FDI COMPLIANCE BY INDIAN COMPANIES

FDI COMPLIANCE BY INDIAN COMPANIES

FDI means investment by non-resident entity / person resident outside India in the capital of an Indian Company.
A foreign company planning to set up business operation in India may incorporate a company under the Companies Act 2013 as a Joint Venture or a wholly owned subsidiary or set up a Liaison office / Representative office or a Branch office of the foreign company which can undertake activities under Foreign Exchange Management Regulations, 2000.

Entry Routes for Investment
1. Automatic Route
 approval of Govt or RBI
 up to 100% of paid up capital of Indian company
 Applicable to all activities except
– Activities that require an Industrial License;
– Proposals in which the foreign collaborator has an existing financial / technical collaboration in India in the ‘same’ field,
– Proposals for acquisition of shares in an existing Indian company in: Financial services sector and where Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers ) Regulations, 2011 is attracted;
– All proposals falling outside notified sectorial policy / caps or under sectors in which FDI is not permitted.

Documents to be filed with RBI
a. Name of collaborators / Promoters / Shareholders
b. Details of allotment
c. Copy of foreign collaboration agreement
d. The original foreign inward remittance certificate from the authorized dealer

2. Government Route
– For activities not covered under Automatic Route
– Prior approval by FIPB (Foreign Investment promotion Board)
– Application in form FC-IL
– No fees
– Decision by FIPB in 4-6 weeks
– Then file documents with RBI
– Application for NRI investment, 100% EOU submit to Secretariat for Industrial Assistance in DIPB (Department of Industrial policy and promotion)

Permissible FDI in Indian Entities
– FDI in an Indian company
– FDI in Partnership firm/proprietary concern
– FDI in venture capital fund
– FCI in trust other than VCF is not permitted
– FDI in LLP

Modes of payment allowed for receiving FDI
1. Remittance through normal banking channel
2. Debit to NRE/FCNR a/c of a person concerned maintained with a Bank
3. Conversion of royalty/lump sum/technical knowhow fee due for payment or conversion of ECB shall be treated as consideration for issue of shares
4. Conversion of import payables/pre incorporation expenses/share swap can be treated as consideration for issue of shares with the approval of FIPB
5. Debit to non-interest bearing escrow a/c in Indian rupees in India which is opened with the approval from AD Category-I bank and is maintained with the AD category –I bank on behalf of residents and non-residents towards payment of share purchase consideration

Reporting requirements
1. To RBI – within 30 days of receipt
Within 30 days of receipt of share application money/amount of consideration from the foreign investor, the indian company must report details of FDI to the FOREIGN EXCHANGE DEPARTMENT, RBI. The report must be submitted to the Regional office of the RBI under whose jurisdiction the registered office is located.

The form to be filed at this stage is “ADVANCE REPORTING FORM” containing the following details;
– Name and address of the foreign investors
– Date of receipt of the fund and the rupee equivalent
– Name and address of the authorised dealer through whom the funds have been received
– Details of the Govt approval if any
– KYC documents (ID & Address proof) of the non- resident investor from the overseas bank remitting the amount of consideration

2. Issuing shares to the Foreign investor – within 180 days of receipt of inward remittance
The money received from the foreign investor for purchase of shares in the Indian company will be accounted under share application money.
Indian company is required to issue shares within 180 days from the date of receipt of inward remittance.

3. FDI reporting to RBI through form FC-GPR – within 30 days of date of issue of shares

Documents required
i. Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that
– The company is complied with the procedure for issue of shares as laid down under the FDI scheme as indicated in the notification number FEMA 20/2000-RB dated 3rd May 2000
– The investment by the foreign investor in the company is within the sectoral cap/statutory ceiling permissible under the Automatic Route of the RBI OR
Shares in the company have been issued to the Foreign investor in terms of SIA/FIPB approval number and date. A copy of FIPB must be attached.
ii. Certificate from statutory auditors/SEBI registered merchant banker/Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

Form FC-GPR and CA certificate must be submitted to Foreign Exchange department, RBI.

PROCESS

1. Foreign funds received
2. Within 30 days of receiving the money file ARF (Advance Remittance Form) with the RBI
3. RBI will issue UIN (Unique Identification Number) after submission of ARF
4. Within 180 days from the date of receiving the money, allot the shares
5. File FC-GPR within 30 days from the date of allocation of shares.

There are some pre-requisites in filing of Form FC-GPR, the applicant needs to obtain the following:

i. UIN (Unique Identification Number) from RBI by reporting ARF
ii. KYC Report for the beneficiary if the beneficiary and remitter are different entities
iii. Certificate from SEBI registered Merchant Banker / Chartered Accountant indicating the manner of arriving at the price of shares issued to the persons resident outside India
iv. Board Resolution for allotment of shares
v. CS Certificate to the effect that all the laws pursuant to issue of shares have been complied
vi. Declaration from the Non-Resident Buyer to the effect that it is eligible to acquire such shares according to the FEMA and RBI guidelines under Direct Route or Approval Route, as the case may be.

Once all the above documents are obtained, the applicant shall duly fill the Form FC-GPR and complete it in all respects without any error, attach the Digital Signature of the applicant and upload the form online at https://www.ebiz.gov.in.

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