Transcript www.icwaicochin.com

FOREIGN INVESTMENT IN
INDIA
PROCEDURE/COMPLIANCE/
REPRTING/COMPOUNDING.
BY ARVIND SALVI
APRIL, 2013
FDI Policy Framework
•
FDI by NRs in Residents Entities through transfer or issue
of security to PROI is a Cap. A/c transaction is governed
by Sec 6 (3) (b) of FEMA, 1999 & regulations issued there
under. The regulatory framework consists of Acts,
Regulations, Press Notes, Press Releases, Clarifications,
etc.
Inbound investments- regulated by :
− Department of Industrial Policy & Promotion (FC
Section), Ministry of Commerce, Government of India
makes policy pronouncements on FDI through
PNs/PRs. DIPP has released Consolidated FDI Policy
vide Circular NO. 1 of 2013 effective 05.04.2013.
•
− RBI has the power to prohibit, restrict or regulate the
transfer or issue of any security by a person resident
outside India under section 6(3)(b) of the Foreign
Exchange Management Act, 1999 (“FEMA”)
2
FDI : RBI’s Reg. Framework co…
RBI has notified :
 Foreign Exchange Management (Transfer or
issue of security by a person resident outside
India) Regulations, 2000 ("FEMA 20/2000") and
 Foreign Exchange Management (Investment in
firm or proprietary concern in India) Regulations,
2000 ("FEMA 24/2000").
The procedural instruction are issued by RBI vide
A. P.( Dir. Series .) Circulars
Diagrammatic presentation
Foreign
Investments
FDI
Portfolio
Investments
Venture Capital
Investments
Other
investments
Investment
on non
repartriable
basis
SEBI regd.
FVCIs
Automati
c route
Govt
Route
VCF,
IVCUs
PROI
FIIs
QFIs
4
NRI,
PIO
FIIs
QFIs
NRI, PIO
NRI, PIO
Sector classification
Investment areas – classified as :
• Eight sectors are prohibited;
• Investment up to 100% under Automatic
Route in most of the sectors (like Floriculture,
Horticulture, Greenfield Airports projects etc);
• Investment in few sectors under Government
Route (such as Defence – 26%, Tea-100%,
ARC-49%, CIC-49%, Commodity Exchanges49%, S.Exs.-49%, Satelite-74%).
• Few sectors – Automatic route up to certain
limits and beyond such limits, up to a
sectoral cap, under Govt., route ( Telecom).
Eligibility of FDI in resident entities
FDI in Indian company
FDI in Partnership firm /
proprietary concern
FDI in Trust
FDI in other Entities
6
Investment by any person not resident in India [
Other than citizen/entity of Pakistan. Citizen/entity
of Bangladesh only with the approval of
Government ].
- BY NRI / PIO - Permitted if remittance out
of NRE / FCNR / NRO account / Not
engaged in any agriculture / plantations/print
media or real estate business. Only on nonrepatriation basis.
- BY NR other than NRI / PIO and with
repartition– prior approval of RBI.
Not permitted other than Venture Capital Fund
Not permitted
Caps on inbound investment
As per Foreign Exchange Management (Transfer or issue of security by a
person resident outside India) Regulations, 2000:
Schedule
Description
1 Foreign Direct
Investment
Scheme
–Certain activities are prohibited
–Certain activities are under Approval Route
–Certain activities are allowed under Automatic Route up to
sectoral caps
2 FII + Portfolio
Investment
Scheme
–Holding of each FII / sub-account of FII cannot exceed 10% of
total paid-up equity capital or 10% of the paid-up value of each
series of convertible debentures issued by an Indian Company
–Total holdings of all FIIs / sub-accounts of FIIs put together
cannot exceed 24% of paid-up equity capital or paid-up value
of each series of convertible debentures. This limit /ceiling can
be increased by the company concerned up to sectoral
cap/statutory ceiling by passing BR followed by Spl Res. by
General Body.
–Prior intimation to RBI is required for raising limits from 24% to
sectoral caps.
Caps on inbound investment
Schedule
Description
3
NRI + Portfolio
Investment Scheme
– Holding of each NRI (repatriation or non-repatriation basis) cannot exceed 5%
of the paid-up value of shares of the company or paid-up value of each series
of convertible debentures issued
– Total holdings of all NRIs cannot exceed 10% of the paid-up value of the
shares of the company or paid-up value of each series of convertible
debentures issued (10% limit can be increased to 24%)
– Prior intimation to RBI for enhancement of limit.
4
NRI + on nonrepatriation basis
(other than Portfolio
Investment Scheme)
Purchase and sale of shares/convertible debentures by a NRI on non
repatriation basis.
5
NRI + FII
Purchase and sale of securities other than shares or convertible debentures of
an Indian company by a person resident outside India.
6
Foreign Venture
Capital Investor
Investments in an Indian Venture Capital Undertaking by a registered Foreign
Venture Capital Investor. Investment to be in accordance with SEBI regulations
dealing with VCF / FVCI
No limits.
Procedure
Investing in India
Automatic route
• Inform RBI within 30 days of
remittance / Issue of shares.
Approval route
• FIPB prior approval
• Application for
approval with FIPB.
• Inform RBI within 30
days
Entry conditions would be applicable to non residents only.
Such conditions include- minimum capitalization and
lock-in-period.
9
9
Compliance with….
 Policy;
 Instruments;
 Manner of receipt of
investment;
 Time limit for issue of shares;
 Pricing guidelines;
 Certification;
 Reporting
Manner of Receipt of consideration
• Cash - Inward remittance
- Debit to NRE, FCNRB, NRO a/c.
- FII Special Rupee a/c – Escrow a/c.
• Non-cash
- ECB, Royalty, lump-sum fees,
- Import of capital goods / machinery /
equipment
- Pre-operative /pre-incorporation expenses
(including payment of rent, etc.)
Pricing Guidelines..
Specific pricing guidelines applicable to the
following :-








FDI Scheme ;
Rights Issue ;
Preferential allotment ;
Private placement with FIIs ;
ADRs/GDRs ;
FVCIs ;
Gift by R to NR ;
SEBI guidelines for specific purposes.
Returns to be submitted..
 Inflow reporting;
 FC-GPR;
 Annual Assets / Liabilities
statement;
 FC-TRS;
 ADRs/GDRs
Reporting of FDI
– Reporting of inflow
– within 30 days from the date of receipt of
funds along with copy of FIRC and KYC
report through AD Category I .
– Time frame for issue of shares
– Equity instruments are to be issued within
180 days from the date of receipt of funds.
– Otherwise amount to be refunded
immediately by outward remittance.
Reporting of FDI contd.
FG-GPR reporting :
• To RO-RBI within 30 days [issue / ECB /
lump-sum, ESOP, others];
- Certification by the Indian company ;
- Certification by the company Secretary;
- Certification of pricing by SA/CA/MB;
- KYC in r/o NR investor by AD.
• To DSIM-RBI [Annual on July 15] – Foreign
liabilities and assets as on March 31 (AP-DIR45/15.03.11) [ FLA Form modified : A.P. (Dir)
Cir. No.133/25.6.2012 ].
Repatriation
 Sale proceeds of investment;
 Winding-up proceeds;
 Liquidation proceeds;
 Dividends;
 Interest;
 Refund of advance remittance
(Through AD, subject to tax
compliance)
Types of contraventions..
 Receipt of funds before incorporation;
 Acceptance of investment without
Govt., approval;
 Delay in reporting of inflow;
 Delay in reporting of allotment;
 Non-observance of pricing guidelines;
 Delay in issue of shares or refund.
Issues..
 Tax Residency Certificate;









Call/put options;
Pricing guidelines;
Schedules (investor specific);
Various categories of investors;
Sectoral caps;
Alternate Foreign Investors;
Transfer pricing;
BIPPAs;
Source of funds.
Penal provisions…
Contravention of regulatory frame
work is governed by :



Sec. 13 : What contravention means;
Sec. 14 : Adjudication procedure;
Sec. 15 : Compounding; and
Sec. 49 : FERA cases.
THANK YOU