BUSINESS STRUCTURING BY FOREIGN COMPANIES
IN INDIA
BY CA A. K. JAIN
Indian
business system offers flexible options for Foreign Entrepreneurs intending to
venture in India.
The applicable provisions concerning
prospective business are outlined here in below:
1.
As A Company
A
foreign company can commence operations in India
by incorporating a company under the Companies Act, 1956 through:
a.
Joint Ventures; or
b.
Wholly Owned Subsidiaries
Foreign
equity in such Indian companies can be up to 100% depending on the requirements
of the investor, subject to equity caps in respect of the area of activities
under the Foreign Direct Investment (FDI) policy. Details of the FDI policy,
sectoral equity caps & procedures can be obtained from Department of
Industrial Policy & Promotion, Government of India
(www.dipp.nic.in).
1.
(a) Joint Venture With An Indian Partner
Foreign
Companies can set up their operations in India
by forging strategic alliances with Indian partners.
Joint Venture may entail the following
advantages for a foreign investor:
Established
distribution/ marketing set up of the Indian partner
Available
financial resource of the Indian partners
Established
contacts of the Indian partners which help smoothen the process of setting up
of operations.
1.
(b) Wholly Owned Subsidiary Company
Foreign
companies can also set up wholly owned subsidiary in sectors where 100% foreign
direct investment is permitted under the FDI policy.
Incorporation
of Company
For
registration and incorporation, set of applications have to be filed with
Registrar of Companies (ROC). Once a company has been duly registered and
incorporated as an Indian company, it is subject to Indian laws and regulations
as applicable to other domestic Indian companies.
For
details please visit the website of Department of Company Affairs under
Ministry of Finance at http://dca.nic.in.
2.
As A Foreign Company
Foreign
Companies can set up their operations in India
through:
Þ
Liaison Office/Representative
Office
Þ
Project Office
Þ
Branch Office
Such
offices can undertake any permitted activities. Companies have to register
themselves with Registrar of Companies (ROC) within 30 days of setting up a
place of business in India.
2.
(a) Liaison Office/ Representative Office
Liaison
office acts as a channel of communication between the principal place of
business or head office and entities in India.
Liaison office cannot undertake any commercial activity directly or indirectly
and cannot, therefore, earn any income in India.
Its
role is limited to collecting information about possible market opportunities
and providing information about the company and its products to prospective
Indian customers. It can promote export/import from/to India
and also facilitate technical/financial collaboration between parent company
and companies in India.
Approval for establishing a liaison office in India
is granted by Reserve Bank of India (RBI).
2.
(b) Project Office
Foreign
Companies planning to execute specific projects in India
can set up temporary project/site offices in India.
RBI has now granted general permission to foreign entities to establish Project
Offices subject to specified conditions. Such offices cannot undertake or carry
on any activity other than the activity relating and incidental to execution of
the project. Project Offices may remit outside India
the surplus of the project on its completion, general permission for which has
been granted by the RBI.
2.
(c) Branch Office
Foreign
companies engaged in manufacturing and trading activities abroad are allowed to
set up Branch Offices in India
for the following purposes:
- Export/Import of goods
- Rendering professional or
consultancy services
- Carrying out research work,
in which the parent company is engaged.
- Promoting technical or financial
collaborations between Indian companies and parent or overseas group
company.
- Representing the parent
company in India
and acting as buying/selling agents in India.
- Rendering services in
Information Technology and development of software in India.
- Rendering technical support
to the products supplied by the parent/ group companies.
- Foreign airline / shipping
company.
A
branch office is not allowed to carry out manufacturing activities on its own
but is permitted to subcontract these to an Indian manufacturer. Branch Offices
established with the approval of Reserve Bank of India (RBI), may remit outside
India profit of
the branch, net of applicable Indian taxes and subject to RBI guidelines
Permission for setting up branch offices is granted by the RBI.
2.
(d) Branch Office on “Stand Alone Basis”
Such
Branch Offices would be isolated and restricted to the Special Economic Zone
(SEZ) alone and no business activity/transaction will be allowed outside the
SEZs in India,
which include branches/subsidiaries of its parent office in India.
No
approval shall be necessary from RBI for a company to establish a branch/unit
in SEZs to undertake manufacturing and service activities subject to specified
conditions. Application for setting up Liaison Office/ Project Office/ Branch
Office may be submitted in form FNC 1 (available at RBI website at
www.rbi.org.in).
3.
FDI and Technology Collaboration
For
both private and public companies, you look for FDI (Foreign Direct Investment)
and investment from NRIs (Non Resident Indians), including OCBs (Overseas
Corporate Bodies), predominantly owned by NRIs, to complement and supplement
domestic investment. You also seek foreign technology collaboration agreements.
FDI and foreign technology collaboration are approved either through the
automatic route (no prior government approval is necessary) under powers
delegated to the RBI (Reserve Bank of India),
or the government (government approval is necessary).
Automatic
approval FDI
With
the government committed to an early implementation of the second phase of
reforms and further liberalizing the FDI regime, all items/activities are under
the automatic route for FDI/NRI and OCB investment, except the following:
Proposals
that require an Industrial Licence, including items requiring Industrial
Licence under the Industries (Development and Regulation) Act, 1951; more than
24% foreign investment in the equity capital of units manufacturing items
reserved for small-scale industries; and items requiring an Industrial Licence
under the locational policy notified
by
the Government, in the New Industrial Policy, 1991
- Proposals where the foreign
collaborator has a previous venture/tie-up in India
- Proposals relating to share
acquisition in existing Indian companies, by a foreign/NRI/ OCB investor
- Proposals falling outside the
notified sectoral policy/caps or under sectors where FDI is not permitted
and/or where the investor chooses the FIPB and not the automatic route.
- Proposals for investment in
public-sector units, or EOU/EPZ/EHTP/STP units, would be in the automatic
route, subject to the above parameters.
Foreign
technology collaboration agreements
The
RBI also gives automatic permission for foreign technology agreements in all
areas of electronics provided the technology price does not exceed $2 million
and royalty payments don’t exceed 5% of domestic sales and 8% of exports.
Payments
are subject to an overall ceiling of 8% of total sales, over a 10-year period
from the date of agreement, or a 7-year period, from the date of starting production,
whichever is earlier. Investment applications under the automatic process are
made to the RBI and approved within three weeks.
However,
automatic route for technology collaboration is not available to those who
have, or had any previous technology transfer/trade-mark agreement in the same
or allied field in India.
Government
approval
The
FDI/foreign technology collaboration agreement proposals, which don’t conform
to the automatic-approval guidelines, require government approval through the
FIPB. The government has set up a special FIPB as a fast track mechanism to
invite and facilitate foreign investment in large projects, considered
beneficial for India,
but are not covered by the automatic-approval process and norms under which SIA
(Secretariat for Industrial Assistance) is authorized to grant investment
approvals.
Setting
up a call center
For
a call center you need effective company representatives and state-of-the-art
communications and information technologies. You need adequate telecom facilities,
trained consultants, access to a wide database, Internet and other on-line
information support infrastructure, to provide information and support to
customers round the clock. A call center is sometimes defined as a
telephone-based shared-service center, for specific customer-related functions
like marketing, selling, information dispensing, advice and technical support.
To
set up a call center, you must get an NOC (no-objection certificate) from the
Deputy Director General (Customer Relations) at the Department of
Communications, New Delhi. The NOC
grants special permission to use voice circuits over international gateways to
serve overseas customers, with the undertaking that it will not be connected to
a PSTN (Public Switched Telephone Network) within India.
The
government has set terms/conditions for call-center operators. The new policy
initiatives aim to liberalize such operations in India,
and are permitted on a nonexclusive basis against requests from IT service
providers. The call centers can either be international or domestic.
- However, interconnectivity of
international and domestic call centers is not permitted. Though,
interconnection of two domestic call centers of the same company is
permissible, subject to DoT approval.
- International call centers
are permitted on IPLCs (International Private Leased Circuits) only, and
will cater to calls from foreign end PSTN. However, no PSTN connectivity
will be permitted at the Indian end. Linking to any private or public
network is not permitted, even within the same organization.
- Domestic call centers can
have PSTN connectivity at one end, or both ends, or at multiple points, in
a more complex configuration, with only incoming and with outgoing
disabled at all places, wherever PSTN termination is provided.
- No other interconnectivity,
except as permitted above, with any public or private network, is
permitted to the call-center setup.
- Investment proposals outside
the purview of the RBI
- Other proposals including
those in the services sector that don’t conform to the guidelines for
automatic approval, or seek higher foreign equity investment are approved
by SIA (Industry Ministry).
Setting
up a software technology park
- STPI (Software Technology
Parks of India) is an autonomous society set up by the government under
the Ministry of Information Technology, to promote exports of computer
software.
- STP (Software Technology
Parks) is a 100% export-oriented scheme for the development and export of
computer software, using data communication links, or in the form of
physical media including the export of professional services. The major
attraction of this scheme is the single-point contact service to STP
units.
- To become a certified member
unit under the STP scheme, approval from the competent authority is
required.
- Requirements for setting up
STP
- An application in the
prescribed format to register and establish an STP unit must be submitted
to the STPI
- Details of the software
project in terms of strengths, area of expertise, marketing arrangement,
business plans, and means of finance must be furnished
- Each page of the application
should be signed in initials by the competent authority, with the
company’s seal on it
- Certificate of Incorporation
under the Companies Act of 1956, Memorandum of Association, and its Articles of
Association must be given 100% FDI companies should first register under
the Company’s Act
- The time frame for processing
and granting approvals is within 15 days, barring unavoidable
circumstances. The application must accompany a demand draft of Rs 2,500 drawn in favor of The Director,
Software Technology Parks of India, Bangalore,
as processing fees.
FAQs about Foreign Investment
I.
Foreign Direct Investment (FDI)
Q.
1. What are the forms in which business can be conducted by a foreign company
in India?
Ans.
A foreign company planning to set up business operations in India
may:
Incorporate
a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned
Subsidiary.
Set
up a Liaison Office / Representative Office or a Project Office or a Branch
Office of the foreign company which can undertake activities permitted under
the Foreign Exchange Management (Establishment in India of Branch Office or
Other Place of Business) Regulations, 2000.
Q.2.
What is the procedure for receiving Foreign Direct Investment in an Indian
company?
Ans.
An Indian company may receive Foreign Direct Investment under the two routes as
given under:
i.
Automatic Route
FDI
is allowed under the automatic route without prior approval either of the Government
or the Reserve Bank of India
in all activities/sectors as specified in the consolidated FDI Policy, issued
by the Government of India from time to time.
ii.
Government Route
FDI
in activities not covered under the automatic route requires prior approval of
the Government which are considered by the Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs, Ministry of Finance. Application can be
made in Form FC-IL, which can be downloaded from http://www.dipp.gov.in. Plain
paper applications carrying all relevant details are also accepted. No fee is
payable.
The
Indian company having received FDI either under the Automatic route or the
Government route is required to comply with provisions of the FDI policy
including reporting the FDI to the Reserve Bank. as stated in Q 4.
Q.3.
What are the instruments for receiving Foreign Direct Investment in an Indian
company?
Ans.
Foreign investment is reckoned as FDI only if the investment is made in equity
shares, fully and mandatorily convertible preference shares and fully and
mandatorily convertible debentures with the pricing being decided upfront as a
figure or based on the formula that is decided upfront. Any foreign investment
into an instrument issued by an Indian company which:
gives
an option to the investor to convert or not to convert it into equity or does
not involve upfront pricing of the instrument as a date would be reckoned as
ECB and would have to comply with the ECB guidelines.
The
FDI policy provides that the price/ conversion formula of convertible capital
instruments should be determined upfront at the time of issue of the
instruments. The price at the time of conversion should not in any case be
lower than the fair value worked out, at the time of issuance of such instruments,
in accordance with the extant FEMA regulations [the DCF method of valuation for
the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for
the listed companies].
Q.4.
What are the modes of payment allowed for receiving Foreign Direct Investment
in an Indian company?
Ans.
An Indian company issuing shares /convertible debentures under FDI Scheme to a
person resident outside India
shall receive the amount of consideration required to be paid for such shares
/convertible debentures by:
(i)
inward remittance through normal banking channels.
(ii)
debit to NRE / FCNR account of a person concerned maintained with an AD
category I bank.
(iii)
conversion of royalty / lump sum / technical know how fee due for payment or
conversion of ECB, shall be treated as consideration for issue of shares.
(iv)
conversion of import payables / pre incorporation expenses / share swap can be
treated as consideration for issue of shares with the approval of FIPB.
(v)
debit to non-interest bearing Escrow account in Indian Rupees in India which is
opened with the approval from AD Category – I bank and is maintained with the
AD Category I bank on behalf of residents and non-residents towards payment of
share purchase consideration.
If
the shares or convertible debentures are not issued within 180 days from the
date of receipt of the inward remittance or date of debit to NRE / FCNR (B) /
Escrow account, the amount shall be refunded. Further, Reserve Bank may on an
application made to it and for sufficient reasons permit an Indian Company to
refund / allot shares for the amount of consideration received towards issue of
security if such amount is outstanding beyond the period of 180 days from the
date of receipt.
Q.5.
Which are the sectors where FDI is not allowed in India, both under the Automatic
Route as well as under the Government
Route?
Ans.
FDI is prohibited under the Government Route
as well as the Automatic Route
in the following sectors:
i)
Atomic Energy
ii)
Lottery Business
iii)
Gambling and Betting
iv)
Business of Chit Fund
v)
Nidhi Company
vi)
Agricultural (excluding Floriculture, Horticulture, Development of seeds,
Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc.
under controlled conditions and services related to agro and allied sectors)
and Plantations activities (other than Tea Plantations) (c.f. Notification No.
FEMA 94/2003-RB dated June 18, 2003).
vii)
Housing and Real Estate business (except development of townships, construction
of residential/commercial premises, roads or bridges to the extent specified
in Notification No. FEMA 136/2005-RB dated July 19, 2005).
viii)
Trading in Transferable Development Rights (TDRs).
ix)
Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of
tobacco substitutes.
(Please
also see the the website of Department of Industrial Policy and Promotion
(DIPP), Ministry of Commerce & Industry, Government of India at
www.dipp.gov.in for details regarding sectors and investment limits therein
allowed ,under FDI)
Q.6.
What is the procedure to be followed after investment is made under the Automatic
Route or with Government approval?
Ans.
A two-stage reporting procedure has to be followed :
On receipt of share application money:
Within
30 days of receipt of share application money/amount of consideration from the
non-resident investor, the Indian company is required to report to the Foreign
Exchange Department, Regional Office concerned of the Reserve Bank of
India,under whose jurisdiction its Registered Office is located, the Advance
Reporting Form, containing the following details :
Name
and address of the foreign investor/s;
Date
of receipt of funds and the Rupee equivalent;
Name
and address of the authorised dealer through whom the funds have been received;
Details
of the Government approval, if any; and
KYC
report on the non-resident investor from the overseas bank remitting the amount
of consideration.
The
Indian company has to ensure that the shares are issued within 180 days from
the date of inward remittance which otherwise would result in the contravention
/ violation of the FEMA regulations.
Upon issue of shares to non-resident investors:
Within
30 days from the date of issue of shares, a report in Form FC-GPR- PART A
together with the following documents should be filed with the Foreign Exchange
Department, Regional Office concerned of the Reserve Bank of India.
•
Certificate from the Company Secretary of the company accepting investment from
persons resident outside India
certifying that:
The
company has complied with the procedure for issue of shares as laid down under
the FDI scheme as indicated in the Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to
time.
•
The investment is within the sectoral cap / statutory ceiling permissible under
the Automatic Route of the
Reserve Bank and it fulfills all the conditions laid down for investments under
the Automatic Route,
• OR
•
Shares have been issued in terms of SIA/FIPB approval No. ---------------------
dated -------------------- (enclosing the FIPB approval copy)
•
Certificate from Statutory Auditors/ SEBI registered Merchant Banker /
Chartered Accountant indicating the manner of arriving at the price of the
shares issued to the persons resident outside India.
Q.7.
What are the guidelines for transfer of existing shares from non-residents to
residents or residents to non-residents?
Ans.
The term ‘transfer’ is defined under FEMA as including "sale, purchase,
acquisition, mortgage, pledge, gift, loan or any other form of transfer of
right, possession or lien” {Section 2 (ze) of FEMA, 1999}.
The
following share transfers are allowed without the prior approval of the Reserve
Bank of India
A.
Transfer of shares from a Non Resident to Resident under the FDI scheme
where the pricing guidelines under FEMA, 1999 are not met provided that :-
i.
The original and resultant investment are in line with the extant FDI policy
and FEMA regulations in terms of sectoral caps, conditionalities (such as
minimum capitalization, etc.), reporting requirements, documentation, etc.;
ii.
The pricing for the transaction is compliant with the specific/explicit, extant
and relevant SEBI regulations / guidelines (such as IPO, Book building, block
deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy
back); and
iii.
Chartered Accountants Certificate to the effect that compliance with the
relevant SEBI regulations / guidelines as indicated above is attached to the
form FC-TRS to be filed with the AD bank.
B.
Transfer of shares from Resident to Non Resident:
i) where the transfer of shares requires the
prior approval of the FIPB as per the extant FDI policy provided that :
a)
the requisite approval of the FIPB has been obtained; and
b)
the transfer of share adheres with the pricing guidelines and documentation
requirements as specified by the Reserve Bank of India
from time to time.
ii)
where SEBI (SAST) guidelines are attracted subject to the adherence with the
pricing guidelines and documentation requirements as specified by Reserve Bank
of India from
time to time.
iii)
where the pricing guidelines under the Foreign Exchange Management Act (FEMA),
1999 are not met provided that:-
The
resultant FDI is in compliance with the extant FDI policy and FEMA regulations
in terms of sectoral caps, conditionalities (such as minimum capitalization,
etc.), reporting requirements, documentation etc.; b) The pricing for the
transaction is compliant with the specific/explicit, extant and relevant SEBI
regulations / guidelines (such as IPO, Book building, block deals, delisting,
exit, open offer/ substantial acquisition / SEBI SAST); and
Chartered
Accountants Certificate to the effect that compliance with the relevant SEBI
regulations / guidelines as indicated above is attached to the form FC-TRS to
be filed with the AD bank.
iv)
where the investee company is in the financial sector provided that :
a)
NOCs are obtained from the respective financial sector regulators/ regulators
of the investee company as well as transferor and transferee entities and such
NOCs are filed along with the form FC-TRS with the AD bank; and
b).
The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities
(such as minimum capitalization, etc.), reporting requirements, documentation
etc., are complied with.
Where
non-residents (including NRIs) make investment in an Indian company in
compliance with the provisions of the Companies Act, 1956, by way of
subscription to Memorandum of Association, such investments may be made at face
value subject to their eligibility to invest under the FDI scheme.
Transfer
of shares/ fully and mandatorily convertible debentures by way of Gift:
A
person resident outside India
can freely transfer shares/ fully and mandatorily convertible debentures by way
of gift to a person resident in India
as under:
Any
person resident outside India, (not being a NRI or an erstwhile OCB), can
transfer by way of gift the shares/ fully and mandatorily convertible
debentures to any person resident outside India; a NRI may transfer by way of
gift, the shares/convertible debentures held by him to another NRI only, Any
person resident outside India may transfer share/ fully and mandatorily
convertible debentures to a person resident in India by way of gift.
Q.8.
Can a person resident in India
transfer security by way of gift to a person resident outside India?
Ans.
A person resident in India
who proposes to transfer security by way of gift to a person resident outside India
[other than an erstwhile OCBs] shall make an application to the Central Office
of the Foreign Exchange Department, Reserve Bank of India
furnishing the following information, namely:
Name
and address of the transferor and the proposed transferee
Relationship
between the transferor and the proposed transferee
Reasons
for making the gift.
In
case of Government dated securities, treasury bills and bonds, a certificate
issued by a Chartered Accountant on the market value of such securities.
In
case of units of domestic mutual funds and units of Money Market Mutual Funds,
a certificate from the issuer on the Net Asset Value of such security.
In
case of shares/ fully and mandatorily convertible debentures, a certificate
from a Chartered Account on the value of such securities according to the guidelines
issued by the Securities & Exchange Board of India or the Discount Free
Cash Flow Cash (DCF) method with regard to listed companies and unlisted
companies, respectively.
Certificate
from the Indian company concerned certifying that the proposed transfer of
shares/convertible debentures, by way of gift, from resident to the
non-resident shall not breach the applicable sectoral cap/ FDI limit in the
company and that the proposed number of shares/convertible debentures to be
held by the non-resident transferee shall not exceed 5 per cent of the paid up
capital of the company.
The
transfer of security by way of gift may be permitted by the Reserve bank
provided:
(i)
The donee is eligible to hold such security under Schedules 1, 4 and 5 to
Notification No. FEMA 20/2000-RB dated May
3, 2000, as amended from time to time.
(ii)
The gift does not exceed 5 per cent of the paid up capital of the Indian
company/ each series of debentures/ each mutual fund scheme
(iii)
The applicable sectoral cap/ foreign direct investment limit in the Indian
company is not breached
(iv)
The donor and the donee are relatives as defined in section 6 of the Companies
Act, 1956.
(v)
The value of security to be transferred by the donor together with any security
transferred to any person residing outside India
as gift in the financial year does not exceed the rupee equivalent of USD
50000.
(vi) Such other conditions as considered
necessary in public interest by the Reserve Bank.
Q.9.
What if the transfer of shares from resident to non-resident does not fall
under the above categories?
Ans.
Transfer of Shares by Resident which requires Government approval
The
following instances of transfer of shares from residents to non-residents by
way of sale or otherwise requires Government approval:
(i)
Transfer of shares of companies engaged in sector falling under the Government
Route.
(ii)
Transfer of shares resulting in foreign investments in the Indian company,
breaching the sectoral cap applicable.
Prior
permission of the Reserve Bank in certain cases for acquisition / transfer of
security
i)
Transfer of shares or convertible debentures from residents to non-residents by
way of sale requires prior approval of Reserve Bank in case where the
non-resident acquirer proposes deferment of payment of the amount of
consideration. Further, in case approval is granted for the transaction, the
same should be reported in Form FC-TRS to the AD Category – I bank, within 60
days from the date of receipt of the full and final amount of consideration.
(ii)
A person resident in India,
who intends to transfer any security, by way of gift to a person resident
outside India,
has to obtain prior approval from the Reserve Bank.
Any
other case not covered by by General Permission.
Q
10. What are the reporting obligations in case of transfer of shares between
resident and non-resident ?
Ans.
The transaction should be reported by submission of form FC-TRS to the AD
Category – I bank, within 60 days from the date of receipt/remittance of the
amount of consideration. The onus of submission of the form FC-TRS within the
given timeframe would be on the resident in India,
the transferor or transferee, as the case may be.
Q.11.
What is the method of payment and remittance/credit of sale proceeds in case of
transfer of shares between resident and non-resident?
Ans.
The sale consideration in respect of the shares purchased by a person resident
outside India
shall be remitted to India
through normal banking channels. In case the buyer is a Foreign Institutional
Investor (FII), payment should be made by debit to its Special Non-Resident
Rupee Account. In case the buyer is a NRI, the payment may be made by way of
debit to his NRE/FCNR (B) accounts. However, if the shares are acquired on
non-repatriation basis by NRI, the consideration shall be remitted to India
through normal banking channel or paid out of funds held in NRE/FCNR (B)/NRO
accounts.
The
sale proceeds of shares (net of taxes) sold by a person resident outside India)
may be remitted outside India.
In case of FII the sale proceeds may be credited to its special Non-Resident
Rupee Account. In case of NRI, if the shares sold were held on repatriation
basis, the sale proceeds (net of taxes) may be credited to his NRE/FCNR(B)
accounts and if the shares sold were held on non repatriation basis, the sale
proceeds may be credited to his NRO account subject to payment of taxes. The
sale proceeds of shares (net of taxes) sold by an erstwhile OCB may be remitted
outside India directly if the shares were held on repatriation basis and if the
shares sold were held on non-repatriation basis, the sale proceeds may be
credited to its NRO (Current) Account subject to payment of taxes, except in
the case of erstwhile OCBs whose accounts have been blocked by Reserve Bank.
Q.12.
Are the investments and profits earned in India
repatriable?
Ans.
All foreign investments are freely repatriable (net of applicable taxes) except
in cases where:
i)
the foreign investment is in a sector like Construction and Development
Projects and Defence wherein the foreign investment is subject to a
lock-in-period; and
ii)
NRIs choose to invest specifically under non-repatriable schemes. Further,
dividends (net of applicable taxes) declared on foreign investments can be
remitted freely through an Authorised Dealer bank.
Q.13.
What are the guidelines on issue and valuation of shares in case of existing
companies?
Ans.
A. The price of shares issued to persons resident outside India
under the FDI Scheme shall not be less than :
(i)
the price worked out in accordance with the SEBI guidelines, as applicable,
where the shares of the company is listed on any recognised stock exchange in
India;
(ii)
the fair valuation of shares done by a SEBI registered Category - I Merchant
Banker or a Chartered Accountant as per the discounted free cash flow method,
where the shares of the company is not listed on any recognised stock exchange
in India; and
(iii)
the price as applicable to transfer of shares from resident to non-resident as
per the pricing guidelines laid down by the Reserve Bank from time to time,
where the issue of shares is on preferential allotment.
B.
The price of shares transferred from resident to a non-resident and vice versa
should be determined as under:
i)
Transfer of shares from a resident to a non-resident:
a)
In case of listed shares, at a price which is not less than the price at which
a preferential allotment of shares would be made under SEBI guidelines.
b)
In case of unlisted shares at a price which is not less than the fair value as
per the Discount Free Cash Flow (DCF) Method to be determined by a SEBI
registered Category-I- Merchant Banker/Chartered Accountant.
ii)
Transfer of shares from a non-resident to a resident - The price should not be
more than the minimum price at which the transfer of shares would have been
made from a resident to a non-resident.
In
any case, the price per share arrived at as per the above method should be
certified by a SEBI registered Category-I-Merchant Banker / Chartered
Accountant.
Q.
14. What are the regulations pertaining to issue of ADRs/ GDRs by Indian
companies?
Ans.
Indian companies can raise foreign currency resources abroad through the issue
of ADRs/ GDRs, in accordance with the Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and guidelines issued by the Government of India thereunder from
time to time.
A
company can issue ADRs / GDRs, if it is eligible to issue shares to persons
resident outside India
under the FDI Scheme. However, an Indian listed company, which is not eligible
to raise funds from the Indian Capital Market including a company which has
been restrained from accessing the securities market by the Securities and
Exchange Board of India (SEBI) will not be eligible to issue ADRs/GDRs.
Unlisted
companies, which have not yet accessed the ADR/GDR route for raising capital in
the international market, would require prior or simultaneous listing in the
domestic market, while seeking to issue such overseas instruments. Unlisted
companies, which have already issued ADRs/GDRs in the international market,
have to list in the domestic market on making profit or within three years of
such issue of ADRs/GDRs, whichever is earlier.
After
the issue of ADRs/GDRs, the company has to file a return in Form
DR as indicated in the RBI Notification No.
FEMA.20/ 2000-RB dated May 3, 2000,
as amended from time to time. The company is also required to file a quarterly
return in Form DR- Quarterly as indicated in the RBI Notification ibid.
There
are no end-use restrictions on GDR/ADR issue proceeds, except for an express
ban on investment in real estate and stock markets.
Erstwhile
OCBs which are not eligible to invest in India
and entities prohibited to buy, sell or deal in securities by SEBI will not be
eligible to subscribe to ADRs / GDRs issued by Indian companies.
The
pricing of ADR / GDR issues including sponsored ADRs / GDRs should be made at a
price determined under the provisions of the Scheme of issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt
Mechanism) Scheme, 1993 and guidelines issued by the Government of India and
directions issued by the Reserve Bank, from time to time.
Q.15.
What is meant by Sponsored ADR & Two-way fungibility Scheme of ADR/
GDR?
Ans.
Sponsored ADR/GDR: An Indian company may sponsor an issue of ADR/ GDR with an
overseas depository against shares held by its shareholders at a price to be
determined by the Lead Manager. The operative guidelines for the same have been
issued vide A.P. (DIR Series) Circular No.52 dated November 23, 2002.
Two-way
fungibility Scheme: Under the limited Two-way fungibility Scheme, a registered
broker in India
can purchase shares of an Indian company on behalf of a person resident outside
India for the
purpose of converting the shares so purchased into ADRs/ GDRs. The operative
guidelines for the same have been issued vide A.P. (DIR Series) Circular No.21
dated February 13, 2002.
The Scheme provides for purchase and re-conversion of only as many shares into
ADRs/ GDRs which are equal to or less than the number of shares emerging on
surrender of ADRs/ GDRs which have been actually sold in the market. Thus, it
is only a limited two-way fungibility wherein the headroom available for fresh
purchase of shares from domestic market is restricted to the number of
converted shares sold in the domestic market by non-resident investors. So long
the ADRs/ GDRs are quoted at discount to the value of shares in domestic
market, an investor will gain by converting the ADRs/ GDRs into underlying
shares and selling them in the domestic market. In case of ADRs/ GDRs being
quoted at premium, there will be demand for reverse fungibility, i.e. purchase
of shares in domestic market for re-conversion into ADRs/ GDRs. The scheme is
operationalised through the Custodians of securities and stock brokers under
SEBI.
Q.16.
Can Indian companies issue Foreign Currency Convertible Bonds (FCCBs)?
Ans.
FCCBs can be issued by Indian companies in the overseas market in
accordance with the Scheme for Issue of Foreign Currency Convertible Bonds and
Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993.
The
FCCB being a debt security, the issue needs to conform to the External
Commercial Borrowing guidelines, issued by RBI vide Notification No. FEMA
3/2000-RB dated May 3, 2000,
as amended from time to time.
Q.17.
Can a foreign investor invest in Preference Shares? What are the regulations
applicable in case of such investments?
Ans.
Yes. Foreign investment through preference shares is treated as foreign direct
investment. However, the preference shares should be fully and mandatorily
convertible into equity shares within a specified time to be reckoned as part
of share capital under FDI. Investment in other forms of preference shares
requires to comply with the ECB norms.
Q.18.
Can a company issue debentures as part of FDI?
Ans.
Yes. Debentures which are fully and mandatorily convertible into equity within
a specified time would be reckoned as part of share capital under the FDI
Policy.
Q.19.
Can shares be issued against Lumpsum Fee, Royalty, ECB , Import of capital
goods/ machineries / equipments (excluding second-hand machine) and
Pre-operative/pre-incorporation expenses (including payments of rent)?
Ans.
An Indian company eligible to issue shares under the FDI policy and subject to
pricing guidelines as specified by the Reserve Bank from time to time, may
issue shares to a person resident outside India :
being
a provider of technology / technical know-how, against Royalty / Lumpsum fees
due for payment;
against
External Commercial Borrowing (ECB) (other than import dues deemed as ECB or
Trade Credit as per RBI Guidelines).
With
prior approval from FIPB for against import of capital goods/ machineries /
equipments and Pre-operative/pre-incorporation expenses subject to the
compliance with the extant FEMA regulations and AP Dir Series 74 dated June 30,2011.
Provided, that the foreign equity in the
company, after such conversion, is within the sectoral cap.
Q.20.
What are the other modes of issues of shares for which general permission is
available under RBI Notification No. FEMA 20 dated May 3, 2000?
Ans.
Issue of shares under ESOP by Indian companies to its employees or employees of
its joint venture or wholly owned subsidiary abroad who are resident outside India
directly or through a Trust up to 5% of the paid up capital of the company.
Issue
and acquisition of shares by non-residents after merger or de-merger or
amalgamation of Indian companies.
Issue
shares or preference shares or convertible debentures on rights basis by an
Indian company to a person resident outside India.
Q.21.
Can a foreign investor invest in shares issued by an unlisted company in India?
Ans.
Yes. As per the regulations/guidelines issued by the Reserve Bank of
India/Government of India,
investment can be made in shares issued by an unlisted Indian company.
Q.22.
Can a foreigner set up a partnership/ proprietorship concern in India?
Ans.
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in
India on
non-repatriation basis.
Q.23.
Can a foreign investor invest in Rights shares issued by an Indian company at a
discount?
Ans.
There are no restrictions under FEMA for investment in Rights shares issued at
a discount by an Indian company, provided the rights shares so issued are being
offered at the same price to residents and non-residents. The offer on right
basis to the person’s resident outside India
shall be:
(a)
in the case of shares of a company listed on a recognized stock exchange in India,
at a price as determined by the company; and
(b)
in the case of shares of a company not listed on a recognized stock exchange in
India, at a
price which is not less than the price at which the offer on right basis is
made to resident shareholders.
Q.24.
Can a AD bank allow pledge of shares of an Indian company held by non-resident
investor in favor of an Indian bank or an Overseas bank?
Ans.
Yes, the same has been allowed vide the instruction and subject to compliance
with the terms and conditions as mentioned in the AP Dir Series Circular No 57
dated May 2, 2011.
II.
Foreign Technology Collaboration Agreement
Q.
Whether the payment in terms of foreign technology collaboration agreement' can
be made by an Authorised Dealer (AD) bank?
Ans.
Yes, RBI has delegated the powers, to make payments for royalty, lumpsum fee
for transfer of technology and payment for use of trademark/brand name in terms
of the foreign technology collaboration agreement entered by the Indian company
with its foreign partners, to the AD banks subject to compliance with the
provisions of Foreign Exchange Management (Current Account Transactions) Rules,
2000. Further, the requirement of registration of the agreement with the
Regional Office of Reserve Bank of India
has also been done away with.
III.
Foreign Portfolio Investment
Q.1.
What are the regulations regarding Portfolio Investments by SEBI registered
Foreign Institutional Investors (FIIs)?
Ans.
Investment by SEBI registered FIIs is regulated under SEBI (FII) Regulations,
1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000, as amended from time to time. FIIs
include Asset Management Companies, Pension Funds, Mutual Funds, Investment
Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or
their Power of Attorney holders, University Funds, Endowment Foundations,
Charitable Trusts and Charitable Societies.
SEBI acts as the nodal point in the
registration of FIIs. The Reserve Bank of India
has granted general permission to SEBI Registered FIIs to invest in India
under the Portfolio Investment Scheme (PIS).
Investment
by SEBI registered FIIs and its sub accounts cannot exceed 10per cent of the
paid up capital of the Indian company. However, in case of foreign corporates
or High Networth Individuals (HNIs) registered as sub accounts of an FII, their
investment shall be restricted to 5 per cent of the paid up capital of the
Indian company. All FIIs and their sub-accounts taken together cannot acquire
more than 24 per cent of the paid up capital of an Indian Company. An Indian
company can raise the 24 per cent ceiling to the sectoral cap / statutory
ceiling, as applicable, by passing a resolution by its Board of Directors
followed by passing a Special Resolution to that effect by their General Body.
The Indian company has to intimate the raising of the FII limit to the Reserve
Bank to enable the Bank to notify the same on its website for larger public
dissemination.
SEBI
registered FIIs/sub-accounts of FIIs can invest in primary issues of
Non-Convertible Debentures (NCDs)/ bonds only if listing of such bonds / NCDs
is committed to be done within 15 days of such investment. In case the
NCDs/bonds issued to the SEBI registered FIIs / sub-accounts of FIIs are not
listed within 15 days of issuance to the SEBI registered FIIs / sub-accounts of
FIIs, for any reason, then the FII/sub-account of FII shall immediately dispose
of these bonds/NCDs either by way of sale to a third party or to the issuer and
the terms of offer to FIIs / sub-accounts should contain a clause that the
issuer of such debt securities shall immediately redeem / buyback the said
securities from the FIIs/sub-accounts of FIIs in such an eventuality.
Q.2.
What are the regulations regarding Portfolio Investments by NRIs/PIOs?
Ans.
Non- Resident Indian (NRIs) and Persons of Indian Origin (PIOs) can purchase or
sell shares/ fully and mandatorily convertible debentures of Indian companies
on the Stock Exchanges under the Portfolio Investment Scheme. For this purpose,
the NRI/ PIO has to apply to a designated branch of a bank, which deals in
Portfolio Investment. All sale/ purchase transactions are to be routed through
the designated branch.
An
NRI or a PIO can purchase shares up to 5 per cent of the paid up capital of an
Indian company. All NRIs/PIOs taken together cannot purchase more than 10 per
cent of the paid up value of the company. This limit can be increased by the
Indian company to 24 per cent by passing a General Body resolution. The Indian
company has to intimate the raising of the NR Limit to the Reserve Bank to
enable the Bank to notify the same on its website for larger public
dissemination.
The
sale proceeds of the repatriable investments can be credited to the NRE/ NRO,
etc. accounts of the NRI/ PIO, whereas the sale proceeds of non-repatriable
investment can be credited only to NRO accounts.
The
sale of shares will be subject to payment of applicable taxes.
IV.
Investment in other Securities
Q.1.
Can a Non-resident Indian (NRI) and SEBI registered Foreign Institutional
Investor (FII)invest in Government Securities/ Treasury bills and Corporate
debt?
Ans.
Under the FEMA Regulations, only NRIs andSEBI registered FIIs are permitted to
purchase Government Securities/Treasury bills and Corporate debt. The details
are as under :
A. A Non-resident Indian can purchase without
limit,
(1)
on repatriation basis
i)
Dated Government securities (other than bearer securities) or treasury bills or
units of domestic mutual funds;
ii)
Bonds issued by a public sector undertaking (PSU) in India;
and
iii)
Shares in Public Sector Enterprises being disinvested by the Government of
India.
(2)
on non-repatriation basis
i)
Dated Government securities (other than bearer securities) or treasury bills or
units of domestic mutual funds;
ii)
Units of Money Market Mutual Funds in India;
and
iii)
National Plan/Savings Certificates.
B. A
SEBI registered FII may purchase, on repatriation basis, dated Government
securities/ treasury bills, listed non-convertible debentures/ bonds issued by
an Indian company and units of domestic mutual funds either directly from the
issuer of such securities or through a registered stock broker on a recognised
stock exchange in India.
Purchase
of debt instruments including Upper Tier II instruments issued by banks in India
and denominated in Indian Rupees by FIIs are subject to limits notified by SEBI
and the Reserve Bank from time to time. The present limit for investment in
Corporate Debt Instruments like non-convertible debentures / bonds by FIIs is
USD 45 billion , which constitutes of the:
Out
of USD 45 billion, USD 25 billion is earmarked for investment in infrastructure
corporate bonds and the remaining USD 20 billion is earmarked for investment in
non-infrastructure corporate bonds. Out of the USD 25 billion earmarked for
FIIs investment in infrastructure corporate bonds, a uniform lock-in period of
one year and residual maturity of fifteen months has been prescribed for USD 22
billion investment by FIIs excluding the USD 3 billion limit earmarked for QFIs
investment in mutual fund debt oriented schemes.The present limit of investment
by SEBI registered FIIs in Government Securities is USD 20 billion which
constitutes of :
USD
10 billion will be without any conditions and the remaining USD 10 billion is
with the condition that the residual maturity of the instrument at the time of
first purchase by FIIs should be at least three years.
Sovereign
Wealth Funds (SWFs), Multilateral agencies, endowment funds, insurance funds,
pension funds and foreign Central Banks to be registered with SEBI are also
allowed to invest in Government securities within this enhanced limit of USD 20
billion.
Q.2.
Can a NRI and SEBI registered FII invest in Tier I and Tier II instruments
issued by banks in India?
Ans.
SEBI registered FIIs and NRIs have been permitted to subscribe to the Perpetual
Debt instruments (eligible for inclusion as Tier I capital) and Debt Capital
instruments (eligible for inclusion as upper Tier II capital), issued by banks
in India and
denominated in Indian Rupees, subject to the following conditions:
Investment by all FIIs in Rupee denominated
Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of
49 per cent of each issue and investment by individual FII should not exceed
the limit of 10 per cent of each issue.
Investments
by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not
exceed an aggregate ceiling of 24 per cent of each issue and investments by a
single NRI should not exceed 5 percent of each issue.
Investment
by FIIs in Rupee denominated Debt Capital instruments (Tier II) shall be within
the limits stipulated by SEBI for FII investment in corporate debt instruments.
Investment
by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in
accordance with the extant policy for investment by NRIs in other debt
instruments.
Investment
by FIIs in Rupee denominated Upper Tier II Instruments raised in Indian Rupees
will be within the limit prescribed by the SEBI for investment in corporate
debt instruments.
The
details of the secondary market sales / purchases by FIIs and the NRIs in these
instruments on the floor of the stock exchange are to be reported by the
custodians and designated Authorised Dealer banks respectively, to the Reserve
Bank through the soft copy of the Forms LEC (FII) and LEC (NRI).
Q.3.
Can a NRI and SEBI registered FIIinvest in Indian Depository Receipts (IDRs)?
Ans.
NRI and SEBI registered FIIs have been permitted to invest, purchase, hold and
transfer IDRs of eligible companies resident outside India
and issued in the Indian capital market, subject to the following conditions:
(i)
The purchase, hold and transfer of IDRs is in accordance with the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000 notified vide Notification No. FEMA 20 / 2000-RB dated May 3, 2000, as amended from time to
time.
A
limited two way fungibility for IDRs (similar to the limited two way ungibility
facility available for ADRs/GDRs) subject to the following terms and
conditions:
The
conversion of IDRs into underlying equity shares would be governed by the
conditions mentioned in paras 6 and 7 of A.P. (DIR Series) Circular No. 5 dated
July 22, 2009.
Fresh
IDRs would continue to be issued in terms of the provisions of A.P. (DIR
Series) Circular No. 5 dated July 22,
2009.
The
re-issuance of IDRs would be allowed only to the extent of IDRs that have been
redeemed /converted into underlying shares and sold.
There
would be an overall cap of USD 5 billion for raising of capital by issuance of
IDRs by eligible foreign companies in Indian markets. This cap would be akin to
the caps imposed for FII investment in debt securities and would be monitored
by SEBI.
IDRs
shall not be redeemable into underlying equity shares before the expiry of one
year period from the date of issue of the IDRs.
At
the time of redemption / conversion of IDRs into the underlying shares, the
Indian holders (persons resident in India) of IDRs shall comply with the
provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign
Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004
dated July 7 2004, as
amended from time to time.
The
FEMA provisions shall not apply to the holding of the underlying shares, on
redemption of IDRs by the FIIs including SEBI approved sub-accounts of the FIIs
and NRIs.The issuance, redemption and fungibility of IDRs would also be subject
to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
as amended from time to time as well as other relevant guidelines issued in
this regard by the Government, the SEBI and the RBI from time to time.
Q.4.
Can aperson resident in India
invests in the Indian Depository Receipts (IDRs)? What is the procedure for
redemption of IDRs held by persons resident in India?
Ans.
A person resident in India
may purchase, hold and transfer IDRs of eligible companies resident outside India
and issued in the Indian capital market. The FEMA Regulations shall not be
applicable to persons resident in India
as defined under section 2(v) of FEMA, 1999, for investing in IDRs and
subsequent transfer arising out of a transaction on a recognized Stock Exchange
in India.
However, at the time of redemption / conversion of IDRs into underlying shares,
the Indian holders (persons resident in India) of IDRs shall comply with the
provisions of the Foreign Exchange Management (Transfer or Issue of Any Foreign
Security) Regulations, 2004 notified vide Notification No. FEMA 120 / RB-2004
dated July 7 2004, as
amended from time to time. The following guidelines shall be followed on
redemption of IDRs by persons resident in India:
i.
Listed Indian companies may either sell or continue to hold the underlying
shares subject to the terms and conditions as per Regulations 6B and 7 of
Notification No. FEMA 120/RB-2004 dated July
7, 2004, as amended from time to time.
ii.
Indian Mutual Funds, registered with SEBI may either sell or continue to hold
the underlying shares subject to the terms and conditions as per Regulation 6C of Notification No. FEMA 120/RB-2004
dated July 7, 2004, as
amended from time to time.
iii.
Other persons resident in India
including resident individuals are allowed to hold the underlying shares only
for the purpose of sale within a period of 30 days from the date of conversion
of the IDRs into underlying shares.
V.
Foreign Venture Capital Investment
What
are the regulations for Foreign Venture Capital Investment?
Ans.
A SEBI registered Foreign Venture Capital Investor has general permission from
the Reserve Bank of India
to invest in a Venture Capital Fund (VCF) or an Indian Venture Capital
Undertaking (IVCU), in the manner and subject to the terms and conditions
specified in Schedule 6 of RBI Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to
time. These investments by SEBI registered FVCI, would be subject to the SEBI
regulation and sector specific caps of FDI.
FVCIs
can purchase equity / equity linked instruments / debt / debt instruments,
debentures of an IVCU or of a VCF through initial public offer or private
placement in units of schemes / funds set up by a VCF. At the time of granting
approval, the Reserve Bank permits the FVCI to open a Foreign Currency Account
and/ or a Rupee Account with a designated branch of an AD Category – I bank.
FVCIs
allowed to invest in the eligible securities (equity, equity linked
instruments, debt, debt instruments, debentures of an IVCU or VCF, units of
schemes / funds set up by a VCF) by way of private arrangement / purchase from
a third party also. FVCIs are also allowed to invest in securities on a
recognized stock exchange.
The
purchase / sale of shares, debentures and units can be at a price that is
mutually acceptable to the buyer and the seller.
AD
Category – I banks can offer forward cover to FVCIs to the extent of total
inward remittance. In case the FVCI has made any remittance by liquidating some
investments, original cost of the investments has to be deducted from the
eligible cover to arrive at the actual cover that can be offered.
VI.
Branch/ Project/ Liaison Office of a foreign company in India
Q.1.
How can foreign companies open Liaison /Branch office in India?
Ans.
A. With effect from February 1, 2010, foreign companies/entities desirous of
setting up of Liaison Office / Branch Office (LO/BO) are required to submit
their application in Form FNC along with the documents mentioned therein to
Foreign Investment Division, Foreign Exchange Department, Reserve Bank of
India, Central Office, Mumbai through an Authorised Dealer bank. This form is
available at www.rbi.org.in
B.
The applications from such entities in Form FNC will be considered by the
Reserve Bank under two routes:
•
Reserve Bank Route - Where principal business of the foreign entity falls
under sectors where 100 per cent Foreign Direct Investment (FDI) is permissible
under the automatic route.
•
Government Route - Where principal business of the foreign entity falls
under the sectors where 100 per cent FDI is not permissible under the automatic
route. Applications from entities falling under this category and those from
Non - Government Organisations / Non - Profit Organisations / Government Bodies
/ Departments are considered by the Reserve Bank in consultation with the
Ministry of Finance, Government of India.
C. The following additional criteria are also
considered by the Reserve Bank while sanctioning Liaison/Branch Offices of
foreign entities:
•
Track Record
For
Branch Office - a profit making track record during the immediately
preceding five financial years in the home country.
For
Liaison Office - a profit making track record during the immediately
preceding three financial years in the home country.
•
Net Worth [total of paid-up capital and free reserves, less intangible assets
as per the latest Audited Balance Sheet or Account Statement certified by a
Certified Public Accountant or any Registered Accounts Practitioner by whatever
name].
For
Branch Office - not less than USD 100,000 or its equivalent.
For
Liaison Office - not less than USD 50,000 or its equivalent.
D.
Permission to set up such offices is initially granted for a period of 3 years
and this may be extended from time to time by the Authorised Dealer in whose
jurisdiction the office is set up. The Branch / Liaison offices established
with the Reserve Bank's approval will be allotted a Unique Identification
Number (UIN) ( www.rbi.org.in/scripts/Fema.aspx ). The BOs / LOs shall also
obtain Permanent Account Number (PAN) from the Income Tax Authorities on
setting up the offices in India.
E.
Liaison/Branch offices have to file an Annual Activity Certificate (AACs) from
the Auditors, as at end of March 31, along with the audited Balance Sheet on or
before September 30 of that year, stating that the Liaison Office has
undertaken only those activities permitted by Reserve Bank of India.
In case the annual accounts of the LO/ BO are finalized with reference to a
date other than March 31, the AAC along with the audited Balance Sheet may be
submitted within six months from the due date of the Balance Sheet.
Q.2.
What are the permitted activities of Liaison Office/ Representative Office?
Ans.
A Liaison Office (also known as Representative Office) can undertake only
liaison activities, i.e. it can act as a channel of communication between Head
Office abroad and parties in India.
It is not allowed to undertake any business activity in India
and cannot earn any income in India.
Expenses of such offices are to be met entirely through inward remittances of
foreign exchange from the Head Office outside India.
The role of such offices is, therefore, limited to collecting information about
possible market opportunities and providing information about the company and
its products to the prospective Indian customers. A Liaison Office can
undertake the following activities in India:
i.
Representing in India
the parent company / group companies.
ii.
Promoting export / import from / to India.
iii
Promoting technical/financial collaborations between parent/group companies
and companies in India.
iv.
Acting as a communication channel between the parent company and Indian
companies.
Q.3.
Can Foreign Insurance Companies / Banks set up Liaison Office in India?
Ans.
Foreign Insurance companies can establish Liaison Offices in India
only after obtaining approval from the Insurance Regulatory and Development
Authority (IRDA). Similarly, foreign banks can establish Liaison Offices in India
only after obtaining approval from the Department of Banking Operations and
Development (DBOD), Reserve Bank of India.
Q.
4. What is the procedure for setting up Branch office?
Ans.
Permission for setting up branch offices is granted by the Foreign Exchange
Department, Reserve Bank of India,
Central Office, Mumbai. Reserve Bank of India
considers the track record of the applicant company, existing trade relations
with India, the
activity of the company proposing to set up office in India
as well as the financial position of the company while scrutinising the
application. The application in Form FNC should be submitted to the Reserve
Bank through the Authorised Dealer bank.
Q.5.
What are the permitted activities of Branch Office?
Ans.
Companies incorporated outside India
and engaged in manufacturing or trading activities are allowed to set up Branch
Offices in India
with specific approval of the Reserve Bank. Such Branch Offices are permitted
to represent the parent / group companies and undertake the following
activities in India:
- Export / Import of goods.
- Rendering professional or
consultancy services.
- Carrying out research work,
in areas in which the parent company is engaged.
- Promoting technical or
financial collaborations between Indian companies and parent or overseas
group company.
- Representing the parent
company in India
and acting as buying / selling agent in India.
- Rendering services in
information technology and development of software in India.
- Rendering technical support
to the products supplied by parent/group companies.
- Foreign airline / shipping
company.
- Normally, the Branch Office
should be engaged in the activity in which the parent company is engaged.
Note:
Retail
trading activities of any nature is not allowed for a Branch Office in India.
A
Branch Office is not allowed to carry out manufacturing or processing
activities in India,
directly or indirectly.
Profits
earned by the Branch Offices are freely remittable from India,
subject to payment of applicable taxes.
Q.6.
Whether Branch Offices are permitted to remit profit outside India?
Ans.
Branch Offices are permitted to remit outside India
profit of the branch net of applicable Indian taxes, on production of the
following documents to the satisfaction of the Authorised Dealer through whom
the remittance is effected :
a. A
Certified copy of the audited Balance Sheet and Profit and Loss account for the
relevant year;
b. A
Chartered Accountant’s certificate certifying -
i.
the manner of arriving at the remittable profit
ii.
that the entire remittable profit has been earned by undertaking the permitted
activities
iii.
that the profit does not include any profit on revaluation of the assets of the
branch.
Q.7
What are the documents to be submitted to the AD bank at the time of closure of
the Liaison/ Branch Office?
Ans.
At the time of winding up of Branch/Liaison offices, the company has to
approach the designated AD Category - I bank with the following documents:
a)
Copy of the Reserve Bank's permission/ approval from the sectoral regulator(s)
for establishing the BO / LO.
b)
Auditor’s certificate - i) indicating the manner in which the remittable amount
has been arrived at and supported by a statement of assets and liabilities of
the applicant, and indicating the manner of disposal of assets;
ii)
confirming that all liabilities in India including arrears of gratuity and
other benefits to employees, etc., of the Office have been either fully met or
adequately provided for; and
iii)
confirming that no income accruing from sources outside India
(including proceeds of exports) has remained un-repatriated to India.
c)
No-objection / Tax Clearance Certificate from Income-Tax authority for the
remittance/s.
d)
Confirmation from the applicant/parent company that no legal proceedings in any
Court in India
are pending and there is no legal impediment to the remittance.
e) A
report from the Registrar of Companies regarding compliance with the provisions
of the Companies Act, 1956, in
case of winding up of the Office in India.
f)
Any other document/s, specified by the Reserve Bank while granting approval.
Q.8.
What is the procedure for setting up Project Office?
Ans.
The Reserve Bank has granted general permission to foreign companies to
establish Project Offices in India, provided they have secured a contract from
an Indian company to execute a project in India, and the project is funded
directly by inward remittance from abroad; or the project is funded by a
bilateral or multilateral International Financing Agency; or the project has
been cleared by an appropriate authority; or a company or entity in India
awarding the contract has been granted Term Loan by a Public Financial
Institution or a bank in India for the project.
However,
if the above criteria are not met or if the parent entity is established in Pakistan,
Bangladesh, Sri
Lanka, Afghanistan,
Iran or China,
such applications have to be forwarded to the Foreign Exchange Department,
Reserve Bank of India,
Central Office, Mumbai for approval.
Q.9.
What are the bank accounts permitted to a Project Office?
Ans.
AD Category - I banks can open non-interest bearing Foreign Currency
Account for Project Offices in India
subject to the following:
The
Project Office has been established in India,
with the general / specific permission of Reserve Bank, having the requisite
approval from the concerned Project Sanctioning Authority concerned.
The
contract, under which the project has been sanctioned, specifically provides
for payment in foreign currency.
Each
Project Office can open two Foreign Currency Accounts, usually one denominated
in USD and other in home currency, provided both are maintained with the same
AD category–I bank.
The
permissible debits to the account shall be payment of project related
expenditure and credits shall be foreign currency receipts from the Project
Sanctioning Authority, and remittances from parent/ group company abroad or
bilateral / multilateral international financing agency.
The
responsibility of ensuring that only the approved debits and credits are
allowed in the Foreign Currency Account shall rest solely with the branch
concerned of the AD. Further, the Accounts shall be subject to 100 per cent
scrutiny by the Concurrent Auditor of the respective AD banks.
The
Foreign Currency accounts have to be closed at the completion of the Project.
Q.10.
What are the general conditions applicable to Liaison / Branch / Project Office
of foreign entities in India?
Ans.
The general conditions applicable to Liaison/Branch/Project Office of foreign
entities in India
are as under;
(i)
Without prior permission of the Reserve Bank, no person being a citizen of Pakistan,
Bangladesh, Sri
Lanka, Afghanistan,
Iran or China
can establish in India,
a Branch or a Liaison Office or a Project Office or any other place of
business.
(ii)
Partnership / Proprietary concerns set up abroad are not allowed to establish
Branch /Liaison/Project Offices in India.
(iii)
Entities from Nepal
are allowed to establish only Liaison Offices in India.
(iv)
Branch/Project Offices of a foreign entity, excluding a Liaison Office are
permitted to acquire property for their own use and to carry out
permitted/incidental activities but not for leasing or renting out the
property. However, entities from Pakistan,
Bangladesh, Sri
Lanka, Afghanistan,
Iran, Bhutan
or China are
not allowed to acquire immovable property in India
even for a Branch Office. These entities are allowed to lease such property for
a period not exceeding five years.
(v)
Branch / Liaison / Project Offices are allowed to open non-interest bearing INR
current accounts in India.
(vi)
Transfer of assets of Liaison / Branch Office to subsidiaries or other LO / BO
or any other entity is permitted only with the specific approval of the Central
Office of the Foreign Exchange Department, Reserve Bank of India.
(viii)
Authorised Dealers can allow term deposit account for a period not exceeding 6
months in favor of a branch/office of a person resident outside India provided
the bank is satisfied that the term deposit is out of temporary surplus funds
and the branch / office furnishes an undertaking that the maturity proceeds of
the term deposit will be utilised for their business in India within 3 months
of maturity. However, such facility may not be extended to shipping/airline
companies.
(ix)
Permission to establish offices, in India
by foreign Non-Government Organisations/Non-Profit Organisations/Foreign
Government Bodies/Departments, by whatever name called, are under the Government
Route as specified in A. P. (DIR Series) Circular
No. 23 dated December 30, 2009.
Such entities are required to apply to the Reserve Bank for prior permission to
establish an office in India,
whether Project Office or otherwise.
VII.
Investment by QFIs
Q
1. What are QFIs and what are the investments they can undertake?
Ans.
QFIs mean a person who fulfils the following criteria :
(a)
Resident in a country that is a member of Financial Action task Force (FATF) or
a member of a group which is a member of FATF; and
(b)
Resident in a country that is a signatory to IOSCO’s MMoU (Appendix A Signatories)
or a signatory of a bilateral MoU with SEBI
PROVIDED
that the person is not resident in a country listed in the public statements
issued by FATF from time to time on jurisdictions having a strategic AML/CFT
deficiencies to which counter measures apply or that have not made sufficient
progress in addressing the deficiencies or have not committed to an action plan
developed with the FATF to address the deficiencies;
Further
such person is not resident in India
and is not registered with SEBI as a Foreign Institutional Investor (FII) or
Sub-Account of an FII or Foreign Venture Capital Investor (FVCI).
Explanation:
“bilateral MoU with SEBI” shall mean a bilateral MoU between SEBI and the
overseas regulator that, inter alia, provides for information sharing
arrangements.
Member
of FATF shall not mean an associate member of FATF.
Q2.
What are the investments QFIs can undertake and what are the applicable caps
for such investment?
Ans.
Rupee denominated units of equity schemes of domestic MFs
The
QFIs may invest in rupee denominated units of equity schemes of domestic MFs
directly issued by the SEBI registered domestic MFs under the two routes,
namely the Direct Route – SEBI registered Depository Participant (DP) route and
the Indirect Route - Unit Confirmation Receipt (UCR) route (no secondary market
purchases are allowed )
Investments
by the QFIs will have a ceiling of USD 10 billion under both the routes. Units
and UCRs issued under this scheme to QFIs, are non-tradable and
non-transferable.
Domestic
MF debt schemes which invest in infrastructure debt
QFIs
are also allowed to invest (under both the routes – Direct and Indirect), up to
an additional amount of USD 3 billion in units of domestic MF debt schemes
which invest in infrastructure (“Infrastructure” as defined under the extant
ECB guidelines) debt of minimum residual maturity of 5 years, within the
existing ceiling of USD 25 billion for FII investment in corporate bonds issued
by infrastructure companies.
Equity
shares
QFIs
are also permitted to invest through SEBI registered Depository Participants in
equity shares of listed Indian companies through recognized brokers on
recognized stock exchanges in India
as well as in equity shares of Indian companies which are offered to public in India
in terms of the relevant SEBI guidelines/regulations.
The
individual and aggregate investment limits for the QFIs are 5% and 10%
respectively of the paid up capital of an Indian company. These limits are over
and above the FII and NRI investment ceilings prescribed under the Portfolio
Investment Scheme for foreign investment in India.
Further, wherever there are composite sectoral caps under the extant FDI
policy, these limits for QFI investment in equity shares shall also be within
such overall FDI sectoral caps.
QFIs
are also permitted to acquire equity shares by way of rights shares, bonus
shares or equity shares on account of stock split / consolidation or equity
shares on account of amalgamation, demerger or such corporate actions subject
to the investment limits prescribed below. QFIs are also allowed to sell the
equity shares so acquired by way of sale
Debt
securities
Qualified
Foreign Investors (QFIs) have been permitted to purchase, on repatriation
basis, debt securities through SEBI registered Qualified Depository
Participants (QDPs) in eligible corporate debt instruments, viz. listed
Non-Convertible Debentures(NCDs), listed bonds of Indian companies, listed
units of Mutual Fund debt Schemes and “to be listed” corporate bonds directly
from the issuer or through a registered stock broker on a recognized stock
exchange in India. The provisions relating to FIIs in case of non-listing of
“to be listed” corporate bonds, within 15 days as per A.P. (DIR Series)
Circular No. 89 dated March 1, 2012, are applicable to QFIs.
QFIs
are permitted to invest in corporate debt securities (without any lock-in or
residual maturity clause) and Mutual Fund debt schemes subject to a total
overall ceiling of USD 1 billion. This limit shall be over and above USD 20
billion for FII investment in corporate debt.
QFIs
are also be permitted to sell ‘eligible debt securities’ so acquired by way of
sale through registered stock broker on a recognized stock exchange in India or
by way of buyback or redemption by the issuer.
Mode
of payment / repatriation
A
QFI may open a single non-interest bearing Rupee Account with an AD Category- I
bank in India, for routing the receipt and payment for transactions relating to
purchase and sale of units of domestic mutual funds, equity shares of listed
Indian companies and eligible debt securities
Demat
accounts - QFIs would be allowed to open a single demat account with a QDP
in India for
investment in all eligible debt securities under the QFI scheme.
Permissible
currencies - QFIs will remit foreign inward remittance through normal
banking channel in any permitted currency (freely convertible) directly into
the single non-interest bearing Rupee account of the QFI maintained with an AD
Category-I bank.
Pricing
- The pricing of all eligible transactions and investment in all eligible
securities by QFIs under this scheme shall be in accordance with the relevant
and applicable guidelines issued from time to time.
Hedging
- QFIs would be permitted to hedge their currency risk on account of their
permissible investments (in equity and debt instruments) in terms of the
guidelines issued by the Reserve Bank from time to time, similar to the
facilities made available to the FIIs in the matter.
Reporting
- In addition to the reporting to SEBI as may be prescribed by them, QDPs
and AD Category-I banks (maintaining QFI accounts) are required to ensure
reporting to the Reserve Bank of India in a manner and format as prescribed by
the Reserve Bank of India from time to time.
Foreign
Investments in Infrastructure Debt Funds
Investment
on repatriation basis by eligible non-resident investors viz. Sovereign Wealth
Funds, Multilateral Agencies, Pension Funds, Insurance Funds and Endowment
Funds which are registered with SEBI as eligible non- resident investors in
IDFs is allowed in Rupee and Foreign currency denominated bonds issued by the
Infrastructure Debt Funds (IDFs) set up as an Indian company and registered as
Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in
(ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic
Mutual Funds(MFs), in accordance with the terms and conditions stipulated by
the SEBI and the Reserve Bank of India from time to time.
The
original / initial maturity of all aforementioned securities at the time of
first investment by a non resident investor is five years and subject to a lock
in period of 3 years.
All
non-resident investment in IDFs (other than NRIs) (in both Rupee and Foreign
Currency denominated securities) are within an overall cap / limit of USD 10
billion. This cap / limit of USD 10 billion would be within the overall cap of
USD 25 billion for FII investment in bonds / non convertible debentures issued
by Indian companies in the infrastructure sector (where infrastructure is as
defined under the extant ECB guidelines) or by Infrastructure Finance Companies
(IFCs registered as NBFCs with the Reserve Bank).
The
facility of foreign exchange hedging would be available to the eligible
non-resident IDF investors, IDFs as well as the infrastructure project
companies exposed to the foreign exchange/ currency risk
Q:
What are the reporting requirements for acquisition/transfer of shares by
non-residents under respective schedules to FEMA 20?
Ans:
Following are the reporting requirements
(A)
Reporting of FDI for fresh issuance of shares
(i)
Reporting of inflow
(a)
The actual inflows on account of such issuance of shares shall be reported by
the AD branch in the R-returns in the normal course.
(b)
An Indian company receiving investment from outside India for issuing shares /
convertible debentures / preference shares under the FDI Scheme, should report
the details of the amount of consideration to the Regional Office concerned of
the Reserve Bank through it’s AD Category I bank, not later than 30 days from
the date of receipt in the Advance Reporting Form enclosed in Annex - 6.
Noncompliance with the above provision would be reckoned as a contravention
under
FEMA,
1999 and could attract penal provisions.
The
Form can also be downloaded from the Reserve Bank's website
http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx.
(c) Indian companies are required to report
the details of the receipt of the amount of consideration for issue of shares /
convertible debentures, through an AD Category - I bank, together with a
copy/ies of the FIRC/s evidencing the receipt of the remittance along with the
KYC report on the non-resident investor from the overseas bank remitting the
amount. The report would be acknowledged by the Regional Office concerned,
which will allot a Unique Identification Number (UIN) for the amount reported.
(ii)
Time frame within which shares have to be issued
The
equity instruments should be issued within 180 days from the date of receipt of
the inward remittance or by debit to the NRE/FCNR (B) /Escrow account of the
non-resident investor. In case, the equity instruments are not issued within
180 days from the date of receipt of the inward remittance or date of debit to
the NRE/FCNR (B) account, the amount of consideration so received should be
refunded immediately to the non-resident investor by outward remittance through
normal banking channels or by credit to the NRE/FCNR (B)/Escrow account, as the
case may be. Non-compliance with the above provision would be reckoned as a
contravention under FEMA and could attract penal provisions. In exceptional
cases, refund / allotment of shares for the amount of consideration outstanding
beyond a period of 180 days from the date of receipt may be considered by the
Reserve Bank, on the merits of the case.
(iii)
Reporting of issue of shares
(a)
After issue of shares (including bonus and shares issued on rights basis and
shares issued on conversion of stock option under ESOP scheme)/ convertible
debentures / convertible preference shares, the Indian company has to file Form
FC-GPR, through it’s AD Category I bank, not later than 30 days from the date
of issue of shares. The Form can also be downloaded from the Reserve Bank's
website http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx.
Non-compliance
with the above provision would be reckoned as a contravention under FEMA and
could attract penal provisions.
(b)
Form FC-GPR has to be duly filled up and signed by Managing
Director/Director/Secretary of the Company and submitted to the Authorised
Dealer of the company, who will forward it to the concerned Regional Office of
the Reserve Bank. The following documents have to be submitted along with Form
FC-GPR:
(i)
A certificate from the Company Secretary of the company certifying that :
a)
all the requirements of the Companies Act, 1956 have been complied with;
b)
terms and conditions of the Government’s approval, if any, have been complied
with;
c)
the company is eligible to issue shares under these Regulations; and
d)
the company has all original certificates issued by AD banks in India
evidencing receipt of amount of consideration.
(ii)
A certificate from SEBI registered Merchant Banker or Chartered Accountant
indicating the manner of arriving at the price of the shares issued to the
persons resident outside India.
(c)
The report of receipt of consideration as well as Form FC-GPR have to be
submitted by the AD bank to the Regional Office concerned of the Reserve Bank
under whose jurisdiction the registered office of the company is situated.
(d)
Issue of bonus/rights shares or shares on conversion of stock options issued
under ESOP to persons resident outside India directly or on amalgamation /
merger with an existing Indian company, as well as issue of shares on
conversion of ECB / royalty / lumpsum technical know-how fee / import of
capital goods by units in SEZs has to be reported in Form FC-GPR.
B.
Reporting of FDI for Transfer of shares route
(i)
The actual inflows and outflows on account of such transfer of shares shall be
reported by the AD branch in the R-returns in the normal course.
(ii)
Reporting of transfer of shares between residents and non-residents and vice-
versa is to be made in Form FC-TRS. The Form FC-TRS should be submitted to the
AD Category – I bank, within 60 days from the date of receipt of the amount of
consideration. The onus of submission of the Form FC-TRS within the given
timeframe would be on the transferor / transferee, resident in India.
(iii)
The sale consideration in respect of equity instruments purchased by a person
resident outside India, remitted into India through normal banking channels,
shall be subjected to a KYC check (Annex 9-ii) by the remittance receiving AD
Category – I bank at the time of receipt of funds. In case, the remittance
receiving AD Category – I bank is different from the AD Category - I bank
handling the transfer transaction, the KYC check should be carried out by the
remittance receiving bank and the KYC report be submitted by the customer to
the AD Category – I bank carrying out the transaction along with the Form
FC-TRS.
(iv)
The AD bank should scrutinise the transactions and on being satisfied about the
transactions should certify the form FC-TRS as being in order.
(v)
The AD bank branch should submit two copies of the Form FC-TRS received from
their constituents/customers together with the statement of inflows/outflows on
account of remittances received/made in connection with transfer of shares, by
way of sale, to IBD/FED/or the nodal office designated for the purpose by the
bank in the proforma (which is to be prepared in MS-Excel format). The IBD/FED
or the nodal office of the bank will consolidate reporting in respect of all
the transactions reported by their branches into two statements inflow and
outflow statement. These statements (inflow and outflow) should be forwarded on
a monthly basis to Foreign Exchange Department, Reserve Bank, Foreign
Investment Division, Central Office, Mumbai in soft copy (in MS- Excel) by
e-mail. The bank should maintain the FC-TRS forms with it and should not
forward the same to the Reserve Bank of India.
(vi)
The transferee/his duly appointed agent should approach the investee company to
record the transfer in their books along with the certificate in the Form
FC-TRS from the AD branch that the remittances have been received by the
transferor/payment has been made by the transferee. On receipt of the
certificate from the AD, the company may record the transfer in its books.
(vi)
On receipt of statements from the AD bank , the Reserve Bank may call for such
additional details or give such directions as required from the
transferor/transferee or their agents, if need be.
C.
Reporting of conversion of ECB into equity
Details
of issue of shares against conversion of ECB have to be reported to the
Regional Office concerned of the Reserve Bank, as indicated below:
In
case of full conversion of ECB into equity, the company shall report the
conversion in Form FC-GPR to the Regional Office concerned of the Reserve Bank
as well as in Form ECB-2 to the Department of Statistics and Information
Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400
051, within seven working days from the close of month to which it relates. The
words "ECB wholly converted to equity" shall be clearly indicated on
top of the Form ECB-2. Once reported, filing of Form ECB-2 in the subsequent months is not
necessary.
In
case of partial conversion of ECB, the company shall report the converted
portion in Form FC-GPR to the Regional Office concerned as well as in Form
ECB-2 clearly differentiating the converted portion from the non-converted
portion. The words "ECB partially converted to equity" shall be
indicated on top of the Form ECB-2. In
the subsequent months, the outstanding balance of ECB shall be reported in Form
ECB-2 to DSIM.
The
SEZ unit issuing equity as mentioned in para (iii) above, should report the
particulars of the shares issued in the Form FC-GPR.
D.
Reporting of ESOPs for allotment of equity shares
The
issuing company is required to report the details of issuance of ESOPs to its
employees to the Regional Office concerned of the Reserve Bank, in plain paper
reporting, within 30 days from the date of issue of ESOPs. Further, at the time
of conversion of options into shares the Indian company has to ensure reporting
to the Regional Office concerned of the Reserve Bank in form FC-GPR, within 30
days of allotment of such shares. However, provision with regard to advance
reporting would not be applicable for such issuances.
E.
Reporting of ADR/GDR Issues
The
Indian company issuing ADRs / GDRs has to furnish to the Reserve Bank, full
details of such issue in the Form enclosed in Annex -10, within 30 days from
the date of closing of the issue. The company should also furnish a quarterly
return in the prescribed Form, to the Reserve Bank within 15 days of the close
of the calendar quarter. The quarterly return has to be submitted till the
entire amount raised through ADR/GDR mechanism is either repatriated to India
or utilized abroad as per the extant Reserve Bank guidelines.
F.
Reporting of FII investments under PIS scheme
(i)
FII reporting: The AD Category – I banks have to ensure that the FIIs
registered with SEBI who are purchasing various securities (except derivative
and IDRs) by debit to the Special Non-Resident Rupee Account should report all
such transactions details (except derivative and IDRs) in the Form LEC (FII) to
Foreign Exchange Department, Reserve Bank of India, Central Office by uploading
the same to the ORFS web site
(https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the banks
responsibility to ensure that the data submitted to RBI is reconciled by
periodically taking a FII holding report for their bank.
(iii)
The Indian company which has issued shares to FIIs under the FDI Scheme (for
which the payment has been received directly into company’s account) and the
Portfolio Investment Scheme (for which the payment has been received from FIIs'
account maintained with an AD Category – I bank in India) should report these
figures separately under item no. 5 of Form FC-GPR (Annex - 8) (Post-issue
pattern of shareholding) so that the details could be suitably reconciled for
statistical / monitoring purposes.
G.
Reporting of NRI investments under PIS scheme
The
link office of the designated branch of an AD Category – I bank shall furnish
to the Reserve Bank18, a report on a daily basis on PIS transactions undertaken
by it, on behalf of NRIs. This report can be furnished on a floppy to the
Reserve Bank and also uploaded directly on the OFRS web site
(https://secweb.rbi.org.in/ORFSMainWeb/Login.jsp). It would be the banks
responsibility to ensure that the data submitted to RBI is reconciled by
periodically taking a NRI holding report for their bank.
H.
Reporting of foreign investment by way of issue / transfer of ‘participating
interest/right’ in oil fields
Foreign
investment by way of issue / transfer of ‘participating interest/right’ in oil
fields by Indian companies to a non resident would be treated as an FDI
transaction under the extant FDI policy and the FEMA regulations. Accordingly,
transfer of ‘participating interest/ rights’ will be reported as ‘other’
category under Para 7 of revised Form FC-TRS and issuance of ‘participating
interest/ rights’ will be reported as ‘other’ category of instruments under
Para 4 of Form FCGPR.
-------------------------------------------------------------------------------------------------
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.
