Foreign Investments in India

• A foreign company planning to set up business operations in India has the following options:

• As an incorporated entity by incorporating a company under the Companies Act, 1956 through

• Joint Ventures; or

• Wholly Owned Subsidiaries

• As an office of a foreign entity through

• Liaison Office / Representative Office

• Project Office

• Branch Office

Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or other place of business) Regulations, 2000.

• FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government:

i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted.

ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector.

iii) FDI in sectors/activities to the extent permitted under Automatic Route   does not require any prior approval either by the Government or the Reserve Bank of India.

iv) The investors are only required to notify the Regional Office concerned of  the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.

Government Route

• FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded from https://www.dipp.gov.in. Plain paper applications carrying all relevant details are also accepted. No fee is payable.

General permission of RBI under FEMA

• Indian companies having foreign investment approval through FIPB route do not require any further clearance from the Reserve Bank of India for receiving inward remittance and issue of shares to the non-resident investors. The companies are required to notify the concerned Regional Office of the Reserve Bank of India of receipt of inward remittances within 30 days of such receipt and submit form FC-GPR within 30 days of issue of shares to the non-resident investors.

• On receipt of money for investment:

• Within 30 days of receipt of money from the non-resident investor, the Indian company will report to the Regional Office of the Reserve Bank of India,  under whose jurisdiction its Registered Office is located,  containing details such as:

• Name and address of the foreign investor/s

• Date of receipt of funds and their rupee equivalent

• Name and address of the authorised dealer through whom the funds have been received, and

• Details of the Government approval, if any.
  

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 concerned Regional Office 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 .

• The proposal is within the sectoral policy / cap permissible under the automatic route of RBI and it fulfills all the conditions laid down for investments under the Automatic approval route namely

a) Non-resident entity/ies (other than individuals) to whom it has issued shares does / do not have any existing joint venture or technology transfer or trade mark agreement in India in the same field.

b) The company is not investing in an SSI unit & the investment limit of 24 % has been observed/ requisite approvals have been obtained.
 
c) Shares have been issued on rights basis and the shares are issued to non-residents at a price that is not lower than that at which shares are/were issued to residents.

OR

d) Shares issued are bonus shares.

OR

e) Shares have been issued under a scheme of merger and amalgamation of      two or more Indian companies or reconstruction by way of demerger or otherwise of an Indian company, duly approved by a court in India.

• Shares have been issued in terms of SIA/FIPB approval No. --------------------- dated --------------------

Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

• Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.

• A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by way of sale, the shares/convertible debentures held by him to another NRI only. 

• Any person resident outside India may sell share/convertible debenture acquired in accordance with FEMA Regulations, on a recognized Stock Exchange in India through a registered broker.

• Any person resident outside India, (not being a non-resident Indian or an erstwhile overseas corporate body), can transfer by way of gift the shares/convertible debentures to any person resident outside India; subject to the condition that the acquirer or transferee does not have any previous venture or tie up in India in the same field or sector.

• A non-resident Indian (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/convertible debenture to a person resident in India by way of gift.

• A person resident in India may transfer to a person resident outside India any share/convertible debenture of an Indian Company whose activities fall under the Automatic Route for FDI subject to the Sectoral Limits, by way of sale subject to complying with pricing guidelines, documentation and reporting requirements for such transfers, as may be specified by the Reserve Bank of India, from time to time.

This general permission is not available where:

• Indian Company whose shares or convertible debentures are proposed to be transferred is in financial service sector (financial services sector means service rendered by banking and non-banking companies regulated by the Reserve Bank, insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) and other companies regulated by any other financial regulator, as the case may be).

• The transfer falls within the provisions  of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

• A person resident in India can transfer by way of gift shares to a person resident outside India in the following ways:

• A person resident in India who proposes to transfer to a person resident outside India [other than erstwhile OCBs] any security, by way of gift, 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.  The gifts are permissible up to a limit of:

(i)    5% of the paid up capital of the company per donee, and 

(ii)  Amount does not exceed USD 25,000 per calendar year for each donor. The valuation of these shares shall be in accordance with pricing guidelines prescribed.

• A copy of FIPB approval (if required).

• Consent letter from transferor and transferee clearly indicating the number of shares, name of the investee Company and the price at which the transfer is proposed to be effected.

• The present/post transfer shareholding pattern of the Indian investee company showing the equity participation by residents and non-residents category-wise.

• Copies of the Reserve Bank of India's approvals/acknowledged copies of FC-GPR evidencing the existing holdings of the non-residents.

• If the sellers/transferors are NRIs / OCBs, the copies of the Reserve Bank of India's  approvals evidencing the shares held by them on repatriation / non-repatriation basis.

• Open Offer document filed with SEBI if the acquisition of shares by non-resident is under SEBI Takeover Regulations.

• Fair Valuation Certificate from Chartered Accountant indicating the value of shares as per the following guideline.

• In the case of unlisted shares the fair value is worked out as per the erstwhile Controller of Capital Issue/s.

• For listed shares, the price worked out is not less than the higher of average weekly high and low quotations for 6 months and average of daily high and low quotation or two weeks preceding 30 days prior to the date of making application to FIPB.

• All foreign investments are freely repatriable except for the cases where NRIs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer.