The Foreign Exchange Management Act, 1999
Puneet Gupta
June 2014
An Overview
Establishment of BO/LO in India Section 2
Overseas Direct Investment Section 3
Overview of FEMA Section 1
Agenda
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Section 1
Overview of Foreign Exchange Management Act, 1999
Object
“facilitating external trade and payment and promoting orderly development and maintenance of foreign exchange market”
Contravention attracts penalty / fine and not imprisonment (except in some cases) / compounding
Only specified acts regulated
Citizenship - not relevant / Residence - Emphasized
Restricted power of search, seizure, etc.
No Presumption of Mens Rea…….. Prosecution to prove
Provision for compounding
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New era under FEMA
The Foreign Exchange Regulation Act, 1973
(‘FERA’)
The Foreign Exchange Management Act,
1999 (‘FEMA’)
Object
“Conservation of foreign Exchange”
Severe penal provisions
All acts controlled and regulated
Applied to Indian Citizens in/outside India and Foreign Citizens in India.
Blanket powers of search, seizure, imprisonment, etc.
Presumption of Mens-rea
FEMA 1999 FERA replaced by FEMA on June 1, 2000.
Aims of FEMA Facilitate external trade and payments Promotion of orderly development of foreign exchange markets
FEMA Rules / Regulations Rules notified by Central Government…(Current account )
Regulations notified the Reserve Bank of India (RBI) …. (Capital account) Consultation between RBI and the Central Government.
RBI A.P. (Dir Series) – issued from time to time
Master Circulars – one in a year (July)
F.A.Qs (updated available on http://www.rbi.org.in)
FEMA 1999 FERA replaced by FEMA on June 1, 2000.
Aims of FEMA Facilitate external trade and payments Promotion of orderly development of foreign exchange markets
FEMA Rules / Regulations Rules notified by Central Government…(Current account )
Regulations notified the Reserve Bank of India (RBI) …. (Capital account) Consultation between RBI and the Central Government.
RBI A.P. (Dir Series) – issued from time to time
Master Circulars – one in a year (July)
F.A.Qs (updated available on http://www.rbi.org.in)
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Broad Framework
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Substantive Provisions
Section Description
1 Application and Commencement of FEMA
2 Definitions
3 to 9 Provisions relating to Regulations and Management of Foreign Exchange
10 to 12 Provisions relating to Authorized Person
13 to 15 Provisions relating to Contraventions and Penalties
16 to 38 Provisions relating to Adjudication, Appeal and Directorate of Enforcement
39 to 49 Miscellaneous Provisions
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Extent, Application and Commencement
Extends to whole of India. Applies to all branches, offices and agencies outside India, of person
resident in India. Applies to contravention committed outside India by any person to
whom the Act applies.
Extends to whole of India. Applies to all branches, offices and agencies outside India, of person
resident in India. Applies to contravention committed outside India by any person to
whom the Act applies.
Section 1 of FEMA – Scope
Section 2(u) – Person
Includes An individual, HUF, Company, Firm, AOP or a BOI, whether incorporated or not, Every artificial juridical person, not falling within any of the preceding
sub-clauses, and Any agency, office or branch owned or controlled by such persons
Includes An individual, HUF, Company, Firm, AOP or a BOI, whether incorporated or not, Every artificial juridical person, not falling within any of the preceding
sub-clauses, and Any agency, office or branch owned or controlled by such persons
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Important Definitions
Person residing in India > 182 days during preceding financial year but does not include: –
Person who has gone out of India or who stays outside India, in either caseo For/on taking up employment outside India, oro Carrying on outside India a business or vocation outside India, oro For any purpose, indicating intention to stay outside India for an uncertain period.
Person who has come to or stays in India, otherwise thano For/on taking up employment in India, or o Carrying on in India a business or vocation in India, oro For any other purpose, indicating intention to stay in India for an uncertain period.
Any Person or body corporate registered or incorporated in India.
An office, branch or agency in India owned or controlled by a person resident outside India.
An office, branch or agency outside India owned or controlled by a person resident in India.
Person residing in India > 182 days during preceding financial year but does not include: –
Person who has gone out of India or who stays outside India, in either caseo For/on taking up employment outside India, oro Carrying on outside India a business or vocation outside India, oro For any purpose, indicating intention to stay outside India for an uncertain period.
Person who has come to or stays in India, otherwise thano For/on taking up employment in India, or o Carrying on in India a business or vocation in India, oro For any other purpose, indicating intention to stay in India for an uncertain period.
Any Person or body corporate registered or incorporated in India.
An office, branch or agency in India owned or controlled by a person resident outside India.
An office, branch or agency outside India owned or controlled by a person resident in India.
Section 2(v) Person resident in India (PRI) means
Section 2(w) - Person resident outside India (PROI)
Person resident outside India means a person who is not resident in India. Person resident outside India means a person who is not resident in India.
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Important Definitions
NRI has been defined under FEMA Regulation 2(vi) of the FEMA - 5 (Deposit) Regulations 2000 as follows:
“An NRI is a person resident outside India who is a citizen of India or is a Person of Indian Origin” It is possible that you may be an NRI under FEMA, yet you may be a resident under the Income tax laws.
NRI has been defined under FEMA Regulation 2(vi) of the FEMA - 5 (Deposit) Regulations 2000 as follows:
“An NRI is a person resident outside India who is a citizen of India or is a Person of Indian Origin” It is possible that you may be an NRI under FEMA, yet you may be a resident under the Income tax laws.
Non Resident Indian (NRI)
Person of Indian Origin (PIO)
PIO is defined differently in: Regulation 2 of FEMA 5 (Deposit) Regulations, 2000
Regulation 2(c) of FEMA- 21 (Acquisition and Transfer of Immovable Property in India) Regulations, 2000
Regulation 2 of FEMA 24 ( Investment in a Firm or Proprietary concern in India)
Most other notifications follow the FEMA 5 …. (Deposit) definition of PIO
PIO is defined differently in: Regulation 2 of FEMA 5 (Deposit) Regulations, 2000
Regulation 2(c) of FEMA- 21 (Acquisition and Transfer of Immovable Property in India) Regulations, 2000
Regulation 2 of FEMA 24 ( Investment in a Firm or Proprietary concern in India)
Most other notifications follow the FEMA 5 …. (Deposit) definition of PIO
A transaction which alters the assets or liabilities
Outside India of persons resident in India, (including Contingent Liabilities);
In India of persons resident outside India; and
Includes transactions specified in Section 6(3).o Foreign security by resident;o Any Security by non-resident;o Transfer or issue of any security or foreign
security by any branch, office or agency in India of a non-resident;
o Borrowing / Lending in Foreign Exchange;o Borrowing / Lending in rupees between residents
and non-residents;o Deposits between residents and non residents;o Holding of currency or currency notes;o Acquisition / transfer of immoveable property in
India / outside India (except those on lease for less than five years);
o Giving of guarantee / surety by resident / non-residents.
A transaction which alters the assets or liabilities
Outside India of persons resident in India, (including Contingent Liabilities);
In India of persons resident outside India; and
Includes transactions specified in Section 6(3).o Foreign security by resident;o Any Security by non-resident;o Transfer or issue of any security or foreign
security by any branch, office or agency in India of a non-resident;
o Borrowing / Lending in Foreign Exchange;o Borrowing / Lending in rupees between residents
and non-residents;o Deposits between residents and non residents;o Holding of currency or currency notes;o Acquisition / transfer of immoveable property in
India / outside India (except those on lease for less than five years);
o Giving of guarantee / surety by resident / non-residents.
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Important Definitions
A transaction other than a capital account transaction which include:
Payments due in connection with foreign trade, other current business, services, short- term banking and credit facilities in the ordinary course of business;
Payments due as interest on loans and as net income from investments;
Remittances for living expenses of parents, spouse and children residing abroad; and
Expenses on foreign travel, education and medical care of parents, spouse and children.
A transaction other than a capital account transaction which include:
Payments due in connection with foreign trade, other current business, services, short- term banking and credit facilities in the ordinary course of business;
Payments due as interest on loans and as net income from investments;
Remittances for living expenses of parents, spouse and children residing abroad; and
Expenses on foreign travel, education and medical care of parents, spouse and children.
Section 2(e) – Capital Account Transaction Section 2(j) – Current Account Transaction
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General or Special permission of RBI required to: Deal in or transfer of foreign exchange or foreign securities to person other than authorized person;.
Make any payment to or for the credit of a non-resident;
Receive otherwise than through authorized person any payment by order or on behalf of a non-resident without a corresponding inward remittance;
Enter into a financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India.
Section 3- Dealing in Foreign Exchange, etc.
Section 4- Holding of Foreign Exchange, etc.
Restricts person resident in India to hold, own or possess or transfer any foreign exchange, foreign security or immovable property situated outside India.
Section 5- Current Account Transactions
Section 6- Capital Account Transactions
Extent, Application and Commencement (contd….)
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Exporter of goods/services under obligation to furnish to RBI or specified authority prescribed declaration. Common form called ‘Export Declaration Form’ devised to declare all exports from Non-EDI ports and common ‘Softex’ forms for single/bulk exports. Directions by RBI to Exporter of goods for ensuring receipt of export proceeds.
Section 7 – Export of goods and services
Section 8 – Realization and repatriation of foreign exchange
Person resident in India obliged to take all reasonable steps to realize and repatriate to India all foreign exchange due or accrued.
Section 9 – Exemption from realization and repatriation in certain cases
Possession of foreign currency or coins up to limits prescribed by RBI; Foreign currency accounts up to specified limits by specified persons; Foreign exchange acquired before 8th July, 1947; Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts,
inheritance or other legitimate means up to limits prescribed; and Any other foreign exchange receipt specified by RBI.
Extent, Application and Commencement (contd….)
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RBI to authorize persons to act as authorized dealer, money changer or off-shore banking unit or in any other manner.
Section 10 – Authorized Person (AP)
Section 11 – Control / Penalty on Authorized Person
AP to comply with provisions of Act, Rules, Regulations, Notifications, etc. Inspection by RBI. Penalty for contravention of any direction by the authorized person or failure to file any return with RBI up to
Rs 10,000 plus Rs 2,000 per day.
Section 12– 19- Penalties/Adjucating Authorities
Section 12 - Power of RBI to inspect AP Section 13 - Penalties Section 14 - Orders of Adjudicating Authority Section 15 - Power to compound contravention Section 16 - Appointment of Adjudicating Authority Section 17 - Appeal to Special Director Section 19 - Appeal to Appellate Tribunal
Extent, Application and Commencement (contd….)
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FEMA - Current Account Transactions Rules, 2000
Transactions expressly prohibited – Schedule I read with
Rule 3
Transactions which require prior approval of Government of
India – Schedule II read with Rule 4
Transactions which require prior approval of RBI – Schedule
III read with Rule 5
Relaxations from Rule 4 and 5 for many items paid from
Resident Foreign Currency (RFC) Account and Exchange
Earners Foreign Currency (EEFC) Accounts.
FEMA Current Account Transaction Rules
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Current Account Transactions
1. Remittance out of lottery winnings;2. Remittance of income from racing / riding or any other
hobby;3. Remittance for purchase of lottery tickets,
banned/prescribed products;4. Payment of commission on exports made towards
equity investment in Joint Venture / Wholly Owned Subsidiary abroad of Indian companies;
5. Remittance of dividend by any company where dividend balancing is applicable;
6. Payment of commission on exports under Rupee state credit route, except commission up to 10 percent of invoice value of exports of tea and tobacco;
7. Payment related to ‘Call Back Services’ of telephones;
8. Remittance of interest income on funds held in Non – Resident Special Rupee ( Account ) Scheme.
1. Remittance out of lottery winnings;2. Remittance of income from racing / riding or any other
hobby;3. Remittance for purchase of lottery tickets,
banned/prescribed products;4. Payment of commission on exports made towards
equity investment in Joint Venture / Wholly Owned Subsidiary abroad of Indian companies;
5. Remittance of dividend by any company where dividend balancing is applicable;
6. Payment of commission on exports under Rupee state credit route, except commission up to 10 percent of invoice value of exports of tea and tobacco;
7. Payment related to ‘Call Back Services’ of telephones;
8. Remittance of interest income on funds held in Non – Resident Special Rupee ( Account ) Scheme.
Transactions Expressly Prohibited (Schedule I read with Rule 3)
1. Cultural Tours2. Advertisement in foreign print media exceeding
USD 10,000 except for promotion of tourism, foreign investments and international bidding
3. Remittance of freight of vessel chartered by a Public Sector Unit
4. Payment for import by a Government Department on C.I.F. basis
5. Multi- modal transport operators making remittance to their agents abroad
6. Remittance of hiring charges of transponders by TV channels, Internet service providers
7. Remittance of container detention charges exceeding the rate prescribed
8. Remittance of prize money / sponsorship of sports activity abroad exceeding USD 1,00,000 by person other than International / National / State Level sports bodies
9. Remittance for membership of P & I club
1. Cultural Tours2. Advertisement in foreign print media exceeding
USD 10,000 except for promotion of tourism, foreign investments and international bidding
3. Remittance of freight of vessel chartered by a Public Sector Unit
4. Payment for import by a Government Department on C.I.F. basis
5. Multi- modal transport operators making remittance to their agents abroad
6. Remittance of hiring charges of transponders by TV channels, Internet service providers
7. Remittance of container detention charges exceeding the rate prescribed
8. Remittance of prize money / sponsorship of sports activity abroad exceeding USD 1,00,000 by person other than International / National / State Level sports bodies
9. Remittance for membership of P & I club
Prior approval of Government of India – (Schedule II read with Rule 4)
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Current Account Transactions – Illustrative Transactions--Schedule III read with Rule 5
Sr. No. Transaction Limits without any RBI approval
1 Private Visit (except Nepal & Bhutan) USD 10,000 per Financial Year (FY)
2 Gift Remittance USD 5000 per FY per remitter or donor *
3 Donations USD 5000 per donor*
2 Exchange facilities for employment abroad USD 100,000
3 Medical Treatment abroad Estimate from doctor in India or doctor / hospital abroad
4 Consultancy services For Infrastructure Projects - USD 10,000,000 per project
For other services – USD 1,000,000 per project
5 Re-imbursement of pre-incorporation expenses Exceeding higher of:
USD 1,00,000 5 % of investment brought into India
* Remittance of gift and donation are subsumed under the LRS scheme
LRS available to all Resident individuals (RI) including minors (singularly or jointly).
RI can remit overseas up to USD 1, 25,000 per financial year for any permissible current / capital account transaction.
Acquisition of immovable property, directly or indirectly, outside India by resident individual is no longer permitted under LRS.
RI can acquire and hold shares or any other asset outside India without prior approval of RBI using the LRS.
RI’s are now permitted to acquire or set up Joint Ventures (‘JV’) or Wholly Owned Subsidiaries (‘WOS’) outside India engaged in bonafide operating business activities only (except for real estate business, banking business, business of financial services activity or holding of a step down JV or WOS – which are prohibited) within the overall remittance limit of USD 125,000.
RI can open, hold and maintain foreign currency accounts with a bank outside India for remittances under the scheme without the prior approval of RBI.
Income and sum remitted need not be brought back into India and can be reinvested overseas.
Remittances inter alia not permitted for: o Remittance directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan; o Remittances to specified non- cooperative countries / territories or those identified by the Financial Action Task
Force as ‘non-co-operative Countries or Territories; and
LRS available to all Resident individuals (RI) including minors (singularly or jointly).
RI can remit overseas up to USD 1, 25,000 per financial year for any permissible current / capital account transaction.
Acquisition of immovable property, directly or indirectly, outside India by resident individual is no longer permitted under LRS.
RI can acquire and hold shares or any other asset outside India without prior approval of RBI using the LRS.
RI’s are now permitted to acquire or set up Joint Ventures (‘JV’) or Wholly Owned Subsidiaries (‘WOS’) outside India engaged in bonafide operating business activities only (except for real estate business, banking business, business of financial services activity or holding of a step down JV or WOS – which are prohibited) within the overall remittance limit of USD 125,000.
RI can open, hold and maintain foreign currency accounts with a bank outside India for remittances under the scheme without the prior approval of RBI.
Income and sum remitted need not be brought back into India and can be reinvested overseas.
Remittances inter alia not permitted for: o Remittance directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan; o Remittances to specified non- cooperative countries / territories or those identified by the Financial Action Task
Force as ‘non-co-operative Countries or Territories; and
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Liberalized Remittance Scheme (‘LRS’)
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Schemes for Inbound Investment
Schedule Particulars
Schedule 1 FDI Scheme
Schedule 2 Purchase/Sale of Shares and/or Convertible Debentures of an Indian Company by a registered Foreign Institutional Investor under Portfolio Investment Scheme
Schedule 3 Purchase/Sale of Shares and/or Convertible Debentures by a NRI on a Stock Exchange in India on repatriation and/or non-repatriation basis under Portfolio Investment Scheme
Schedule 4 Purchase and Sale of Shares/Convertible Debentures by NRI, on Non-Repatriation basis
Schedule 5 Purchase and Sale of Securities other than Shares or Convertible Debentures of an Indian Company by a Person Resident Outside India
Schedule 6 Investment in an Indian Venture Capital Undertaking by a Registered Foreign Venture Capital Investor
Schedule 7 Indian Depository Receipts by eligible companies resident outside India
Schedule 8 Scheme for investment by Qualified Foreign Investors in Equity Shares
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Inbound Investment Process
* A citizen or entities of Bangladesh/Pakistan can invest with prior approval of Foreign Investment Promotion Board (‘FIPB’) in sectors/activities other than those expressly prohibited in the Foreign Direct Investment (‘FDI’)Policy
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Routes of Investment
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Section 2- Establishment of Liaison Office/Branch Office in India
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Entry Strategies for Foreign Entity
ENTRY STRATEGIES FOR A FOREIGN ENTITY
ENTRY STRATEGIES FOR A FOREIGN ENTITY
AS A FOREIGN COMPANY
AS A FOREIGN COMPANY
AS A LIMITED LIABILITY
PARTNERSHIP
AS A LIMITED LIABILITY
PARTNERSHIP
AS AN INDIAN COMPA NY
AS AN INDIAN COMPA NY
LIAISON OFFICE (‘LO’)
LIAISON OFFICE (‘LO’)
BRANCH OFFICE(‘BO’)
BRANCH OFFICE(‘BO’)
PROJECT OFFICE (‘PO’)
PROJECT OFFICE (‘PO’)
WHOLLY OWNED SUBSIDIARY
(‘WOS’)
WHOLLY OWNED SUBSIDIARY
(‘WOS’)
JOINT VENTURE
(‘JV’)
JOINT VENTURE
(‘JV’)
Provisions for establishment of LO/BO are regulated by Notification No. FEMA 22/ 2000-RB dated 3rd May 2000.
Available Routes:
Reserve Bank Route Principal business of the foreign entity falls under sectors where FDI is permissible under 100% automatic
route. Government Route — Business other than above. Applications from entities falling under this category and those from NGOs/ NPOs/ Government Bodies/
Departments are considered by RBI in consultation with the Ministry of Finance, Government.
RBI has freely permitted establishment of a branch/unit in SEZs to undertake manufacturing and service activities and banking company, subject to certain conditions.
No person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, without prior permission of RBI, shall establish in India, a BO/LO/PO or any other place of business by whatever name called.
Applications from entities registered in / resident of Hong Kong and Macau, for establishment of BO/LO/PO or any other place of business by whatever name called shall also require prior approval from Reserve Bank of India. [A.P.(DIR Series) Circular No.93 dated 15th January,2014]
Application shall be made in Form FNC. BO/LO established with the RBI's approval will be allotted a Unique Identification Number (UIN) post which BOs / LOs shall obtain PAN in India.
Provisions for establishment of LO/BO are regulated by Notification No. FEMA 22/ 2000-RB dated 3rd May 2000.
Available Routes:
Reserve Bank Route Principal business of the foreign entity falls under sectors where FDI is permissible under 100% automatic
route. Government Route — Business other than above. Applications from entities falling under this category and those from NGOs/ NPOs/ Government Bodies/
Departments are considered by RBI in consultation with the Ministry of Finance, Government.
RBI has freely permitted establishment of a branch/unit in SEZs to undertake manufacturing and service activities and banking company, subject to certain conditions.
No person, being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, without prior permission of RBI, shall establish in India, a BO/LO/PO or any other place of business by whatever name called.
Applications from entities registered in / resident of Hong Kong and Macau, for establishment of BO/LO/PO or any other place of business by whatever name called shall also require prior approval from Reserve Bank of India. [A.P.(DIR Series) Circular No.93 dated 15th January,2014]
Application shall be made in Form FNC. BO/LO established with the RBI's approval will be allotted a Unique Identification Number (UIN) post which BOs / LOs shall obtain PAN in India.
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Background
Additional Criteria
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Conditions
For BO >>A profit making track record during the immediately preceding 5 FY’s in the home country.
For LO >>A profit making track record during the immediately preceding 3 FY’s in the home country.
Track Record
For BO >>
>USD 100,000 or its equivalent.
For LO >>
USD 50,000 or its equivalent
Net Worth*
* Net Worth= Total paid up capital+ free reserves – less intangible assets, as per the latest Audited Balance Sheet or Account Statement certifies by CPA or any registered Accounts Practitioner by whatever name.
LOs can undertake the following activities in India:
Representing in India the parent company / group companies. Promoting export / import from / to India. Promoting technical/financial collaborations between parent/group companies and companies in
India. Acting as a communication channel between the parent company and Indian companies.
Prohibited activities for LO:
Cannot undertake any commercial/business activity directly or indirectly Cannot earn any income in India All expenses are to be met by way of Inward remittances from Head Office(‘HO) outside India Cannot have signing/commitment powers on behalf of HO
LOs can undertake the following activities in India:
Representing in India the parent company / group companies. Promoting export / import from / to India. Promoting technical/financial collaborations between parent/group companies and companies in
India. Acting as a communication channel between the parent company and Indian companies.
Prohibited activities for LO:
Cannot undertake any commercial/business activity directly or indirectly Cannot earn any income in India All expenses are to be met by way of Inward remittances from Head Office(‘HO) outside India Cannot have signing/commitment powers on behalf of HO
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Permissible Activities for LO’s
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up BO’s in India with specific approval of RBI. Such BO’s are permitted to represent the parent/ group companies and undertake the following activities in India:
Export / Import of goods. Rendering professional or consultancy services. Carrying out research work in areas in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying / selling agent in India. Rendering services in information technology and development of software in India. Rendering technical support to the products supplied by parent/group companies. Foreign airline / shipping company
Normally, the BO should be engaged in the activity in which the parent company is engaged.
Prohibited Activities for BOs:
Retail trading activities of any nature. Manufacturing or processing activities in India, directly or indirectly.
Profits earned by the BOs are freely remittable from India, subject to payment of applicable taxes.
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to set up BO’s in India with specific approval of RBI. Such BO’s are permitted to represent the parent/ group companies and undertake the following activities in India:
Export / Import of goods. Rendering professional or consultancy services. Carrying out research work in areas in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company. Representing the parent company in India and acting as buying / selling agent in India. Rendering services in information technology and development of software in India. Rendering technical support to the products supplied by parent/group companies. Foreign airline / shipping company
Normally, the BO should be engaged in the activity in which the parent company is engaged.
Prohibited Activities for BOs:
Retail trading activities of any nature. Manufacturing or processing activities in India, directly or indirectly.
Profits earned by the BOs are freely remittable from India, subject to payment of applicable taxes.
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Permissible Activities for BO’s
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Section 3- Overseas Direct Investment
Investment by an Indian Party by way of contribution to the capital or subscription to the Memorandum of Association (‘MOA’) of a foreign entity or by way of purchase of existing shares of a foreign entity by:
Investment through stock exchange; or Private placement in that entity; or Market purchase; or Investment in a Joint Venture or Wholly Owned Subsidiary abroad; . But does not include Portfolio Investment
Investment by an Indian Party by way of contribution to the capital or subscription to the Memorandum of Association (‘MOA’) of a foreign entity or by way of purchase of existing shares of a foreign entity by:
Investment through stock exchange; or Private placement in that entity; or Market purchase; or Investment in a Joint Venture or Wholly Owned Subsidiary abroad; . But does not include Portfolio Investment
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Overseas Direct Investment (‘ODI’)- Background
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Possible Routes for Investment
Automatic Route Approval Route
Overseas JV/WOS to be engaged in bonafide business activity except real estate and banking;
Investment in Financial Sector should comply with additional conditions
Indian party not on RBI’s Exporters’ Caution List/list of defaulters/under investigation by an Authority such as ED, SEBI etc.
Overall ceiling of financial commitment in all JV/WOS is 100% of net worth as on last audited Balance Sheet
Submission of Form Annual Performance Report in respect of all its overseas investment
Overseas JV/WOS to be engaged in bonafide business activity except real estate and banking;
Investment in Financial Sector should comply with additional conditions
Indian party not on RBI’s Exporters’ Caution List/list of defaulters/under investigation by an Authority such as ED, SEBI etc.
Overall ceiling of financial commitment in all JV/WOS is 100% of net worth as on last audited Balance Sheet
Submission of Form Annual Performance Report in respect of all its overseas investment
Cases not covered under Automatic route
Specific application to RBI with necessary documents in Form ODI through the AD (Category I Bank) along with prescribed supporting and documents
RBI would inter alia consider the following factors:
o Prima facie viability of JV/WOS outside Indiao Contribution to external trade and other benefits which will accrue to India through such investmento Financial position and business track record of the Indian party and foreign entityo Expertise and experience of the Indian party in the same or related line of activity of the JV/WOS outside
India.
Cases not covered under Automatic route
Specific application to RBI with necessary documents in Form ODI through the AD (Category I Bank) along with prescribed supporting and documents
RBI would inter alia consider the following factors:
o Prima facie viability of JV/WOS outside Indiao Contribution to external trade and other benefits which will accrue to India through such investmento Financial position and business track record of the Indian party and foreign entityo Expertise and experience of the Indian party in the same or related line of activity of the JV/WOS outside
India.
Opening of Branch Office (BO) or Representative Office (RO) overseas is allowed
AD banks in India are permitted to remit funds for
Initial ExpensesRemittance up to fifteen per cent of the average annual sales/income or turnover during the last two financial
years or up to twenty-five per cent of the net worth, whichever is higher
Recurring ExpensesRemittance up to ten per cent of the average annual sales/income or turnover during the last two financial years Opening up of such BO/RO is allowed subject to following conditions:
o BO/RO should be conducting normal business activities of the Indian companyo Overseas branch shall not enter into any contract or agreement in contravention of the FEMA (Act, rules or regulations. )o Overseas office (trading/non-trading)/branch should not create any financial liabilities, contingent or otherwise,
for the head office in India and also not invest surplus funds abroad without prior approval of RBI.o Any funds rendered surplus should be repatriated to Indiao Audited financials of BO/RO needs to be submitted to AD bank
Opening of Branch Office (BO) or Representative Office (RO) overseas is allowed
AD banks in India are permitted to remit funds for
Initial ExpensesRemittance up to fifteen per cent of the average annual sales/income or turnover during the last two financial
years or up to twenty-five per cent of the net worth, whichever is higher
Recurring ExpensesRemittance up to ten per cent of the average annual sales/income or turnover during the last two financial years Opening up of such BO/RO is allowed subject to following conditions:
o BO/RO should be conducting normal business activities of the Indian companyo Overseas branch shall not enter into any contract or agreement in contravention of the FEMA (Act, rules or regulations. )o Overseas office (trading/non-trading)/branch should not create any financial liabilities, contingent or otherwise,
for the head office in India and also not invest surplus funds abroad without prior approval of RBI.o Any funds rendered surplus should be repatriated to Indiao Audited financials of BO/RO needs to be submitted to AD bank
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Overseas Offices
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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although I have endeavored to provide accurate and timely information, there can be no guarantee that such information is accurate as it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
The views presented by means of this presentation are presenter’s own and should not construed as position taken by any organization or any former employer of the author
Disclaimer
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&Questions
Answers
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Thank You