Professional Documents
Culture Documents
Introduction
Overseas expansion Overseas listing Spreading of Risk Ensuring supply chain Access to wider global markets
Introduction
Powers to RBI conferred by Section 6(3)(a) and Section 47 of the FEM Act 1999. Governing Notification No. 120 - titled as Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2004.
Modified again from time to time by issue of further Notifications & AP (Dir. Series) Circulars.
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Purchase out of funds held in RFC account. Bonus shares on the foreign securities held in accordance with FEMA Out of foreign currency resources held outside India- applicable only to persons not permanently resident in India. (Res in India for employment of a specified duration or for specific job, duration of which doesnt exceed three years) Sell the foreign security purchased or acquired under clauses (a), (b) or (c).
(d)
Indian Party
A company incorporated in India or Body Corporate created under an Act of Parliament or Registered Partnership Any other entity in India notified by RBI.
RBI under approval route has notified Unregistered Partnerships and Proprietorship firms - subject to fulfillment of prescribed conditions (AP Dir Circular No. 29 dated 29.03.2006)
If more than one such entities make direct investment in the foreign entity, all such entities together shall constitute the Indian party
Automatic Route
Direct investment in a JV or WOS overseas except engaged in real estate or banking business. Investment in Nepal is permitted only in Indian rupees. Optional for Bhutan. Investment in Pakistan is not permitted under the automatic route. Financial Commitment not to exceed 400% of the Net Worth of the Indian Party as on the date of last audited balance sheet
Exception: For EEFC account holders and investment out of proceeds of ADR / GDR issue
Net Worth of holding / Subsidiary may be clubbed subject to fulfillment of certain conditions.
Automatic Route
The Amount of Direct Investment by way of contribution to Equity and Loan and 100% of the amount of guarantees issued to or on behalf of its JV/WOS. (Amt to be specified upfront)
IP can provide Loan/guarantee on behalf of JV/WOS provided there is equity participation No minimum percentage of equity investment prescribed; however, recommended that equity should not be nominal Investment in preference shares possible. But not preference shares only, if debt involved
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Automatic Route
IP is not on the Reserve Banks Exporters caution list /list of defaulters to the banking system circulated by the Reserve Bank or under investigation by any investigation /enforcement agency or regulatory body IP routes all Transactions through only one Branch of an AD. IP Submits Form ODI to the designated AD. IP has submitted up to date returns in Form APR
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Automatic Route
Funding: Drawal of Foreign Exchange upto 400% of Net Worth of the Indian Party. Capitalisation of Exports (unrealized exports beyond prescribed period requires prior approval of Reserve Bank) Guarantees (100% of the value to be considered) (guarantee not to be open ended) Share Swaps
Proceeds of ADRs/ GDRs ADR/GDR stock swap subject to the valuation norms and sectoral cap Resources raised through ECB in conformity with parameters of the guidelines. Utilization of FCCB peoceeds Note: Limit of 400% net worth will not apply to utilization balances held in EEFC a/c & funds raised through ADR/GDR issue
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Would require FIPB approval for Inbound leg of the Investment & Valuation by Merchant Banker
File form ODI with the AD Board Resolution authorizing such an investment Last three years financial statements along with Net worth certificate in the prescribed format Unique Identification Number
Issued by RBI to each JV/WOS To be quoted in all communications and reports Second and further remittances only after allotment of UIN
(Note: Dont use basic travel quota for investment in shares of J/V or WOS)
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Valuations
In cases where Investment is more than US $ 5 (five) Million in an existing company or is by way of Share swap :
The valuation has to be done by Category I Merchant Banker registered with SEBI or Investment Banker/ Merchant Banker outside India registered with the appropriate regulatory authority in the host country. a Chartered Accountant or a Certified Public Accountant.
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Conditions:
Persons eligible
Listed Indian Companies Upto 50% of their Networth as on last date of the audited balance sheet Mutual Funds registered in India.
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Both Investor/Investee should be engaged in Financial Services Activities. IP has earned Net profit during the preceding three financial years from the financial activities. IP is registered with appropriate regulatory authority in India. Has obtained prior approvals from the concerned regulatory authorities - both in India & abroad for the venture.
Note: Financial services not defined. One can look at services in inbound notification Schedule I
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Investment limits & Conditions will be as per Part-I. Has fulfilled prudential norms relating to capital adequacy. AP Dir. Circular No. 6 dated 6.09.2006
Trading/JVS in Commodities Exchanges Overseas are to be treated as investment in Financial Services Activities. Companies engaged in Financial Service Activities in India and making Investment in Non-financial activities abroad will have to comply with the conditions of this regulation.
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Outstanding dues on accounts of Export of goods, plant & machinery, royalty, services, etc.
Software exporters may receive 25% of export value by way of shares of an overseas startup company without entering in to JV subject to prior RBI approval. GR / SOFTEX / SDF shall be superscribed as Export against equity participation in JV / WOS abroad Customs certified copy of the invoice to be submitted to AD
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The above disinvestment is subject to following conditions: The disinvestment doesnt result in write off of the investment
The sale is effected through a stock exchange where the shares are listed. If not listed, the price is not less than the value certified by a CA or CPA as fair value based on the latest audited financial statements. No outstanding dues from JV/WOS IP is not under Investigation by CBI/ED/SEBI/IRDA etc. Overseas entity is in operation at least for one full year and the APR is submitted to the RBI.
Sale proceeds are repatriated immediately and in any case not later than 90 days from date of sale The Indian party submits details of the disinvestment through the designated AD within 30 days of the disinvestment.
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Identification No. Name of the Indian company. Name of the country and amount of investment approved. Amount of disinvestment. Date of repatriation of the disinvestment proceeds. Certificate that all documents as above have been obtained.
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Indian Party can Pledge shares of JV/WOS for Availing Credit Facilities for itself or for JV/WOS only from Authorised Dealers or Public Financial Institution in India. Or to an overseas lender bank and total financial commitment of the Indian party remains within the limit for overseas investment
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If the conditions under Automatic Route not satisfied Application to be made in prescribed Forms- ODI Valuation, if required, in the prescribed manner. RBI will take into consideration following factors:
Prima Facie viability of the JV / WOS. Contribution to External trade & other benefits to India. Financial Position and business track record
both Indian Party & Foreign entity.
Expertise & Experience of the Indian Party in the same or related line of activity.
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Receive & Submit to the AD evidence of investment within 6 months from the date of remittance/ capitalisation. Repatriate all dues (Dividend, Royalty, Technical Fees etc) within 60 days of its falling due. Submit Form APR to RBI every year within 60 days from the Statutory Time Limit of Finalisation of Audits as per the local laws of the host country.
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Proprietary Concern
Prior permission- apply in Form ODI Purpose -acceptance of shares of a company outside India in lieu of professional services. Value of shares accepted from each company not to exceed 50% of the fees receivable from that Company. Indian shareholding in a company outside India by virtue of shares so accepted shall not exceed 10 %.
Prior permission. Purpose- consideration for professional services. RBI to consider: Credentials/networth/nature of profession Forex earnings/Balances in EEFC/RFC Accounts Financial & Business Track Record Potentials for forex inflow Other benefits
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For Individuals
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Engaged in manufacturing/educational/hospital may invest with prior RBI approval Conditions Must be in existence for at least three years KYC compliant Not under adverse notice of Governmental regulatory authority In case any approval from Home Ministry or such other agency is needed, must be obtained.
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Part III
Investment in Foreign Securities other than Direct Investment
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Issue of FCCBs.
Actually Inbound investment but because it involves issue of foreign security is under this Notification.
Individuals
Portfolio Investment by listed Indian Companies up to 50% of their net worth Mutual Fund up to an overall limit of USD 7 billion Limited number of MF also permitted to invest up to USD 1 billion in overseas exchange traded funds as permitted by SEBI Domestic VC funds up to USD 500 million subject to SEBI permission
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FCCB should conform to the Sectoral cap under FDI policy. For Maximum of US $ 500 Million in any one Financial year. Public Issue of FCCB should be through reputed Lead Managers in the International Capital Market.
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Private Placement with unrecognised sources is prohibited. Maturity of FCCB shall be 5 years and above.
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All in Cost will be at par with the limits prescribed for ECB.
Total amount of FCCB issued. Names of the investors resident outside India. Number of FCCB issued to each of them. Bank certificates for amount repatriated to India.
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Minimum qualification and subsequent right shares not to exceed 1% & consideration doesnt exceed USD 20,000 in a calendar year. Acquisition by employee/director of Indian Promoter Company not exceeding 5% & consideration not to exceed USD 10,000 per employee in a block of 5 calendar years. After such allotment stake of Indian promoter not to fall below original holding. Entity in knowledge based industry- ESOPs by way of ADRs/GDRs Sale - Remittance within 90 days. Pledge with AD in India or With overseas lender provided the lender is bank and total financial commitment remains within limit of 400%.
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Notified vide Notification No. 110 Dated 5th February, 2004 Facility is available only to the resident Individuals. Facility allows to freely acquire/ hold immovable properties, shares and other assets without RBI approval. Allows to open, maintain and operate Foreign Currency accounts outside India Facility is in addition to other facility like foreign travel, gift, donations, etc. Facility is not available for Current Account - Schedule-I transactions, Nepal, Butan, Pakisatn or Mauritius or countries identified by FATF as "non co-operative countries and territories"
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Has a wide Tax Treaty network, thereby minimising withholding taxes on dividend income. Has tax relief on foreign dividend income. Does not charge capital gains tax on the disposal of subsidiaries. Does not impose withholding taxes on distributions from the holding company to its parent or shareholders. Does not impose capital gains tax on profits arising from the sale of shares in the holding company by non-resident shareholders. Does not impose capital duties on share capital. Does not have a minimum paid up share capital requirement.
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Forms
WEF 1/6/2007 there is only one Form which is ODI
Part I for Automatic as well as Approval route Part II - is for reporting of remittances by A.D. Part III-Annual Performance Report (APR) To be filed with RBI within two months from the prescribed date which is Part III of form ODI. Part IV- Report on closure/Disinvestment
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Thank You
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