Foreign Investment: Compliance Under RBI/FEMA

According to Organization for Economic Co-operation and Development (OECD), an investment of 10% or above from abroad is considered as FDI. For a country where capital is not easily available, Foreign Direct Investment (FDI) has been an important source of money for companies. Under FDI, overseas money, either by a person or entity, is invested in an Indian company.

According to Organization for Economic Co-operation and Development (OECD), an investment of 10% or above from abroad is recognized as FDI. In India, international direct investment plan is governed under the Foreign Exchange Management Act, 2000 governed by the Reserve Bank or investment company of India. Aside from specified 11 industries/activities (mentioned below), where Government approval is obligatory, applications where there’s a doubt over which Ministry should the application fall under, DIPP has the responsibility of identifying who be the worried authority.

Proposals from NRIs and Export Oriented Units, applications relating to issues of collateral for import of capital goods/equipment, pre-operative/pre-incorporation expenses, etc. are dealt with by DIPP also. For effective handling of cases, monthly reviews by the concerned Ministries/Authorities and quarterly review meetings, co-chaired by Secretary, Department of Economic Secretary and Affairs, DIPP are also proposed to be undertaken to go over pendency of proposals with the federal government. Various categories of foreign investors – Foreign Portfolio Investors, Foreign Institutional Investors, Foreign CAPITAL RAISING Investor, Non-Resident Indians can take stakes in Indian business entities (company, partnership firms, proprietary concerns, LLPs) subject to conditions and sectoral caps on ownerships.

FIIs/FPIs are allowed to invest and trade in equity securities, with a maximum total investment of 24 percent of the released and paid up capital of an organization. This limit can be raised up to the recommended sectoral cap of this particular industry by passing a particular resolution to the result. Every non-resident entity is allowed to spend money on India either under Automatic or Government Approval Route, except in prohibited areas. However, individuals or entities of Bangladesh and Pakistan can make investments only under Government Route. Check out set of sectors which require prior approval as well as sectors under automatic route along with relevant sectoral caps by simply clicking the links.

FDI is a capital accounts purchase and any violation of its regulations attracts penal provisions under FEMA. RBI administers FEMA and Directorate of Enforcement, Ministry of Finance – Government of India has the authority to research in case of any violation of its guidelines. 2. Investment is done as an inward remittance, or out of NRE/FCNR (B)/NRO account maintained with AD Category-1 Bank or investment company.

3. The Indian company or proprietary concern should not be engaged in agricultural, print media or real estate industry. 1. Where investment is preferred to be repatriable by NRIs/PIO. 2. For investors apart from NRIs/PIO. The decision for the same will be studied by Government and RBI of India on case-by-case basis.

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FDI in LLPs was liberalized significantly in 2015 with the objective to promote international investment inflows in the country. Up to 100% FDI is allowed in LLPs, provided you are adhering to the specific sectoral limits. In that case, the investment won’t require any prior approval by FIPB. 1. You will find no conditions associated with FDI-linked performance. 3. LLPs can make further downstream investment in another company or LLP.

Earlier they were not allowed to make any downstream investments. 4. Repatriation of capital is permissible with adherence of appropriate pricing confirming and suggestions requirements. 6. LLPs can avail External Commercial Borrowings (ECBs). 7. FPIs/FVCIs can contribute to the capital of LLPs in India. 8. In case there is companies with FDI, changing into LLP can be carried out under the automated path if the investment in sector worried is within matching sectoral limit for automated investment path.

2. Operate as a international company and be registered with the Registrar of Companies, MCA. Checking Liaison office – This type of office is allowed to collect market information and liaison with the foreign company. They aren’t allowed to earn income from any activities. Branch Offices – The range of activities of BOs is much larger as compared to Liaison Offices.

Providing technical support for products imported/assembled/manufactured by the mother or father/holding company. The foreign entity has secured a agreement in India, which will be funded via remittance by the bilateral or multilateral funding company inward. Loan has been sanctioned by a open public financial bank or investment company or institution to the Indian company contracting the project. If the above mentioned conditions aren’t met, the international buyer/entity shall have to apply with RBI via its AD bank or investment company.