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What kinds of business formats are permissible to a foreign company in India?
- Incorporate a company under the Companies Act, 1956, as a Joint Venture (JV) or a Wholly Owned Subsidiary(WOS) or
- Set up a Liaison Office (LO) / Representative Office (RO) or a Project Office (PO) or a Branch Office (BO) of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.
What types of routes are authorized for FDI in an Indian company?
- Two routes are permitted under which an Indian company may receive FDI as given under:
- Automatic Route: - FDI up to 100% is allowed under this route in all activities/sectors except where the provisions of the consolidated FDI Policy are attracted. FDI, to the extent permitted under this route, does not require any prior approval either of the Government or the RBI.
- Government Route: - FDI which are not covered under the above route requires prior Government approval which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance. Application has to be made in Form FC-IL under this route.
What is the procedure to be followed after receiving of FDI in either of the routes?
- On receipt of share application money :
- Within 30 days of receipt of share application money from the non-resident investor, the Indian company is required to report to the Regional Office concerned of the RBI, under whose jurisdiction its Registered Office is located, the Advance Reporting Form, containing the following details:
- Name and address of the foreign investor/s
- Date of receipt of funds and the Rupee equivalent
- Name and address of the authorized dealer through whom the funds have been received
- Details of the Government approval, if any; and
- KYC report on the non-resident investor from the overseas bank remitting the amount of consideration.
- 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 prescribed documents should be filed with the Regional Office concerned of the RBI
- Certificate from the Company Secretary of the company accepting investment from persons resident outside India regarding the compliances in respect of FDI have been complied with.
- Certificate from Chartered Accountant/Statutory Auditors/ SEBI registered Category - I Merchant Banker indicating the manner of arriving at the price of the shares issued to the person’s resident outside India.
What is the time limit for an Indian company requires issuing shares to the Non-Resident investor in case of FDI?
- An Indian company is required to issue the equity instrument within 180 days, from the date of receipt of inward remittance from the non-resident investor or debit to NRE/FCNR (B) account in case of NRI/ PIO.
What are the other modes of issues of shares?
- Issue of shares under ESOP by Indian companies to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India directly or through a trust up to 5% of the paid up capital of the company.
- Issue and acquisition of shares by non-residents after merger or de-merger or amalgamation of Indian companies.
- Issue of shares or preference shares or convertible debentures on rights basis by an Indian company to a person resident outside India.
Which are the sectors under which FDI is not allowed in India?
- FDI is prohibited under the Government Route as well as under the Automatic Route in the following sectors:
- Retail Trading (except single brand product retailing)
- Atomic Energy
- Lottery Business
- Gambling and Betting
- Business of Chit Fund
- Nidhi Company
- Agricultural (excluding some notified activities and allied sectors) and Plantations activities (other than Tea Plantations).
- Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in the relevant notification).
- Trading in Transferable Development Rights (TDRs)
- Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
Are the investments and profits earned in India repatriable?
- All foreign investments are freely repatriable (net of applicable taxes) except in cases where:
- the foreign investment is in a sector like Construction and Development Projects and Defence wherein the foreign investment is subject to a lock-in-period; and
- NRIs choose to invest specifically under non-repatriable schemes.
- Dividends (net of applicable taxes) declared on foreign investments can be remitted freely through an Authorised Dealer bank.
Can a foreigner set up a partnership/ proprietorship concern in India?
- No, only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India on non-repatriation basis.
Can a foreign investor invest in shares issued by an unlisted company in India?
- Yes, as per the regulations/guidelines issued by the RBI/Government of India, investment can be made by foreign investor in shares issued by an unlisted Indian company.