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PACKING CREDIT (Domestic Currency)
• Purpose • Requirement for getting packing credit• Eligibility• Quantum of finance• Procedure
PACKING CREDIT (Foreign Currency)
• An exporter with proven track record can avail this kind type of credit
• Can repay using export earnings• Available only for cash imports in foreign
currency• Freedom to avail in convertible currencies• Rate of interest is linked to London Interbank
Offered Rate
ADVANCE AGAINST CHEQUE/DRAFT RECEIVED AS
ADVANCED PAYMENT
• Where exporters receive direct payments from abroad by means of cheques/drafts etc. the bank may grant export credit at concessional rate to the exporters of goods track record
• The Banks however, must satisfy themselves that the proceeds are against an export order.
Post Shipment FinanceWhat is a Post Shipment Finance?Post-shipment finance is a loan or advance granted by a bank to an exporter of goods from India. This facility is available to an exporter subsequent to the date of shipment of goods up to the date of realization of export proceedsWho is eligible for post-shipment finance?Post-shipment finance is extended to the actual exporter who has exported the goods or to an exporter in whose name the export documents are transferred. Basic Features.1.Purpose of Finance2.Basis of Finance3.Types of Finance4.Quantum of Finance5.Period of Finance
Post-shipment finance can be provided for three types of export
• Physical exports
Finance is provided to the actual exporter or to the exporter in whose name the trade documents are transferred.
• Deemed export
Finance is provided to the supplier of the goods which are supplied to the designated agencies.
• Capital goods and project exports
Finance is sometimes extended in the name of overseas buyer. The disbursal of money is directly made to the domestic exporter
Types of Post Shipment Finance
The post shipment finance can be classified as :1.Export Bills purchased/discounted Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or purchased by the banks. It is used in indisputable international trade transactions and the proper limit has to be sanctioned to the exporter for purchase of export bill facility
2. Export Bills negotiated. The risk of payment is less under the LC, as the issuing bank makes sure the payment. The risk is further reduced, if a bank guarantees the payments by confirming the LC However, this arises two major risk factors for the banks The risk of nonperformance by the exporter The bank also faces the documentary risk where the issuing bank refuses to honour its commitment
3. Advance against export bills sent on collection basis.
Bills can only be sent on collection basis, if the bills drawn under LC have some discrepancies. Banks may allow advance against these collection bills to an exporter with a concessional rates of interest depending upon the transit period in case of DP Bills and transit period plus usance period in case of usance bill
4. Advance against export on consignment basis
Bank may choose to finance when the goods are exported on consignment basis at the risk of the exporter for sale and eventual payment of sale proceeds to him by the consignee
5. Advance against undrawn balance on exports.
It is a very common practice in export to leave small part undrawn for payment after adjustment due to difference in rates, weight, quality etc.
6. Advance against claims of Duty Drawback.
Duty Drawback is a type of discount given to the exporter in his own country. This discount is given only, if the in-house cost of production is higher in relation to international price. This type of financial support helps the exporter to fight successfully in the international markets.
Post-shipment Credit
• Sight Bills - Not more than 10%
• Upto 90 days - Not more than 10%
• 91 days upto 6 months - 12%
ACCOUNTS RECEIVABLE FINANCING
• What is Account Receivable?– Open Account– Time Draft
• Factors that are considered– Account Receivables Aging– Government restrictions– Exchange controls
• Risk mitigation– Export Credit Insurance
FACTORING- THE PROCESSYOU
Deliver Goods or Services and generate an invoice/receivable
YOU consider selling the invoice to the factor(At a DISCOUNT) per factoring contract
Factor performs its own credit approval process before purchasing the receivable/invoice
20% is held in the Reserve Account
Factor funds you 80% of the amount immediately
Factor collects payment on the invoice from your customer
Factor rebates YOU 20% reserve minus fee
FACTORING- ‘EXPORTER’S PERSPECTIVE’
• The Benefits– Pass off Collections– Reduction of Credit Exposure Risk : Cross Border
– Quick Financing
• The Drawbacks– Discounted Invoice– Factor’s fee
Factor in Exporter’s Country
Factor in Importer’s Country
BANKER’S ACCEPTANCE
• Definition: A banker's acceptance, or BA, is a negotiable instrument or time draft drawn on and accepted by a bank.
• Responsibility: Accepting bank’s obligation to pay the holder of the draft at maturity
IMPORTERHolder of Banker’s
Acceptance
BANKGuarantee
At the point of maturity
Amount + fees
Amount
FINANCING IMPORTERSHORT TERM
Exporter waits till Maturity
?
BA is sold to money market investor at a
Discount
Exporter receives discounted payment
Money Market investor waits until
maturity
Money Market investor receives full
payment
Exporter receives full
payment against BA
IMPORTER
NO
YES
BANK
BANK
BANK
WORKING CAPITAL FINANCING
Raw Materials
Work In Progress
Finished Goods
Receivables
Cash
OPERATING CYCLE
WC financing in INTERNATIONAL TRADE??
WC financing in domestic business
FORFAITING
• Forfaiting is a type of medium-term financing used to finance the sale of capital goods.
• Importer issues promissory notes, exporter sells it to forfait (bank) without recourse.
• Difference from factoring• Collateralized- guarantee or L/C issued by
importer’s bank• Further selling to financial institutions with
recourse
COUNTERTRADE
• Countertrade is an umbrella term used to describe many different types of transactions each in “which the seller provides a buyer with goods or services and promises in return to purchase goods or services from the buyer”.
• Countertrade may or may not involve the use of currency, as in barter.
WHY COUNTERTRADE??
BOP disequilibrium-reducing trade imbalances
Currency shortages- credit averse banks Debt problems of less developed countries-
restrictive approach by world bank & IMF Stagnant demand- gain entry & induce
demand
TYPES OF COUNTERTRADE
Barter- India & Iraq, ex. oil for wheat Buy back- big infra. projects, ex. Brazil and Argentina, hydroelectric plant Offset- minimize BOP deficit, ex. Defense deals Counter purchase- supplier to country, supplier to importer, ex. Morocco to
France-phosphates and fertilizers
TYPES OF TAXES A MULTINATIONAL ENTITY TO
SUBJECTED TO …
CORPORATE INCOME TAX
WITHHOLDING TAX
PERSONAL INCOME TAX
CARRY FORWARDS & CARRY BACKS
TAX CREDITS
TAX TREATY
CORPORATE INCOME TAX
Any corporate income generated within the borders of a nation.
Corporate tax on Domestic companies - 30% + 3% SurchargeCorporate tax on Foreign companies - 40% +3% Surcharge
Income range Tax
$ 0 - $ 50,000 15%
$50,000 - $75,000 $7,500 + 25% of excess over $50,000
$75,000 - $100,000 $13,750 + 34% of excess over $75,000
$100,000 - $335,000 $22,250 + 39% of excess over $100,000
$335,000 - $10,000,000 $113,900 + 34% of excess over $335,000
$10,000,000 - $15,000,000 $3,400,000 + 35% of excess over $10,000,000
$15,000,000 - $18,333,333 $5,150,000 + 38% of excess over $15,000,000
$18,333,333 + Flat 35%
PERSONAL INCOME TAX INDIA
Indian tax rates are dependent on the income of the assesse.
Up to 1,60,000 - Exempt Up to 1,90,000 (for women) - Exempt Up to 2,40,000 (for resident individual 65+) - Exempt
1,60,001 – 5,00,000- 10% 5,00,001 – 8,00,000- 20% 8,00,001 upwards - 30%
USA
US tax rates for income vary depending upon the filing status of the taxpayer.
(1) single(2) married filing a joint return(3) married filing separate returns(4) head of household(5) qualifying widow with dependent child.
WITHHOLDING TAXES
When the subsidiary of an MNC makes the following kind of payments, it is subjected to a Withholding Tax.
1) Subsidiary remits a portions of its earnings in the form of dividends to the parent company since the parent company is a shareholder of the subsidiary.
2) Subsidiary remits a portions of its earnings in the form of interest to the parent company/non resident debt holders due to loans received from them.
3) Subsidiary remits a portions of its earnings to other non resident firms for use of patents or other rights.
CARRYBACKS AND CARRYFORWARDS
• Negative earnings from operations in a particular year are setoff with excess tax paid in pervious years or profits of future years.
• Carrybacks are not allowed in most countries but carry forwards are slightly more flexible.
• In India there is no such provision in the tax system.
TAX CREDITS
EXCISE TAX
Tax TreatyTreaties -
• Define which taxes are covered and who is a resident and eligible for benefits,
• Reduce the amounts of tax withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country.
• Reduction of double taxation, eliminating tax evasion, and encouraging cross-border trade efficiency.
MNC’S CAPITAL STRUCTURE DECISION
Influence of Corporate characteristics
Stability of MNC’s Cash FlowsMNC’s Credit RiskMNC’s Access to Retained EarningsMNC’s Guarantee on DebtMNC’s agency Problems
Influence of Country characteristics
Stock Restrictions in Host CountryInterest Rates in Host CountriesStrength of Host Country CurrenciesCountry Risk in Host CountriesTax Laws in Host Countries