We validated the US parent's eligibility for the reduced withholding tax rate under the India-US Double Taxation Avoidance Agreement, ensuring the Tax Residency Certificate and supporting declarations were in place before remittance.
5. Statutory process management
We managed the board resolution, shareholder approval, and internal documentation trail required to authorise a distribution of this scale, keeping every step audit ready.
6. Withholding tax deduction and deposit
We computed and deposited the correct withholding tax at the treaty rate, and prepared the compliance documentation, including Form 15CA/15CB, required for an outbound remittance of this size.
7. FEMA and RBI reporting
We handled the reporting requirements for the outbound remittance, working directly with the client's authorised dealer bank to ensure the transaction proceeded without procedural delays.
8. Coordination across finance teams
Because this transaction sat across the client's India and US finance functions, we worked directly with both teams to keep timelines, documentation, and sign offs aligned, rather than routing everything through a single internal point of contact.