Overseas Direct Investment under FEMA - A Brief

Sr No

Particulars

OPTION 1

OPTION 2

OPTION 3

1

Prohibitions

Co. Outside India must not be engaged in real estate / banking business

Co. Outside India must not be engaged in real estate / banking business

1. Co. Outside India must not be engaged in real estate / banking business
2. Investment in countries identified by Financial Action Task Force as “non-cooperative countires”

2

Limit of investment

100% of the net worth as on the date of  of last audited accounts of ABC Pvt Ltd.  (Total investment / guarantee, by whatever method, in all Foreign Co. Is subject to this limit)

100% of the net worth as on the date of  of last audited accounts of ABC Pvt Ltd.  (Total investment / guarantee, by whatever method, in all Foreign Co. Is subject to this limit)

USD 75,000 per financial year. This limit is inclusive all the payments made by resident individual outside india.

3

When Limit not applicable

a. Investment made out of balance in Exchange Earners’ Foreign Currency account, or

b. Funds raised through ADR / GDR

a. Investment made out of balance in Exchange Earners’ Foreign Currency account, or

b. Funds raised through ADR / GDR

Investment made out of balance in Exchange Earners’ Foreign Currency account or Resident Foreign Currency Account

4

Loans to Foreign Companies

Allowed only when the ABC Pvt Ltd. is having equity participation in foreign company

Allowed only when the ABC Pvt Ltd. is having equity participation in foreign company

Not Allowed

5

Method of Investment

All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by ABC Pvt Ltd.

All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by ABC Pvt Ltd.

All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by Individual

6

Valuation in case of acquisition of existing Co.

Where investment  > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA

Where investment  > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA

Where investment  > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA

7

Reporting of transaction to AD Bank

a. In Form ODI within 30 days from the date of transaction

b. Receive Share certificates

c. Repatriate to India the dues receivable from Foreign Co.

d. Submit Annual Performance Report to RBI

a. In Form ODI within 30 days from the date of transaction

b. Receive Share certificates

c. Repatriate to India the dues receivable from Foreign Co.

d. Submit Annual Performance Report to RBI

a. In Form ODI within 30 days from the date of transaction

b. Receive Share certificates

c. Repatriate to India the dues receivable from Foreign Co.

d. Submit Annual Performance Report to RBI

8

RBI Approval

When the above conditions are not satisfied, RBI Prior approval is required

When the above conditions are not satisfied, RBI Prior approval is required

When the above conditions are not satisfied, RBI Prior approval is required

9

Factors considered by RBI for giving prior approval

Viability of Foreign Co. Outside India,

Contribution to external trade and their benefits accruing to India,

Financial position and business track record of Indian Co and Foreign Co.

Expertise and Experience of Indian Co. in the related line of activity of Foreign Co.

Viability of Foreign Co. Outside India,

Contribution to external trade and their benefits accruing to India,

Financial position and business track record of Indian Co and Foreign Co.

Expertise and Experience of Indian Co. in the related line of activity of Foreign Co.

Viability of Foreign Co. Outside India,

Contribution to external trade and their benefits accruing to India,

Financial position and business track record of Indian Co and Foreign Co.

Expertise and Experience of Resident in the related line of activity of Foreign Co.

10

Income tax on Dividend Income from Foreign Investment

Taxable in the hands of Indian Co. @ 16.995% (upto FY 2013-14). Further, Dividend Distribution tax @ 16.995% is payable when Dividend is paid to a Shareholder. Effective tax rate is 31.10%

Taxable in the hands of Indian Co. @ 16.995% (upto FY 2013-14). Further, Dividend Distribution tax @ 16.995% is payable when Dividend is paid to a Shareholder. Effective tax rate is 31.10%

Taxable in the hands of resident individual @ 30% plus Surcharge @ 10% (applicable when Income > Rs. 1 Cr) plus Education Cess @ 3%. Effective tax rate is 33.99%.