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EEFC Account Overview: Full form, Meaning, Eligibility & Benefits

EEFC Account Overview: Full form, Meaning, Eligibility & Benefits
prashanth
Prashanth30 June 2024

As an exporter receiving international payments, you must be familiar with EEFC (Exchange Earners' Foreign Currency) Accounts. Offered by AD Category I Banks, these current accounts allow you to retain foreign income received in its original currency (USD, EUR, GBP, etc.) for up to 60 days. 

Since 2016, India’s cross-border remittances have been growing at an impressive 8% CAGR, driven by the global movement of goods, services, international travel, and an expanding international workforce. Despite this growth, international remittances remain challenging and costly due to multiple fees and charges. To address these issues, the RBI introduced EEFC accounts.  Being current accounts, these accounts do not yield any interest. Each bank offering EEFC Accounts supports a specific number of currencies, also allowing you to hold multiple currencies in a single account. Initially designed to help exporters manage their foreign exchange earnings, EEFC accounts are available to companies, individuals, and joint account holders.

In this article, we will dive into the full form, meaning, and benefits of an EEFC account, and explore other efficient and cost-effective ways to handle your international payments.

Benefits of EEFC Account

As we‘ve seen, an Exchange Earners' Foreign Currency (EEFC) account allows exporters to deposit their foreign exchange earnings without converting them to INR. Currently, multiple  AD Category I banks in India offer EEFC accounts including DBS, ICICI, HDFC, Axis Bank and many more. 

However, it's always a good idea to speak with the bank first to confirm their services.

Now, let’s take a moment to understand the benefits of EEFC accounts.

Ability to Hold Funds

An EEFC account lets you hold foreign exchange until the last day of the following month. For example, if you receive foreign payments on June 16th, you can keep them in your EEFC account until July 31st. This holding period gives you the flexibility to monitor forex rates and convert the funds to INR when it's most beneficial, while also allowing you more time to make foreign payments directly from your EEFC account without conversion

However, keep in mind that you can only retain your foreign exchange earnings until the last day of the following month after which it will be automatically converted to INR. So, don’t get too comfortable parking your foreign exchange in your EEFC account—use it wisely before the deadline sneaks up on you!

Better Forex Management

An EEFC account not only lets you temporarily park your foreign exchange earnings but also enables you to make foreign payments without converting them to INR, avoiding two-way currency conversion costs. 

Here’s how it works:

As an exporter, when you receive foreign payments via banks in India, they are typically converted into INR, incurring transaction fees and currency conversion charges. If you need to make an international payment, you'll have to convert your INR back into foreign currency, incurring additional fees. Essentially, you end up paying currency conversion costs for both receiving and sending foreign payments, doubling your costs.

EEFC accounts bypass this inconvenience by allowing you to retain 100% of your foreign exchange earnings and make foreign payments directly from the account without having to convert it. 

In essence, EEFC accounts facilitate seamless international transactions by giving users the option to hold and manage their foreign exchange earnings better. 

Eligibility Criteria for EEFC Accounts

Residents of India, whether individuals or companies earning foreign exchange, can open EEFC accounts. However, entities in Special Economic Zones (SEZs) cannot open EEFC accounts, though they can open a foreign currency account. For context, a Special Economic Zone (SEZ) is a designated area where businesses operate without paying certain taxes and duties. It's essentially considered foreign territory for trade purposes.

Which Transactions are Eligible Under EEFC Accounts?

As a current account, EEFC accounts support various transactions, including:

  • Receiving advance payments or payments against goods or services exported from India
  • Receiving professional fees (e.g., director fees, consultancy, lectures) for services rendered to foreign clients
  • Paying for customs duties
  • Payment for importing goods and services into India

However, being a current account, an EEFC account cannot support capital account transactions. This means foreign remittances in the form of loans, investments, or returns on investments are not permitted in your EEFC account.

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How to Open an EEFC account?

The process of Opening an EEFC account is similar to that of a regular current account. You'll need to complete an application form and submit the required documents. However, there are additional requirements, such as providing proof of status, which aren't typically necessary for a regular account.

Once you've submitted your application and documents, the bank will review them. Upon approval, they will furnish you with your EEFC account details, including the account number.

Do note that the procedure may vary slightly across banks, so it's advisable to consult with your bank to understand their specific application process.

Documents needed for opening an EEFC account 

Although the specific documents required can vary from bank to bank, here are the typical documents you'll need to open an EEFC account:

  • Filled in & signed EEFC Account Opening form.
  • Constitution Documents like the board resolution, partnership letter, proprietorship letter etc authorising the EEFC account opening. The Board Resolution / Partnership letter/proprietorship letter should mention the currency in which the account is to be opened.
  • The proof of status (i.e. whether the unit is located in SEZ, STP or EHTP etc.)
  • Importer- Exporter Code (If applicable)
  • Nomination form (If applicable)
  • Proof of PAN/ Form 60.
  • NOC from the Lending Bank(s) extending credit facility to the entity/firm (If applicable)

As we've discussed, EEFC accounts can be opened by all foreign exchange earners, whether individuals, partnership firms, or public/private limited companies. Depending on the entity opening the EEFC account, specific documents may be required. For example:

  • Individuals need to submit address proof for all authorized signatories.
  • Partnership firms must share a partnership deed that is duly stamped and signed by all partners.
  • Private and public limited companies need to provide a board resolution in the bank's format, signed by two directors or the company secretary.

These requirements ensure that the necessary legal and compliance standards are met for each type of entity.

Charges and Fees Associated with EEFC Accounts

Most banks don’t charge a fee for opening and maintaining an EEFC account. However, there are several ancillary charges that banks may levy on various activities linked to EEFC accounts:

  • SWIFT Charges: The foreign payment you receive in your EEFC account is usually an overseas SWIFT transfer and not a local transfer. This means banks will levy a SWIFT charge on the transaction. This charge can be borne by you, the sender, or split between the parties.
  • Currency Conversion Fees: When converting your foreign exchange currency into INR, most banks will levy a currency conversion fee or impose a foreign exchange markup on the ongoing rate.
  • Transaction Fees: Any kind of transaction, whether it is an inward or outward remittance, also draws an additional transaction fee that varies across banks. For example, IndusInd Bank charges 0.125% of the amount, in both export and import transactions.
  • Additional Services: Banks also provide other services associated with an EEFC account, such as monthly account tracking, cheque facilities, and FIRA. While some banks may offer these services for free, others may charge for them.

To get a complete picture of the applicable fees and charges for your EEFC account, make sure to talk to your bank. This will help you avoid any surprises and ensure you understand all potential costs involved.

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Why Choose Skydo Over Traditional EEFC Accounts?

EEFC accounts offer exporters a convenient way to manage and park their foreign exchange earnings temporarily. This holding period allows them the freedom to monitor and choose the exchange rate at which they want to convert their foreign exchange.

However, despite these advantages, receiving international payments through EEFC accounts can be quite costly, regardless of your banking partner. As we have seen, banks often levy numerous charges on EEFC account transactions, including SWIFT charges, currency conversion fees, forex markups, FIRA charges, and more. These fees can quickly add up, making the process expensive.

In summary, while EEFC accounts offer flexibility and control, the associated costs can add up quickly. 

At Skydo, we understand the challenges of traditional banking especially when it comes to cross-border transactions. For freelancers and small businesses, constantly monitoring forex rates and tracking bank fees is a time-consuming and resource-draining task. That’s why we offer businesses and freelancers a fast, secure, and less expensive way to receive international payments. With Skydo, you can set up an international bank account in less than 5 minutes. Your foreign clients can pay into this account, making it a local transfer and eliminating SWIFT charges.

Further, we convert your foreign earnings to INR at live forex rates, without any markup or currency conversion fees, ensuring you keep more of your earnings. All we charge is a flat transaction fee: USD 19 for remittances below USD 2000 and USD 29 for remittances over USD 2000. And yes, you also receive an instant FIRA for every transaction at no extra cost, helping you stay compliant. 

Switch to Skydo and simplify your international payments while maximising your earnings. Experience the Skydo difference today.

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Frequently asked questions

For how long can I hold foreign exchange earnings in my EEFC accounts?

An EEFC account lets you hold foreign exchange until the last day of the following month. For example, if you receive foreign payments on June 16th, you can keep them in your EEFC account until July 31st.

Can a private limited company open a EEFC account?

What are the charges of opening an EEFC account?

About the author
prashanth
Prashanth
Solution & banking
With a decade of experience at Citi Bank, Prashanth leads payments partnerships and solutions at Skydo.️Travel & Sports
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