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INBOUND & OUTBOUND INVESTMENTS
BC SHETTY & CO. Chartered Accountants
INBOUND AND OUTBOUND INVESTMENTS
FEMA, 1999 was enacted with the objective of facilitating external trade and payments and...
Foreign Investment into an Indian
company
Kinds of Investment
•

Automatic Route – no prior approval from the RBI/ Governm...
SPV CONSIDERATIONS
•

Ease of access to debt and equity capital

•

Tax Haven/ Black listed Countries

•

Treaty network

...
FUNDING OPTIONS
•

Equity Shares

•

Compulsorily Convertible Preference Shares

•

Compulsorily Convertible Debentures

•...
FUNDING OPTIONS
•

Equity Shares
• Simplest mode for funding

•

• No end use restrictions

•

Compulsorily Convertible Pr...
FUNDING OPTIONS
External Commercial Borrowings
•

ECB means overseas foreign currency borrowings by Indian companies

•

A...
REPATRIATION OF FUNDS- ANALYSIS
Instrument

Mode

Jurisdiction

Effective Tax
Cost

Decision Making

Equity(Revenue)

Divi...
Buy-Back Of Shares after June 1, 2013
•

Buy-back of shares by domestic unlisted companies taxable at 20%

•

Tax will be ...
DOWNSTREAM INVESTMENTS
•

Calculation of total foreign investment in a company : direct + indirect

•

In case the investi...
FDI Policy – Trading Sector

Wholesale/ Cash &Carry
Trading

Multi Brand Retail

• 100% FDI permitted under
Automatic Rout...
Wholesale Trading
Eligible Customers
•

Sales tax/ VAT registration/ service tax/ excise duty registration holders

•

Tra...
Single Brand Retail Trading
Key Aspects

• Up to 100% FDI with Government Approval –
Increased from 51% earlier
• Single B...
Multi Brand Retail Trading
• 51% FDI Cap with Government approval

Back-end Infrastructure

• US$ 100 mn minimum capitaliz...
Swap of Shares – Some Issues
Pure Swap
Resultant Structure

Original structure and transaction
steps

ICo

ICo
Equity

Iss...
Swap of Shares – Some Issues
Reverse Pure Swap
Resultant Structure

Original structure and transaction
steps
SubCo

HoldCo...
PORTFOLIO OF INVESTMENTS
•

Listed Indians Companies are permitted to make portfolio investments
outside India

•

Such in...
India Tax Implications
Broad Framework for
Investing

Equity

Debt

Equity +
Debt

I Co

I Co

I Co

F Co

F Co

F Co

Equ...
Underlying Tax Credit

Purpose

General
Approach

•

An indirect credit granted for the tax levied on the profits of
the c...
Options for Investing
Option 1

Option 2

Option 3

India Co

India Co

India Co

Operating Cos

SPV

AHC

Operating Cos

...
CONTACT US

•

Mr. Sathya Hegde
- BBM, FCA, CPA
- Partner
BC SHETTY & CO.
________________________________________________...
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Inbound outbound investments for nri's

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Your an NRI and want to know how to invest in India ?

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Inbound outbound investments for nri's

  1. 1. INBOUND & OUTBOUND INVESTMENTS BC SHETTY & CO. Chartered Accountants
  2. 2. INBOUND AND OUTBOUND INVESTMENTS FEMA, 1999 was enacted with the objective of facilitating external trade and payments and for promoting the ‘orderly development’ and ‘maintenance of foreign exchange markets in India’. This interaction between countries lead to Foreign Investments. The key regulators are the central government and RBI who control the Department of Industrial Policy & Promotion (DIPP), Foreign Investment Promotion Board (FIPB) and the foreign exchange department
  3. 3. Foreign Investment into an Indian company Kinds of Investment • Automatic Route – no prior approval from the RBI/ Government (100% FDI permitted, Agriculture & animal husbandry, Almost all forms of manufacturing and service industries, Mining, Coal & lignite. • Electricity generation, transmission, distribution & trading Industries. • Approval Route- prior approval of the FIPB required (no separate RBI approval Mode of Investment • Greenfield : Setting up a new JV/ WOS (fresh issue of shares/ ADR/ GDR) • Brownfield: Relating to existing investments/ business activities
  4. 4. SPV CONSIDERATIONS • Ease of access to debt and equity capital • Tax Haven/ Black listed Countries • Treaty network • Cost of setting up and administration • Other non-tax considerations like political stability, banking facility etc. • Corporate tax rate in SPV jurisdiction • Taxation of dividend/ interest Withholding tax on dividend/ interest Capital gain tax on transfer of • investments/ shareholding • Thin Cap rules • Limitation on Benefit clauses
  5. 5. FUNDING OPTIONS • Equity Shares • Compulsorily Convertible Preference Shares • Compulsorily Convertible Debentures • External Commercial Borrowings • Optionally Convertible Preference Shares • Optionally Convertible Debentures
  6. 6. FUNDING OPTIONS • Equity Shares • Simplest mode for funding • • No end use restrictions • Compulsorily Convertible Preference Shares • Preference Shares have to be compulsorily redeemed/ converted within 20 years • Only fully and mandatorily Convertible Preference Shares are construed as part of equity and considered as FDI Compulsorily Convertible Debentures • Only Fully and Mandatorily Convertible Debentures are construed as part of equity • and considered as FDI • All other forms of debentures construed on par with ECB • No time limit for conversion prescribed
  7. 7. FUNDING OPTIONS External Commercial Borrowings • ECB means overseas foreign currency borrowings by Indian companies • Automatic route/ approval route • FUNDING OPTIONS- CLASSIFICATION FUNDING INSTRUMENTS EXCHANGE CONTROL INCOME TAX Equity Shares EQUITY EQUITY CCPS EQUITY EQUITY CCD EQUITY DEBT RPS/ OCPS DEBT EQUITY ECB/ Loans/ Debt/ OCD/ PCD DEBT DEBT
  8. 8. REPATRIATION OF FUNDS- ANALYSIS Instrument Mode Jurisdiction Effective Tax Cost Decision Making Equity(Revenue) Dividend Any 40%  Equity(Capital) Capital Gains Cyprus/Singapor e/ Mauritius/ 0%  Debt(Revenue) Interest Cyprus/Singapor e/ Mauritius/ 5% Debt(Capital) Repayment Any 0% Technical Services/ Royalty Technology fees to JV Partner Any Treaty Rate/ 25%   
  9. 9. Buy-Back Of Shares after June 1, 2013 • Buy-back of shares by domestic unlisted companies taxable at 20% • Tax will be levied on the company buy-back shares on ‘Net Consideration’ • Net Consideration = Buy-back consideration Less Consideration received on allotment of shares PARTICULARS INR in CRORES Share Capital 100 Free Reserves 400 Shareholders Funds 500
  10. 10. DOWNSTREAM INVESTMENTS • Calculation of total foreign investment in a company : direct + indirect • In case the investing Indian company is owned or controlled by ‘non resident entities’, the entire • investment by such company into the target would be considered as indirect foreign investment • Downstream investments by such companies are to be notified to SIA/ FIPB
  11. 11. FDI Policy – Trading Sector Wholesale/ Cash &Carry Trading Multi Brand Retail • 100% FDI permitted under Automatic Route • 51% FDI permitted with FIPB approval • Restriction on Sales to group companies, in excess of 25% • Local Sourcing Norms Applicable Single Brand Retail • 100% FDI permitted with FIPB approval • Local Sourcing Norms Applicable for FDI > 51% Subject to Conditions Retailing is allowed, Retail Trading is regulated B2C e-commerce prohibited for FDI
  12. 12. Wholesale Trading Eligible Customers • Sales tax/ VAT registration/ service tax/ excise duty registration holders • Trade license holders • Permits/ license, etc. from Government Authorities • Certificate of incorporation or society registration or trust registration Sales to Group Companies • Wholesale trading to group companies not to exceed 25% of the total turnover of the wholesale venture • Meaning of „group company‟ not specified
  13. 13. Single Brand Retail Trading Key Aspects • Up to 100% FDI with Government Approval – Increased from 51% earlier • Single Brand products only • Sold internationally under same brand • Products to be branded during manufacturing • The investor should be the brand owner Local Sourcing • 30% mandatory sourcing of the value of goods purchased from India, preferably from MSME (does not apply in case the FDI is capped to 51%) Changes Notified • Sourcing − From anywhere in India (preferably small industries*) − Base of purchase cost (not turnover) • Exclusive License/ Franchisee can also be Investor
  14. 14. Multi Brand Retail Trading • 51% FDI Cap with Government approval Back-end Infrastructure • US$ 100 mn minimum capitalization • Processing, manufacturing, distribution • 50% investment in back-end infrastructure within 3 years • Design improvement, quality control, packaging • Stores only in select States and Cities • 30% procurement from small enterprises • Compliance – averaged in first 5 years, then annual • Logistics, storage, ware-house, agriculture marketing infrastructure ….. • Land cost and rentals – Excluded
  15. 15. Swap of Shares – Some Issues Pure Swap Resultant Structure Original structure and transaction steps ICo ICo Equity Issue of shares Equity India Outside India Foreign Hold Co Issue of shares FSub Co I Co acquires the shares of F Sub Co and issue of its own shares to Foreign Hold Co Foreign Hold Co FSub Co
  16. 16. Swap of Shares – Some Issues Reverse Pure Swap Resultant Structure Original structure and transaction steps SubCo HoldCo Issue of shares India Outside India Issue of shares HoldCo SubCo Equity Equity FCo Hold Co acquires the shares of F Co in exchange of issue of shares of Sub Co to F Co FCo
  17. 17. PORTFOLIO OF INVESTMENTS • Listed Indians Companies are permitted to make portfolio investments outside India • Such investments cannot be more than 50% of its net-worth as on the date of the last audited balance sheet • Such investments could be in shares and bonds/ fixed income securities, rated not below investment grade by accredited/ registered credit rating agencies, issued by overseas listed companies • Hence, investments in offshore mutual funds, private equity funds, hedge funds is not permissible
  18. 18. India Tax Implications Broad Framework for Investing Equity Debt Equity + Debt I Co I Co I Co F Co F Co F Co Equity/ Debt ? Equity Equity/ Debt ? Debt Equity/ Debt ? Equity + Debt
  19. 19. Underlying Tax Credit Purpose General Approach • An indirect credit granted for the tax levied on the profits of the company out of which the dividends have been paid • Avoidance of economic double taxation of profit distributions • Meaning Where dividends pass through a chain of companies, the credit may also be given for the tax levied on the profits of each company in the chain (e.g. Mauritius) • In some cases this is limited to a number of levels, or “tiers”. • Such relief may be given either under a tax treaty or in accordance with unilateral provisions
  20. 20. Options for Investing Option 1 Option 2 Option 3 India Co India Co India Co Operating Cos SPV AHC Operating Cos SPV Operating Cos
  21. 21. CONTACT US • Mr. Sathya Hegde - BBM, FCA, CPA - Partner BC SHETTY & CO. ______________________________________________________ _ Ph.:- +919945179868 Email:- sathyahegde@bcshettyco.com Address:- # 137, B/w 4th and 5th Main, • MES College Road,15th cross, Malleshwaram, • Bangalore – 560003 THANK YOU.

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