Opening Foreign Accounts: What Indian Companies Must Know Before Setting Up Abroad
RBI’s Tight Grip on Overseas Accounts
Why Subsidiaries Abroad Are Easier Than Collection Accounts
By Vishwas Kumar
New Delhi: April 09, 2026:
For many Indian businesses, especially exporters and service providers, the idea of opening a bank account abroad seems like a straightforward solution to collect payments from international customers. Yet, under India’s foreign exchange laws, this is far more complex than it appears. The Reserve Bank of India (RBI), through its Master Direction dated 16 January 2025, has laid down strict rules governing overseas accounts. Ironically, while RBI permits Indians to establish companies abroad with relative ease, it remains reluctant to allow simple collection accounts in foreign banks without a formal overseas presence.
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Three Permissible Categories of Overseas Accounts
The Master Directions classify permissible foreign accounts into three categories:
- Branch Office Account
Indian firms or companies may open accounts in the name of their overseas branch, office, or representative. Funds can be remitted from India for normal business operations, subject to limits:- Initial expenses: Up to 15% of average annual sales/turnover of the last two years, or 25% of net worth (whichever is higher).
- Recurring expenses: Up to 10% of average annual sales/turnover of the last financial year.
Exceptions apply for Export Oriented Units (EOUs), Export Processing Zones (EPZs), and technology parks.
Importantly, such accounts must be closed if the branch is not set up within six months, or within one month of closure. Funds must be repatriated to India. While office equipment purchases are allowed, acquisition of immovable property abroad is tightly regulated.
Key restriction: E-commerce companies cannot use this facility merely to set up collection accounts abroad without establishing a branch or representative.
- Exporter’s Account
Exporters undertaking construction contracts, turnkey projects, or exports on deferred payment terms may open foreign currency accounts abroad. This requires prior approval under the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015. Compliance with approval conditions is mandatory. - Overseas Direct Investment (ODI) Account
Accounts linked to overseas subsidiaries or joint ventures fall under ODI rules. These are permitted when an Indian company invests abroad, but they are tied to corporate structuring rather than simple payment collection.
Why RBI Prefers Subsidiaries Over Collection Accounts
The RBI’s stance reflects its cautious approach to foreign exchange control. Allowing collection accounts without a formal overseas presence could create regulatory blind spots, making monitoring of inflows and outflows difficult. By requiring companies to set up branches or subsidiaries, RBI ensures accountability, compliance with Indian laws, and transparency in cross-border transactions.
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Practical Implications for Indian Businesses
- Subsidiary vs. Account: Many companies end up incorporating subsidiaries abroad when all they need is a collection account. This adds cost and complexity but remains the only compliant route.
- Documentation: Firms must maintain strict records of remittances, approvals, and compliance with turnover/net worth limits.
- Closure obligations: Accounts must be closed promptly if the overseas office ceases to exist.
- Sectoral restrictions: E-commerce and platform-based businesses face additional hurdles, as RBI does not permit collection accounts abroad without a branch.
Legal Takeaway
The law distinguishes between genuine business operations abroad and mere payment collection. Suspicion of misuse drives RBI’s restrictive stance. For exporters and companies with overseas projects, foreign accounts are permissible with approvals. For others, setting up a subsidiary or branch remains the only lawful option.
Why Lawyers Still Cite These Rules
In petitions and advisory notes, lawyers frequently reference RBI’s Master Directions to:
- Challenge unauthorized foreign accounts.
- Advise clients on structuring overseas operations.
- Highlight compliance obligations under FEMA and RBI regulations.
- Clarify that suspicion of misuse cannot justify blanket denial, but compliance is non-negotiable.
This framework continues to be central to India’s foreign exchange regime, balancing business needs with regulatory oversight.
FAQs
Q1: Can Indian companies open foreign bank accounts directly?
Only under specific categories—branch office accounts, exporter’s accounts, or ODI-linked accounts. Simple collection accounts without overseas presence are not permitted.
Q2: What are the limits on remittances to branch office accounts?
- Initial expenses: Up to 15% of average turnover of last two years or 25% of net worth.
- Recurring expenses: Up to 10% of average turnover of last financial year.
Q3: Can e-commerce companies open collection accounts abroad?
No. RBI explicitly prohibits e-commerce platforms from using this facility without establishing a branch or representative abroad.
Q4: Is medical or legal certification required for opening such accounts?
No special certification is required, but approvals under FEMA and RBI’s Master Directions must be obtained.
Q5: What happens if the overseas office closes?
The account must be closed within one month, and balances repatriated to India.
Q6: Can exporters open accounts abroad?
Yes, if they have approval under FEMA (Export of Goods and Services) Regulations, 2015, and comply with stipulated conditions.
Q7: Why does RBI prefer subsidiaries abroad?
Subsidiaries ensure accountability, compliance, and transparency, whereas collection accounts without presence abroad could bypass regulatory oversight.