I have helped many people setup funds in US.
I worked as a consultant.
A resident indian can set up a company aborad which does the trading , its possible to set up a company trading own funds in singapore , hongkong or UAE freezones (many more ).this might involve annual costs up to 2-4 lakhs , depending on where you set up your company.
But can someone advise how will RBI/Indian laws treat such company , would it be considered a shell company used to trade futures indirectly , given that the only activity the company is doing is trading and nothing else ?
other than this, only option that looks feasible is the one suggested by @GodFather ( Section 6(4) ) , if you have funds that were earned abroad and kept abroad, not everyone is lucky to have a close relative abroad to get a trading account.
Yes as per FEMA, no entity(including individuals or firms) set up by a resident indian may indulge in leveraged tradingā¦ thereās no ambiguity with regards to such an activity being illegalā¦ however if the firm doesnāt use any starting capital remitted from India, it can remain undetected. But then you would have to pay taxes to foreign governments and show that to Indian authorities while filing your returns, besides some day youāll want your profits to be brought back right?
As per FEMA , an indian business entity including resident individual is allowed to invest in wholly owned subsidiaries aborad, provided the WOS is engaged in bonafide business activity in the host country. there are some restrictions on the activities, like it cant be engaged in financial services, but since you are trading your own money it wont be considered as āServicesā
Also, As fer FEMA trading in derivatives abroad is a permissible capital account transaction. people tend to believe its illegal just because its not allowed under LRS.
So if you set up a WOS abroad and follow all host country laws and follow the restrictions for the WOS under FEMA like
- an entity engaged in financial services outside india, should be profitable in india for 3 consecutive years.
- individuals are prohibited from financial services abroad.
I think it should be good.
My only concern is how do you declare the profits and business activity conducted abroad by the WOS, to the indian Authorized dealer every year.
eg : what is the nature of business ?
I dont think FEMA anywhere says, you cant do leveraged trading abroad.
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A WOS carrying out Bonafide business activity is differentā¦if am selling chocolate bars here in India and I want to expand abroad etc thatās totally fine. Whatās not permitted is setting up an entity for the exclusive purpose of financial securities trading.
Now my chocolate company can use the money generated in the course of doing business towards purchase of securities. Problem is I donāt have a chocolate company and its too much work to get into chocolate business just to actually conduct financial trading.
Yeah but thatās like if am having an airliner and want to hedge to keep fuel costs from adverse fluctuations arising out of crude oil supply shocks etcā¦and individuals never need to be doing anything of this sortā¦if you are an exporter different story
This is like Paytm expanding to other countries etcā¦ once again not for a retail trading scenario
If I have a WOS selling chocolates and profit is 1 million and I roll it over entirely to trade and make it 2 million and roll it back entirely again to my chocolate company and turn that into 3 million, the final profit is from selling chocolates and nothing elseā¦so I guess itās not too hard
It does say that actually as per RBI circular 2013-14/265 no. 46
You may also refer to FEMA act 1999 which is available online
In conclusion, I believe What we are attempting to achieve is possible. The resulting entity will have a complex structure. And itāll be bullet proof and 100% legal. I only have a partial idea at the moment
Feel free to correct me if you find anything erroneous
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The basic rule is that from money remitted via LRS, you cannot buy securities on margin. End of story.
That basically rules out F&O. However, if you have a bank account outside India which you created during valid residency there, you can use that money to open a brokerage account in that country that allows you to trade F&O there.
Or you can create a legal entity for example using e-residency in Estonia and use LRS to buy shares in that legal entity which is not on margin i.e. fully paid up. Then use the funds within that legal entity to buy securities on margin.
What you are suggesting would be similar to, say, buying shares of apple which is totally allowed. But am permitted to buy shares in the Estonian entity only if that entity is not in my name right?just like am able to buy apple shares because I had nothing to do with founding the companyā¦apple is a bad example coz iphones are obviously not classified as financial securities
If your idea works, all problems are solved without any hassle
Yeah somewhat. When you form the legal entity you will capitalize it - so while you as an Indian resident owns fully paid up shares, the legal entity is a non-resident entity and it will be outside the juridiction of local Indian regulators hence the margin wont apply to it. It will only apply to you.
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Vivek,
That is what even i was suggesting ā¦ a Wholly owned company outside india, and you will send the funds for the purpose of acquiring the capital of the foreign entity. This entity will be owned by you and will be a separate legal entity in the host country , so FEMA doesnt apply to the entity.
I think, its very difficult to set up a company for purpose other than trading , generate profits then use it to trade , we will have to find something that can achieved directly.
But you will have to declare to your Authorized dealer while remitting funds the nature of business of foreign entity ( WOS form ) and also share the annual reports of the company to indian authorities .
Please share your findings
Okā¦ wasnāt all that clear to me then, now I catch your drift
This part is actually easyā¦have a friend whoās got a couple solutions to address thisā¦will post what I get to know
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What if I have my friend who went for on-site work now he opens his account and I just login into their system and trade from India and then they just send me the profits if any to my account as gift
Hi!
This query has been nagging me for months now.
My two cents:
How about my cousin gives me 5000 dollars as gift? He is works in Canada(NRI) and gets his salary from a local company there. I could use that money to trade abroad right? Never change the currency from CAD to INR.
I could probably send him a give of around 5 lakhs from india under the LRS.
Just a suggestion.
Cheers!
Also If I buy a citizenship in St.Kitts and Nevis or St.Lucia or Cyprus
Can I do leveraged trade with
- Money earned in India?
- Gift from someone in dollars?
Fema applies indian residents , even if you have a foreign citizenship , but earning money in India, and staying in india , FEMA doesnt allow you to do this. You should be able to prove you are not a resident indian as per FEMA.
Only flexibility is the money earned abroad while you were not a resident indian.
If you have a cousin, you can trade in his account with his money and he can send you the profits as gift. No issues there. But not everyone is lucky enough to have someone abroad.
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What if he sends me the money as gift? Can I trade in my own account rather than his??
Also, if I get paid as a consultant from a foreign registered company, can I use it to trade? My cousin may start a business soon, so he could pay me from there.
What if I get gift money which is earned abroad?
So in short we cannot trade no matter what 
I just read this post of yours. My father owns a web hosting company. Can he set up a WOS and bill clients there and use it to trade e mini? It wont be a branch or office or agency. Just a subsidiary for a certain product.
So is this possible i will receive money as gift which will be sent by my friend to his relatives here and i will collect from them,as I donāt have my cousin But my friend