[FEM (Transfer or issue of any foreign security) Regs., 2004]
Foreign Direct Investment
[FEM (Transfer of any security by a PROI) Regs., 2000]
Direct Investment outside India (ODI) [FEM (Transfer or issue of any foreign security) Regs., 2004]
Direct Investment outside India: includes investment by way of:
either by market purchase, or private placement or through stock exchange. (c) market purchase of existing shares of foreign entity; (b) Subscription to MoA of foreign entity (a) Contribution to the capital;
Definitions (Contd…..) II. Financial Commitment : means the amount of direct invst. by way of: III. Joint Venture : means a foreign entity, formed, regd. or incorporated, under the law of the host country in which Indian Party makes DI. IV. Wholly Owned Subsidiary (WOS): means a foreign entity formed registered or incorporated in accordance with the laws & regulations of the host country & whose entire share capital is held by the Indian Party. Issued by an Indian Party to or on behalf of its overseas Joint Venture Company or Wholly Owned Subsidiary. (b) 100% of the amount of guarantees; (a) Contribution to equity and loan;
Definitions (Contd…..) V. Indian Party means: making investment in JV or WOS abroad, and includes any other entity in India as may be notified by the RBI. (c) a partnership firm regd. under the Indian Partnership Act, 1932. (b) a body created under an Act of Parliament (a) company incorporated in India;
no Indian Party shall make any direct investment in a foreign entity engaged in real estate business or banking business.
General permission for direct investment (Reg.7) In Financial Services Sector (By whom allowed) Indian Parties (Reg.6B) In equity of cos. Regd. overseas (By whom allowed) PRI, being an individual or a listed Indian Company. (Reg.6A) In agricultural Operations overseas (By whom allowed) PRI being company incorporated in India, or a firm (Reg.6) Automatic Route (By whom allowed) Indian parties
Indian Party to receive share certs. within 6 months of effecting remittance or date on which amount due was allowed to be capitalised.
For investment more than US $5 million or its equivalent; Valuation has to be done by a SEBI Category I Merchant Banker / Investment Banker of the host country. Where investment is upto US $5 million, or its equivalent; Valuation has to be done by a Chartered Accountant or Certified Public Accountant.
Repatriate to India, all dues receivable from the foreign party like interest, dividend etc within 60 days of which the amount became due.
Submit an Annual Perform Report (in Form APR) within 60 days of end of financial year of JV / WOS as per host country.
V. Special permission from RBI (Reg.9)
An Indian Party which does not satisfy the eligibility conditions under Regs.6, 7 & 8, may apply to RBI for approval in Form ODI of the Regs.
FOREIGN DIRECT INVESTMENT Regulated by FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000
Permission for purchase of shares by certain PROIs
Reg.5 provides conditions for purchase of shares by PROIs, FIIs, NRIs, Foreign Venture Capital Investors etc.
Any PROIs or an entity incorporated outside India (other than citizens / entities of Bangladesh or Pakistan), may purchase:
of any Indian Company, under FDI scheme , subject to the terms and conditions specified in Schedule I .
Foreign Direct Investment Scheme (Schedule I) FDI is permitted through any of the following two ways: Special Permission If conditions of the automatic route are not satisfied / or if company is not otherwise eligible to accept shares: Previous approval of FIPB to be taken. General Permission (Automatic route) (As per conditions specified)
A trading company incorporated in India may issue shares / convertible debentures upto 51% of its capital subject to the condition that remittance of dividend to the shareholders outside India is made only after the company has secured the specified Trading House registration , with DGFT, as per FTP norms.
SSI Units may issue securities upto 24% of its paid-up capital, or in excess of that if:
It has given up its small scale status ;
It is not engaged or does not propose to engage in mfg of items reserved for SSI;
It complied with the ceiling specified in Annexure B.
Additional Restrictions (Contd…..) Exception: An SSI which is an EOU / unit located in FTZ / EPZ / STP / EHTP may issue shares / convertible debentures to a PROIs in excess of 24%, without complying with the specified conditions above, provided it complies with the ceilings specified in Annexure B. Issue Price For unlisted companies, as per guidelines issued by erstshile CCI, in all other cases. In case of a listed company, as per SEBI Guidelines.
Section 115A : Tax on interest, royalty, fees etc Where total income of an non resident (not being a company) or a foreign company includes any income:
By way of royalty or fees from technical services from Govt. or an Indian concern, in pursuance of an agreement, then income taxable:
@ 10% if agreement made after 31/05/2005 ;
@ 20% , before 31/05/2005, but after 31/05/1997, & @30% before that.
by way of interest from Govt. or an Indian concern on monies borrowed by them in foreign currency: Such income shall be taxable @ 20%.
Section 115AB : Tax on LTCG from transfer of units purchased in foreign currency
Where total income of an Overseas Financial Organization (OFO)*includes income by way of LTCG on units purchased in foreign currency;
Then, such income shall be taxable @ 10%.
* OFO means any fund, institution, or body incorporated or not , estd. Under the law of country outside India, which has entered into an arrangement for investment in India , with a public sector bank, PFI or MF approved by SEBI.
Section 115AC : Tax on income from bonds / GDRs etc
Where total income of a non resident, including a foreign company, includes any income by way of:
Interest on FCCBs; or
Dividend from GDRs; purchased in foreign currency
LTCG on FCCBs / GDRs;
Such income shall be taxable @ 10%.
Section 115AD: Tax on income of FIIs from securities Where total income of an FII includes any income by way of: Long term capital gains (LTCG) on such securities: Such income shall be taxable @ 10%. Short term capital gains (STCG) on such securities: Such income shall be taxable @ 30%. interest income from securities (other than units referred u/s 115AB). Such income shall be taxable @ 20%.
II. Measures for tax planning for foreign collaborators
Scope of total income of a non-resident (Section 5)
Total income of a non resident consists of:
income received in India; or
Income deemed to be received in India; or
Income accrued in India; or
Income deemed to be accrued in India;
Section 9 : Definition of deemed to be accrued (includes principal-agent relationship with residents)
When non-resident not liable to pay tax Income deemed to be accrued in India Income accrued in India Income deemed to be received in India Income received in India