Key Takeaways: FEMA Regulations for ODI by Proprietorship Concerns FEMA Regulations for ODI by Trusts and Societies Rollover of Guarantee

1. ODI by Proprietorship, Trust / Societies and Rollover
of Guarantees
CA T.K. Sundara Rajan

2. Research Credits
Gracelin Lita
C.A. Akash Kumar

3. Legends used in the Presentation
GDR Global Depository Receipts
JV Joint Venture
WOS Wholly Owned Subsidiary
ODI Overseas Direct Investment
UP Unregistered Partnership
PC Proprietorship concern
KYC Know your Customer
MOA Memorandum of Association

4. Presentation Schema
Introduction
ODI by Proprietorship
concerns
Definition of Status holder as
per FTP 2015-2020
ODI by Trust/ Societies Rollover of Guarantees

5. Introduction
Overseas investments or financial commitment in JV and WOS have been recognised as important
avenues for promoting global business by Indian entrepreneurs
Direct investments by residents in JV and WOS abroad are being allowed, subject to the
FEM(Transfer or Issue of Foreign Security) Regulations, 2004, notified by the RBI
This discussion would be centric on the ODI made by proprietorship concerns, Trusts/ Societies
and Rollover of Guarantees
Certain regulations regarding ODI by Investment by Proprietorship concerns, Trusts/ Societies are
also discussed in the Master direction on Direct Investment by Residents in JV / WOS Abroad as
amended from time to time
Investment by Proprietorship concerns, Trusts/ Societies can be made after obtaining approval from RBI

6. ODI by Proprietorship concerns

7. Regulations under FEMA
Keeping in view the changes in the definition of the exporters as per the FTP of the Ministry of Commerce and
Industry, issued from time to time, the following revised terms and conditions are required to be complied with for
considering the proposal of overseas direct investment, by the Reserve Bank under the approval route:
The proprietorship concern / unregistered partnership firm in India is classified as ‘Status Holder’ as per the FTP
The proprietorship concern (PC) / unregistered partnership (UP) firm in India has a proven track record, i.e., the
export outstanding does not exceed 10% of the average export realisation of the preceding three years and a
consistently high export performance
The AD bank is satisfied that the PC / UP firm in India is KYC (Know Your Customer) compliant, engaged in the
proposed business and has turnover as indicated
The PC / UP has not come under the adverse notice of Government agency like Directorate of Enforcement etc., and
does not appear in the exporters' caution list of the RBI or in the list of defaulters to the banking system in India
ODI not to exceed:
(a) 10% of the average of 3 financial years export realization or
(b) 200% of net owned funds of the firm

8. Contd…
 As per Regulation - 19, FEM (Transfer or Issue of any Foreign Security) Regulations, 2004, A proprietary concern
in India may apply to the Reserve Bank through the authorized dealer in Part I of the Form ODI, as prescribed by
the Reserve Bank from time to time, for permission to accept shares of a company outside India in lieu of fees
due to it for professional services rendered to the said company, Provided that:
• the value of the shares accepted from each company outside India shall not exceed fifty per cent of
the fees receivable by the Indian concern from that company and
• the Indian concern's shareholding in any one company outside India by virtue of shares accepted as
aforesaid shall not exceed ten per cent of the paid-up capital of the company outside India, whose
shares are accepted.
Prior permission of the RBI is required for a Proprietary Concern in India to accept shares

9. Status holder as per FTP
FEMA regulations guides towards FTP for the definition of Status Holder. Therefore, it is very much important to keep
an eye on the current definition provided in the FTP.
As per Para 3.20 of FTP 2015-2020, an applicant shall be categorized as status holder on achieving export
performance during the current and previous three financial years (for Gems & Jewellery Sector the performance
during the current and previous two financial years shall be considered for recognition as status holder) as indicated:
Note: For deemed export, FOR value of exports in Indian Rupees shall be converted in US$ at the exchange rate notified
by CBEC, as applicable on 1st April of each Financial Year.
For granting status, export performance is necessary in at least two out of four years. The export performance will be
counted on the basis of FOB of export earning in freely convertible foreign currencies
S.No Status Category Export Performance - FOB / FOR (as
converted) Value (in US $ million)
1 One Star Export house 3
2 Two Star Export house 25
3 Three Star Export house 100
4 Four Star Export house 500
5 Five Star Export house 2000

10. ODI by trusts / Societies

11. FEMA regulations
The Society should be registered under the Societies Registration Act, 1860
The MOA and rules and regulations permit the Society to make the proposed investment which should also be
approved by the governing body or managing committee
The Authorised Dealer bank is satisfied that the Society is KYC compliant and is engaged in a bona fide activity
The Society has been in existence at least for a period of three years
The Society has not come under the adverse notice of any Regulatory/Enforcement agency like the Directorate of
Enforcement, CBI etc
 Registered Trusts and Societies engaged in the manufacturing/educational sector and which have set up
hospital(s) in India satisfying the eligibility criteria may invest in the same sector(s) in a Joint Venture/Wholly
Owned Subsidiary outside India with the prior approval of the Reserve Bank.
The Following is the eligibility criteria for a Society:

12. Contd…
The Trust should be registered under the Indian Trust Act, 1882
The Trust deed permits the proposed investment overseas
The proposed investment should be approved by the trustee/s
The AD bank is satisfied that the Trust is KYC compliant and is engaged in a bona fide activity
The Trust has been in existence at least for a period of three years
The Trust has not come under the adverse notice of any Regulatory/Enforcement agency like the Directorate of
Enforcement, CBI etc
The Following is the eligibility criteria for a Trust:
In addition to the registration, the activities which require special license/permission either from the Ministry of
Home Affairs, Government of India or from the relevant local authority, as the case may be, the AD Category-I bank
should ensure that such special license/permission has been obtained by the applicant.

13. Rollover of Guarantee

14. FEMA regulations
The existing / original guarantee was issued in terms of the then extant / prevailing FEMA guidelines
There is no change in the
end use of the guarantee,
i.e. the facilities availed by
the JV / WOS / Step Down
Subsidiary
There is no change in any
of the terms & conditions,
including the amount of
the guarantee except the
validity period
The reporting of the rolled
over guarantee would be
done in Form ODI - Part I;
and
If the Indian Party is under
investigation by any
investigation /
enforcement agency or
regulatory body, the
concerned agency / body
shall be kept informed
about the same
It has been decided not to treat / reckon the renewal / rollover of an existing / original guarantee, which is part of
the total financial commitment of the Indian Party as a fresh financial commitment, provided that:
In case, however, the above conditions are not met, the Indian Party shall obtain prior approval of the Reserve Bank
for rollover / renewal of the existing guarantee through the designated AD bank

15. Thank You!
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