FEMA - bangaloreicai.org formalities increased from USD 5000 to USD ... regulations framed under...
Transcript of FEMA - bangaloreicai.org formalities increased from USD 5000 to USD ... regulations framed under...
FEMA
An Overview and Update
Sudhakar. G / Shruti. KP
09 June 2012
ICAI Bangalore Branch
The Road to FEMA…
That’s the 70s show…
• Foreign Exchange Regulation Act, 1973 (FERA) enacted in the 70s when environment
in was rigid and severely restricted
• Slow economic growth
• Foreign exchange was scarce
• India‟s global trade was extremely limited
27 years later…globally
• Change in global economic and political scene
• Emerging trends of globalisation
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The Road to FEMA…
27 years later….India
• Liberalization of Indian economy from „License Raj‟
• „New Industrial Policy‟ announced by the Indian government
• Necessity of improving the climate of foreign investment in India recognized
• Considered necessary to empower Reserve Bank of India (RBI) to impose penalties on
authorized dealers (AD) for their lapses
• Government set about revamping FERA through notifications issued through the RBI
• However, this piecemeal relaxation of FERA did not calm foreign investor‟s nerves
• Advent of several significant changes in the economy
‒ Growth in foreign trade
‒ Increase in foreign exchange reserves
‒ Current account convertibility
‒ Access to external commercial borrowings
‒ Rationalization of tariffs
‒ Participation of foreign institutional investors in Indian stock exchanges
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The Road to FEMA…
27 years later….India
• Decision to repeal FERA and RBI set out to draft new legislation
• FERA (Amendment) Bill was to be introduced – swept away in the Ayodhya fiasco
• However, Ordinance promulgated amending FERA
• Subsequently, FERA (Amendment) Act, 1998 enacted
• Additionally, India as member of International Monetary Fund (IMF) was obliged to
realign its laws by introducing reforms in the exchange control regulations as well
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The Road to FEMA…
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Legislation Authority
FEMA Central Government
FEMA Rules Central Government
FEMA Regulations Central Government/RBI
FEMA Notifications Central Government/RBI
FEMA AP(DIR) Circulars RBI
Master Circulars RBI – Consolidated Circulars
FDI Policy DIPP – MoC
Press Notes DIPP – MoC
Foreign Currency Transactions
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Foreign Currency Transactions
• Exchange control regulations significantly liberalized to facilitate payments by residents
to non-residents
• Authorized dealers significantly empowered
• Drawal of foreign currency:
Items listed in Schedule I – Not permitted
Items listed in Schedule II – Permitted with the approval of the specified ministries
Items listed in Schedule III – Permitted under the automatic route within the specified
limits
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Foreign Currency Transactions
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Capital Account Remittances
Generally prohibited unless specifically
permitted, such as:
• Foreign currency loans
• Preference shares/convertible
debentures
Current Account Remittances
Generally permitted unless specifically
restricted, such as:
• Pre-Incorporation expense
reimbursement – higher of 5% of
foreign investment & USD 100,000
• Consultancy service fee allowed only
up to USD 1 million per project
Exchange Control - substantially diluted, limited restrictions remain
Foreign Currency Transactions
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Particulars Remarks
Business Travel USD 25,000
Medical Treatment USD 100,000
Cultural Tours Based on approval from HRD Ministry
Private Visits USD 10,000 except travel to Nepal and Bhutan
Conferences USD 25,000
Gift/Donation USD 5,000
Overseas Employment USD 10,000
Higher Studies USD 100,000
Commission to overseas agent
(Real Estate)
USD 25,000 or 5% of inward remittance
Foreign Currency Transactions
• Unspent foreign exchange – remit it back within 180 days
• Advance remittance towards imports – USD 500,000
• Issue of Guarantee – USD 500,000
• Liberalized remittance Scheme – USD 200,000 on permissible current account and
capital account transactions
Per financial year without any approval
Resident individuals can acquire hold shares, immovable properties, ESOP, repayment
of Loan, investment in VC, mutual funds outside India, etc.
Documentation
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Foreign Currency Transactions
• Remittance of current income like interest, dividend, pensions, rent etc can be freely
remitted by way of a debit to the NRO account by a NRI
NRI‟s without NRO account can remit freely based on a CA certificate
• Remittance of assets by a foreign national of a non-Indian origin – USD 1,000,000
• NRI/PIO can remit upto USD 1,000,000 held in NRO/sale proceeds of assets
• NRI/PIO can remit sale proceeds of immovable property purchased from rupee funds
without any lock in period
• Remittance of salary – after payment of taxes due
• Remittances of sale proceeds of residential property by NRI/PIO – USD 1,000,000
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Foreign Currency Transactions
• Currently, AD Banks permitted to release remittances up to USD 5000 or its equivalent
for all permissible transactions on the basis of a simple letter from applicant containing
specified Information
• Henceforth, foreign exchange remittances for miscellaneous purposes without
documentation formalities increased from USD 5000 to USD 25,000
• RBI has advised AD Banks to accept a simple letter containing the specified details if
the following conditions are satisfied:
‒ Foreign exchange is being purchased for a current account transaction (not included
in the Schedules I and II the Foreign Exchange Management (Current Account
Transactions) Rules 1999); and
‒ Amount for remittance does not exceed USD 25000 or its equivalent and the
payment is made by a cheque drawn on the applicant‟s bank account or by a
Demand Draft
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So what‟s
new…
FDI Policy Overview
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Foreign Direct Investment Policy
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Foreign
investment in
India
Foreign Direct
Investment
(FDI)
Foreign Venture
Capital Investor
(FVCI)
FII Automatic
route
Approval
route
Portfolio
Investment
Scheme
Consolidated FDI Policy - effective 10 April 2012 – to be reviewed yearly
Other
investments
Investments on
non-repatriable
basis
NRI, PIO
Person resident
outside India
FII NRI, PIO NRI, PIO
FDI and the legal framework
• Regulated under Foreign Exchange Management Act, 1999 ('FEMA') and the various
regulations framed under FEMA
Regulators
• RBI
• FIPB, Department of Economic Affairs, Ministry of Finance
• DIPP, Ministry of Commerce and Industry
Sector specific
• 100% FDI allowed in almost all sectors. FDI in certain sectors is subject to certain conditions and limitations
Entry Routes
• Automatic route – no government approval required
• Approval route – approval of the FIPB required in specified sectors
Investment s subject to ‘existing venture/tie up condition’
Investment Routes
• By subscription of fresh shares
• By acquisition of existing shares through transfer
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Foreign Direct Investment Policy
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2 Routes
• No prior approval
• Intimate RBI within 30
days of inward remittance
• Issue shares within 180
days of receipt and
requisite RBI filings
• Automatic route covers:
Activities / Sectors not
prohibited or not restricted
in any manner
Activities / Sectors within
sectorial caps not requiring
approval
• FDI thru normal banking
channel
Automatic Route
• Prior government approval
is required from FIPB
• Approval required for FDI in
the following cases: Proposals for foreign equity
beyond 24% in undertaking
which manufactures items
reserved for MSE
Proposals outside sectoral
caps
Swap of shares
Indian Company engaged
only in investing in the
capital of other Indian
company/ies
FDI in LLP
Approval Route
Prohibited Sectors
Foreign Direct Investment Policy an Overview
*For FDI beyond 51% in Single brand retail approval of FIPB required, sourcing of at least 30% of the value of
products sold will have to be mandatorily done from Indian 'Small Industries/ Village and Cottage Industries,
Artisans and Craftsmen'.
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Some Sectors FDI Cap
• Civil Aviation 49%
• Defence sector 26%
• Insurance 26%
• News Media 26%
• Private Banking 74%
• Single Brand Retail* 100%
• Telecom 74%
• Pharma 100%
(Brownfield)
Restricted
• Agriculture (some
exceptions)
• Betting, Gambling &
Lottery
• Chit funds & Nidhi Co.
• Real estate (except
construction
development)
• Retail Trading (except
single brand retail)
• Tobacco products
• Trading in Transferable
Development Rights
Prohibited Permitted
• Railways (other than
Mass Rapid Transport
Systems)
• Atomic Energy
Govt. sector only
100% FDI
permitted under
automatic route
in most Sectors
Who can invest?
• A non-resident entity (except citizen/entity incorporated in Pakistan)
• Citizen/entity incorporated in Bangladesh – only approval route
• NRIs resident in Nepal/Bhutan and citizens of Nepal / Bhutan – subject to certain conditions
• Erstwhile OCBs (with prior approval through both routes)
• FIIs (certain compliances mandatory)
• FVCIs
• Only FII/NRIs permitted to invest in Indian companies in Indian stock exchanges directly
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FVCIs
• Registration with SEBI as FVCI under the SEBI (FVCI) Regulations, 2000
• Registration not mandatory but brings certain advantages
• Example:
• No pricing guidelines applicable during entry and exit
• Lock in benefits
• FVCIs may invest in unlisted domestic companies in sectors which are not in the negative list
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Permitted entities for FDI
• Indian company
• Partnership Firm/ Proprietary Concern
• Venture Capital Fund
• Trusts
• Limited Liability Partnerships
• FDI in resident entities other than those mentioned above is not permitted
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Choice of forms for doing
Business in India
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Choice of forms for Doing Business in India An Overview
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Foreign Investor
Unincorporated
entities
Incorporated
entities Partnerships
Public /
Private
company
Liaison
Office
Limited
Liability Partnership
(LLP)
VCF/T
rust
Branch
Office
Project
Office
Wholly owned
Subsidiary /
Joint Venture
Unincorporated entities
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Liaison
Office
• Can only undertake liaising / representing / promoting / communication activities
• Local expenses have to be met through inward remittances from overseas entity
• Requires registration with RBI and ROC
Branch
Office
• Can undertake activities – export / import of goods, professional / consultancy services,
research work, technical / financial collaborations, buying / selling agent, IT services /
development of software, technical support, foreign airline & shipping company
• Cannot undertake retail trading activities, manufacturing / processing activities
• Can acquire property but not for leasing / renting
• Requires registration with RBI and ROC
Project
Office
• Foreign Companies planning to execute specific projects in India can set up project/site
offices in India if it has secured contract from Indian company
• Project Office cannot undertake or carry on any activity other than the activity relating and
incidental to execution of the project
• Funded directly by inward remittance (or) bilateral or loan from multilateral International
Financing Agency (or) project has been cleared by an appropriate authority (or) Indian
company who has awarded contract has been granted Term Loan by a Public Financial
Institution or a bank in India for the project
• Requires intimation with RBI (if above conditions are met) and registration with ROC
Foreign Direct investment in Partnership Firms
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Investments by non-residents other than NRI/ PIO – RBI prior permission required
Investments by NRI / PIO with
repatriation benefits - RBI
prior permission
NRI / PIO resident outside India may invest by way of
contribution of capital on non-repatriation
basis
Not Permitted:
Investment in Firm /
proprietary concern
engaged in agricultural /
plantation activities, real
estate business , print
media
sector
Foreign Direct investment in Venture Capital Fund (VCF)
/ Trust
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Only SEBI registered FVCI may contribute up to 100% of
the capital of an Indian Venture Capital Undertaking /
VCF / Other companies FVCI may also set up a Domestic asset management company to manage the fund
FDI in Trusts other than
VCF is not permitted
Foreign Direct investment in LLPs
100% FDI is allowed:
• Activities currently eligible for 100% FDI under automatic route
• Prior approval from FIPB
• LLPs with FDI cannot make downstream investment
• FII and FVCI investment not permitted in LLPs
• Foreign Capital participation in LLPs allowed only by way of cash consideration
• LLPs with FDI cannot raise foreign currency loan (ECB)
Permissible Activities
Services Trading
IT / ITeS / KPO Wholesale/ B2B/ Exports
Business services, Advertising and films Sourcing
Engineering, technical support and R&D Manufacturing and Processing
Healthcare and medical services Special Economic Zones
Logistics, supply chain management Developers
Hotels, tourism, F&B, restaurants Units
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NBFCs, Construction Development Projects etc. where FDI Linked performance conditions
are prescribed or LLPs engaged in agricultural/plantation activity, print media or real estate
business – Not permitted
Investment Instruments
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Investment instruments – Shares
Shares
Equity shares Preference shares
Compulsorily Convertible i.e. Non- Redeemable
Treated as Equity
Non-Convertible i.e. Redeemable
Treated as Debt (ECB)
Foreign investments in Equity shares allowed as per
FDI Guidelines
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Debt
Compulsorily
Convertible
i.e. Non-Redeemable
Treated as
Equity for FDI Treated as Debt
(ECB)
Non-Convertible
i.e. Redeemable
Treated as Debt
(ECB)
Investment instruments – Debt
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Loan Debenture
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FCCB / DR
Treated as
Equity for FDI
Equity
• Ownership rights
• Limited Redemption
• No cap on rate of
dividend (Transfer to
reserve)
CCD
• Carry fixed rate of interest
• Conversion into Equity as
per term of Issue
• RPS/OCPS/NPS regarded
as ECB .
• Coupon rate – SBI PLR +
300 basis points
Foreign company
Indian company
CCPS
• Carry fixed rate of
Dividend
• Conversion as per
Company Law
• RPS/OCPS/NPS
regarded as ECB .
• Maximum Coupon rate –
SBI PLR + 300 basis
points
Instruments other than stated above like Options, Warrants, Partly paid etc. require prior approval of FIPB
Eligible Instruments for FDI
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Pricing of Instrument
Fresh Issue
• Listed Cos. - SEBI Guidelines
• Unlisted Cos.- Atleast DCF
Preferential Allotment
• Listed Cos. –At least at a price as per Preferential Allotment SEBI Guidelines
• Unlisted Cos.- Atleast DCF
Rights Issue
• Listed Cos.- As determined by Co.
• Unlisted Cos. – Not less than price offered to resident S/H
Transfer
R to NR:
• Listed Co.- Not less than the price at which preferential allotment are made
• Unlisted Co – Atleast DCF
• NR to R: • Listed Co. Not
more than Minimum price at which preferential allotment made
• Unlisted Co - Not more than DCF
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• The price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the
instruments.
• The price at the time of conversion should not be lower than the fair value worked out, at the time of issuance of such
instruments [the DCF method of valuation for the unlisted companies and valuation in terms of SEBI (ICDR) Regulations, for
the listed companies].
Consideration for Investment
• Inward Remittance
• Debit of FC A/C in India
Cash
• Automatic
• ECB Conversion
• Royalty
• FTS
• Approval Route -FIPB
• Import of Plant & Machinery (other than second hand machinery)
• Pre-Incorporation Expenses
• Preliminary Expenses
Non Cash
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Shares to be allotted or refund to be made within 180 days of receipt of subscription money
FDI and downstream investment
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FDI Rule Downstream investment Rule
In Operating
company
Governed by
relevant sectorial
policies
In Operating companies by
operating cum investing
company
Governed by
relevant sectorial
policies
In Operating and
investment
company
Notification to
FIPB within 30
days of
investment
In Operating company by
investing company
Governed by
relevant sectorial
policies
In investment
companies
Requires prior
FIPB approval
by Non-operating and non-
investing company
Governed by
relevant sectorial
policies
In Non-operating
and non-investing
company
Requires prior FIPB approval
Reporting and Remittance
Reporting
• Investment : 30 days RBI reporting on receipt of money :FC(GPR) to RBI in 30 day through AD for FDI, ESOP, Right, Bonus, M&A, ECB, FCCB, ADR/GDR
• Transfer Stage : FC(TRS) to AD within 60 days of receipt of amount of consideration
Remittance
• Through Authorized Dealer subject to WHT:
• Dividend
• Interest
• Sale Proceeds of shares and other instruments
• Winding up/ Liquidation: Auditor Certificate for no o/s Liabilities or adequately provided for, If voluntary W/L no pending legal proceeding
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Recent Developments
Existing JV
• No more a stumbling point. No JV Partner approval required
Escrow Account
• Earlier exempted for SAST, Exit Offer and Delisting only
• Now permitted for all subject to:
• Non Interest bearing
• Non fund based
• No Forex Risk
• Closed in 6 month
• SEBI/FEMA compliant
• Upfront disclosure in Escrow Agmt. about terms of JV
Pledge of Shares
It include “Transfer” includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of transfer of right, title, possession or lien; Earlier exemption was available for sale or gift of shares only
Now Pledge permitted:
Indian promoter can pledge its shares of ICo or Group Co for ECB if NOC from AD
• NR can pledge its shares in ICo in favour of AD Bank for raising loan by ICo from Indian Bank
• NR can pledge its shares in ICo in favour of O/S Bank to secure credit facilities to NR or its O/S group company
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So what‟s
new…
External Commercial
Borrowing
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External Commercial Borrowings ('ECB')
Definition:
• ECB refers to:
‒ commercial loans;
‒ buyers‟ credit;
‒ suppliers‟ credit;
‒ securitized instruments availed of from non-resident lenders with a minimum average
maturity of 3 years
Types:
• External Commercial Borrowings
• Foreign Currency Convertible Bonds
• Preference shares (i.e. non-convertible, optionally convertible or partially convertible)
• Foreign Currency Exchangeable Bond (FCEB)
• ECB can be accessed under two routes, viz., (i) Automatic Route; (ii) Approval Route
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External Commercial Borrowings
Automatic route – no approval required
Eligible borrowers:
• Indian companies (Real Sector/ Infrastructure Sector) except those engaged in financial
sector
• Units in SEZ
• NGO's engaged in micro finance activities
Eligible lenders:
• International banks;
• International Capital Markets
• Multilateral financial institutions;
• Export credit agencies;
• Suppliers of equipment;
• Foreign collaborators; and
• Foreign equity holders with the prescribed equity holding (other than erstwhile OCBs)
Permissible end-uses – capital investments, overseas acquisitions, etc. – excludes
general corporate purposes, working capital requirements (except civil aviation) and real
estate sector
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External Commercial Borrowings
Amount and Maturity
• Corporate other than hotel, hospital and software company can avail USD 500 million per
year
• Hotels, Hospitals and software sectors can avail USD 100 million per year
• The overall ECB ceiling for the entire civil aviation sector would be USD 1 billion and the
maximum permissible ECB that can be availed by an individual airline company will be
USD 300 million
• ECB in civil aviation can be utilized for working capital as well as refinancing of the
outstanding working capital Rupee loan(s) availed of from the domestic banking system
Security – choice of parties – NOC required from Authorized Dealer for security in shares,
immovable property and issuance of guarantees
Rate of interest:
Three years and up to five years 6 month Libor + 300 basis points
More than five years 6 month Libor + 500 basis points
Parking of ECB proceeds
• As per the RBI/2011-12/539 A. P. (DIR Series) Circular No.119 the ECB proceeds meant
for Rupee expenditure are repatriated to India immediately after drawdown
• In either case, loan has to be registered with the RBI before draw-down – thereafter,
monthly reports regarding utilization
39
External Commercial Borrowings
Approval route
• Eligible Borrowers:
On lending by the EXIM Bank
Banks and financial institutions - which had participated in the textile or steel sector restructuring
package
Non-Banking Financial Companies (NBFCs)
Infrastructure Finance Companies (IFCs)
Housing Finance Companies
Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance
infrastructure companies / projects
Multi-State Co-operative Societies engaged in manufacturing activity
SEZ developers
Corporates in the services sector viz. hotels, hospitals and software sector – beyond USD100
millions
Corporates which have violated the extant ECB policy
• Amount and Maturity:
ECB beyond USD 100 million - corporates in the services sector viz. hotels, hospitals and
software sector
The proceeds of the ECBs should not be used for acquisition of land
Corporates can avail ECB of an additional amount of USD 250 million (over and above USD 500
million under approval route) with the average maturity of more than 10 years
• Interest rates – same as approval route 40
External Commercial Borrowings
ECB End use restrictions:
• For lending or investing in capital market or acquiring a company in India;
• Real estate
• Working capital , general corporate purposes and repayment of existing rupee loans
(except civil aviation sector)
Foreign Currency Exchangeable Bonds:
• means a bond expressed in foreign currency, the principal and interest in respect of which
is payable in foreign currency, issued by an Issuing Company and subscribed to by a
person who is a resident outside India
End-use of FCEB proceeds:
• Overseas by way of direct investment including in JVs or WOS abroad
• May be invested by the issuing company in the promoter group companies
Rate of Interest – As specified by ECB policy
Pricing norms:
• Average weekly high and low of the closing prices of the shares during the six months
• Average weekly high and low of the closing prices of the shares during the two weeks
Maturity: Minimum maturity of FCEB shall be five years
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Conversion of External Commercial Borrowings
Permitted under following conditions:
• Activity of the company falls under automatic route / approval has been obtained if activity
falls under approval route
• Foreign equity holding after such conversion is within the sectoral cap, if any
• Pricing of shares is as per
SEBI guidelines – listed company
Valuation of CA – unlisted company
Borrowers to report:
• In form FC-GPR to regional office , RBI and form ECB-2 to DSIM, RBI within 7 days from
the close of the month to which it relates
• In case of partial conversion, the outstanding portion of ECB shall be reported in ECB-2
to DSIM, RBI in the subsequent months
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• Borrowers are experiencing difficulties in raising ECBs
• The Reserve Bank has thus decided to continue with the enhanced all-in-cost ceiling
for ECBs
• Enhanced ceiling to be applicable for a further period of 6 months
Review of All-in-cost Ceiling for ECBs
Maturity Period All in cost over 6 months LIBOR
3 years and up to 5 years 350 bps
More than 5 years 500 bps
So what‟s
new…
44
• Borrowers desirous of refinancing an existing ECB can now raise fresh ECB at a higher
all-in-cost
• Those wanting to reschedule an existing ECB can now do so at a higher all-in-cost
• Refinancing/ rescheduling to be done under the approval route.
Refinancing/ Rescheduling of ECBs
Condition: The enhanced all-in-cost cannot exceed the all-in-cost ceiling
prescribed in the existing guidelines
So what‟s
new…
45
Enhancement of Refinancing Limit of ECBs
• Applicable to Indian companies in the power sector
• Permitted to utilize up to 40% of fresh ECB raised towards refinancing of Rupee loans
availed from the domestic banking system
• Utilization to be done under the approval route
Condition: At least 60% of the fresh ECB raised is to be utilized for fresh capital
expenditure for infrastructure projects
So what‟s
new…
46
ECBs for Aviation Sector
• Working capital now a permissible end-use of ECBs raised by the civil aviation sector
• Overall ECB ceiling for aviation sector – USD 1 Billion
• To be allowed under the approval route
• Conditions:
‒ Must be a company registered under the Companies Act, 1956
‒ Possess a scheduled operator permit license from DGCA for passenger
transportation
‒ Permissibility based on certain conditions like cash flow, foreign exchange earnings
and capability to service the debt
‒ ECB to be raised within twelve months, that is, by 24 April 2013
‒ Can be raised with a minimum average maturity period of three years
‒ Maximum permissible ECB that can be availed by an individual airline company is
USD 300 million
‒ Limit can be utilized for working capital as well as refinancing of any outstanding
working capital Rupee loans availed of from the domestic banking system
‒ Such ECBs not allowed to roll over
So what‟s
new…
Utilisation of ECB proceeds for Rupee expenditure
• Presently, ECB proceeds can be utilized for permissible foreign currency expenditure
and Rupee expenditure
• RBI has directed borrowers to provide bifurcation of utilization of ECB proceeds towards
foreign currency and Rupee expenditure in Form prescribed
• RBI clarified that primary responsibility to ensure that ECB proceeds meant for Rupee
expenditure in India are repatriated to India for credit to Rupee accounts is on borrower
concerned
47
So what‟s
new…
Overseas Direct Investment
48
Overseas Direct Investment ('ODI')
Benefits:
• Promoting global business by Indian entrepreneurs
• Transfer of technology and skill
• Sharing of results of R&D
• Access to wider global market
• promotion of brand image
• generation of employment
• utilisation of raw materials available in India and in the host country
Legal Framework:
• Section 6 of the FEMA provides powers to the RBI to specify classes of capital account
transactions in consultation with the Government.
• Section 6(3) of the FEMA provides powers to the RBI to prohibit, restrict or regulate
transactions
Prohibitions:
• Making investment in a foreign entity engaged in real estate but excludes development of
townships, construction of residential/commercial premises, roads or bridges
• Banking business, without the prior approval of the RBI
49
Overseas Direct Investment ('ODI')
General Permission:
• Out of the funds held in RFC account
• Bonus shares on existing holding of foreign currency shares
• Out of their foreign currency resources outside India
• General permission is also available to sell the shares so purchased or acquired
ODI Routes
• Automatic route – no government approval required
• Approval route – approval of the RBI
Who can Invest?
• Indian Companies (ownership not relevant)
• Registered Partnership firms – Approval route
• Resident Individuals – Approval route
• Registered Trusts/ Societies – Approval route
• Any other entity notified by RBI – Approval route
50
Overseas Direct Investment ('ODI')
Automatic Route - Financial commitment by Indian party:
• Investment in overseas JV / WOS, not exceeding 400 per cent of the net worth
• 400 per cent of net worth excludes:
‒ Investment is made out of balances held in EEFC account
‒ Funds raised through ADRs/GDRs
• The above ceiling of 400 percent includes:
‒ Contribution to the capital of the overseas JV/WOS
‒ Loan granted to the JV/WOS
‒ 100 percent of the guarantees given to the JV/WOS other than performance guarantee
‒ 50 per cent of the amount of performance guarantees
Issue of guarantee by an Indian Party to step down subsidiary of JV / WOS:
• Permitted under automatic route - Irrespective of direct subsidiary is operative company
or SPV, Indian party may extend corporate guarantee
• May be extended to SPVs
• Financial commitment of the Indian Party is within the extant limit of ODI
• Such guarantee shall be reported to RBI in Form ODI through the AD
• Issuance of corporate guarantee to subsequent level step down operating subsidiaries
will be considered under the Approval Route
51
Overseas Direct Investment ('ODI')
Investment through Special Purpose Vehicle (SPV):
• Approval under automatic route
• Such investment subject to following conditions
‒ Indian party is not included in the RBI's caution list
‒ Under investigation by the Directorate of Enforcement
‒ Indian party included in the list of defaulters to the banking system
Method of Funding:
• Drawal of foreign exchange from an AD bank in India
• Capitalization of exports
• Swap of shares
• proceeds of ECBs / FCCBs
• Exchange of ADRs/GDRs
• Balances held in EEFC account
• Proceeds of foreign currency funds raised through ADR / GDR
Capitalization of Export proceeds:
• permitted to capitalize towards exports, fees, royalties or any other dues from the foreign
entity for supply of technical know-how, consultancy, managerial and other services within
the ceilings applicable
• Software exporters allowed to receive 25% of their export proceeds in the form of shares
52
Overseas Direct Investment ('ODI')
Investments in Financial Services Sector:
• Investment in an entity outside India, which is engaged in the financial sector, should fulfill the
following additional conditions:
‒ Registered with the regulatory authority in India
‒ Company has earned profit during the preceding three financial years
‒ Has obtained approval from the regulatory authorities in India as well as abroad
‒ has fulfilled the prudential norms relating to capital adequacy
Portfolio Investments by listed Indian companies:
• Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on the date of
the last audited balance sheet in followings;
‒ shares
‒ bonds / fixed income securities
Investment by Mutual Funds:
• Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of USD 7
billion in :
‒ ADRs / GDRs of the Indian and foreign companies
‒ Listed overseas companies equity shares
‒ IPO / FPO of overseas companies
‒ Foreign debt securities
‒ Money market instruments rated not below investment grade
‒ Government securities rated not below investment grade
‒ Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with
underlying as securities
53
Overseas Direct Investment ('ODI')
• Short-term deposits with banks overseas where the issuer is rated not below investment
grade; and
• Units / securities issued by overseas Mutual Funds or Unit Trusts
• A limited number of qualified Indian Mutual Funds , are permitted to invest cumulatively
up to USD 1 billion in overseas Exchange Traded Funds as may be permitted by SEBI
• Domestic Venture Capital Funds registered with SEBI may invest in equity and equity
linked instruments subject to overall limit of USD 500 million
Overseas investment by Registered Trust / Society:
• Registered Trusts and Societies engaged in manufacturing / educational / hospital sector
are allowed to make investment in the same sector in a JV/WOS with the prior approval
of RBI:
• Eligibility Criteria:
‒ The Trust / Society should be registered
‒ Trust deed / MoA of society permits the proposed investment
‒ Proposed investment should be approved by the trustee/s
‒ Trust / Society is KYC compliant
‒ Trust has been in existence at least for a period of three years
‒ Trust / Society has not come under the adverse notice of any Regulatory / Enforcement agency
54
Overseas Direct Investment ('ODI')
Write – off of capital and receivables of Overseas entity:
• Indian promoters who have set up WOS abroad
• have at least 51 per cent stake in overseas JV
Indian company may write off capital (Equity / preference) or other receivables in JV /
WOS as follows:
• Listed Indian companies - 25% of equity investment / receivable under the Automatic
Route
• Unlisted companies – 25% of equity investment / receivable under the Approval Route
• Write -off / restructuring have to be reported to the Reserve Bank within 30 days
Transfer by way of sale of shares of a JV / WOS:
• Indian Party may transfer by way of sale to another Indian Party or to a person resident
outside India of any share / security held in JV / WOS subject to the following conditions:
‒ The sale does not result in any write off of the investment
‒ The sale is effected through a stock exchange
‒ If the shares are not listed on the stock exchange then the value certified by a Chartered
Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited
financial statements
‒ Indian party does not have any outstanding dues by way of dividend, technical know-how fees,
royalty, consultancy, commission or other entitlements and / or export proceeds from JV / WOS
55
Overseas Direct Investment ('ODI')
• Overseas concern has been in operation for at least one full year and the APR together
with the audited accounts for that year has been submitted to the Reserve Bank
• Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory
authority in India
• Indian entity is required to submit details within 30 days from the date of disinvestment
Transfer by way of sale of shares of a JV / WOS involving Write off of the investment:
• Indian Parties may disinvest, without prior approval of the Reserve Bank incase;
‒ The JV / WOS is listed in the overseas stock exchange
‒ Indian Party is listed on a stock exchange in India and has a net worth of not less than Rs.100
crore
‒ Indian Party is an unlisted company and the investment in the overseas venture does not exceed
USD 10 million
‒ Indian Party is a listed company with net worth of less than Rs.100 crore but investment in an
overseas JV/WOS does not exceed USD 10 million
56
Other forms of Investment Overseas
Setting up of branch overseas:
• No equity investment
• Extension of the Head office
• No separate entity
• Liabilities could be passed on to Indian Company
• Subject to local country laws
• Current Account Transactions under FEMA
Investments by Residents:
• Shares in overseas entity gifted by non residents
• Acquisition of shares under a „Cash less‟ route – no outward remittance
• Assets inherited outside India
• Shares of Foreign Company by Indian employees
‒ Sale of those shares allowed
‒ Repatriation of forex within 90 days
• In Qualification shares for overseas Directorships
• ESOPS of WOS/ JV
• ADR/ GDR ESOPS of the Indian Companies
‒ Limit of $ 50 K in a block of five years
• In any other investment up to $ 200K in a FY – Permitted Capital and current account
transactions- General approval 57
Other forms of Investment Overseas
Investment by way of share swap:
• Indian party has to obtain FIPB approval
• Valuation has been done as per the laid-down procedures
Post Investment Regulatory filings:
• Getting UIN (Unique Identification Number)
• Submitting Share Certificates or similar documents
• Filing Annual Performance Report (Form APR)
• Periodical ODI forms for Follow-on investments
• Intimation of Step Down Investments
• Intimation regarding winding up within 30 days and remittance of sale/ liquidation
proceeds within 90 days
• Filing form APR every year
58
59
Overseas Direct Investments
The liberalizations/ rationalizations announced by the RBI aim to provide an impetus to
boost Overseas Direct Investments (ODI) and widen the class of investors investing
outside India and also provide the much needed operational flexibility.
The liberalized ODI facilities are applicable to:
• Resident Individuals; and
• Indian Parties
So what‟s
new…
60
ODI- Facilities for Resident Individuals
• The Reserve Bank has granted general permission to resident individuals in respect of
the following:
Qualification shares for holding the post of director in the overseas entity
Professional services rendered to the overseas entity or in lieu of director‟s remuneration
ESOP scheme
Acquiring
equity shares
in a foreign
company by
way of
So what‟s
new…
61
Acquiring qualification shares in a foreign company for holding the post of director
• Applicable to resident individuals
• Present restriction on acquisition not exceeding 1% of the paid-up capital of the foreign
company has been removed
• Can now acquire foreign securities as qualification shares
• Acquisition must be in accordance with the qualification shares requirement as per the
laws of the host country
Remittance of the amount for acquiring such qualification shares to fall within the
overall ceiling prescribed under the Liberalized Remittance Scheme (LRS)
ODI- Facilities for Resident Individuals
So what‟s
new…
62
Acquiring shares towards professional services/ in lieu of director’s remuneration
• Applicable to resident individuals
• Can now acquire shares of a foreign entity in part or full consideration of professional
services rendered to the foreign company or in lieu of director‟s remuneration
Limit in terms of value of such shares acquired will be the overall ceiling prescribed
under the Liberalized Remittance Scheme (LRS)
ODI- Facilities for Resident Individuals
So what‟s
new…
63
Acquiring shares in a foreign company through ESOP scheme
• Applicable to resident employees and directors of the Indian Company
• Can accept shares under an ESOP Scheme, offered by the foreign entity globally on a
uniform basis
• Annual Return to be submitted by the Indian company to the Reserve Bank through the
AD Category – I bank giving details of remittances/ beneficiaries
• Allowed to accept the shares irrespective of the percentage of direct or indirect equity
stake the foreign entity holds in the Indian company
ODI- Facilities for Resident Individuals
So what‟s
new…
64
ODI- Facilities for Indian Parties
Creation of charge
• Indian party now permitted to create charge in the form of pledge/ mortgage/
hypothecation on the immovable/ movable property and other financial assets of the
Indian party and its group companies
• Creation of charge under the approval route
• Conditions
‒ Must be within the overall limit (presently 400%) of the financial commitment
‒ Indian party and its group companies to submit a “No Objection” from their Indian
lenders
• Appropriate reporting mechanism for capturing the financial commitment on account of
creation of such charge will be introduced separately.
So what‟s
new…
65
Reckoning bank guarantee issued on behalf of JV/ WOS
• This facility relates to a bank guarantee issued by a resident bank on behalf of an
overseas joint venture (JV) or a wholly-owned subsidiary (WOS) of an Indian party,
which is backed by a counter guarantee or collateral by the Indian party,
• Such bank guarantee to be reckoned for computation of the financial commitment of
the Indian party
ODI- Facilities for Indian Parties
So what‟s
new…
66
Issuance of personal guarantee
• Applicable to indirect resident individual promoters of the Indian party
• Now allowed to issue personal guarantee in the same manner as allowed under the
General Permission for direct promoters
ODI- Facilities for Indian Parties
So what‟s
new…
67
Financial Commitment without equity contribution to JV/ WOS
• Proposals for undertaking financial commitment without equity contribution in JV/ WOS
may be considered by RBI
• Allowed under the approval route
• AD banks to forward the proposals after ensuring that the laws of the host country
permit incorporation of a company without equity participation by the Indian party
ODI- Facilities for Indian Parties
So what‟s
new…
68
Submission of Annual Performance Report
• Indian party can file the Annual Performance Report for each JV or WOS outside India
on the basis of unaudited annual accounts of the JV/ WOS in cases where the law of
the host country does not mandatorily require auditing of the books of account of the
JV/ WOS
• Conditions:
‒ Statutory Auditors of the Indian party to certify that the unaudited annual accounts of
the JV/ WOS reflect a true and fair picture of the affairs of the JV/ WOS
‒ The unaudited annual accounts of the JV/ WOS are adopted and ratified by the
Board of the Indian party
ODI- Facilities for Indian Parties
So what‟s
new…
69
Contribution by way of Compulsorily Convertible Preference Shares (CCPS)
• Indian party can now set up or acquire a JV/ WOS outside India by subscribing to the
CCPS of the JV/ WOS.
• The CCPS will be treated at par with equity shares
ODI- Facilities for Indian Parties
So what‟s
new…
70
Opening of a Foreign Currency Account to make ODI
• Prior permission of the RBI was required to open, hold and maintain Foreign Currency
Account (FCA) in a foreign country for the purpose of making ODI
• RBI has now liberalized the regulations by granting general permission
• Conditions:
‒ The Indian party is eligible for ODI in terms of the ODI regulations
‒ Host country regulations stipulate that the investments into the country is required
to be routed through a designated account
‒ FCA to be opened, held and maintained as per the host country regulations
‒ Remittances to the FCA to be utilized only for making ODI in the JV/ WOS abroad
‒ Amount received in the account by way of dividend or other entitlements to
repatriated to India within 30 days from the date of credit
‒ FCA to be closed within 30 days from the date of disinvestment
from JV/ WOS or cessation thereof.
ODI- Facilities for Indian Parties
So what‟s
new…
Exports & Imports
71
Export and Import of Goods
Exports of Goods & Services
• Exporter under dual obligation
Furnish true and correct material particulars including full export value
Furnish on information required by RBI to ensure repatriation of export proceeds
• Declaration to be submitted by exporter when exporting goods or software in physical
form
‒ Form GR : Export otherwise than by Post including export of software in physical form i.e.
magnetic tapes/discs and paper media (to customs authorities)
‒ Form SDF : To be appended to the shipping bill, for exports declared to Customs Offices notified
by the Central Government which have introduced Electronic Data Interchange (EDI) system for
processing shipping bills notified by the Central Government
‒ Form PP: Export by Post- Authorised Dealer
‒ Form Softex: Export of software otherwise than in physical form, i.e. magnetic tapes/discs, and
paper media- designated official of STPIs/Free Trade Zones (FTZs)/Export Processing Zones
(EPZs) /Special Economic Zones (SEZs)
‒ Export of services no particular Forms specified the exporter may export such services without
furnishing any declaration but would be required to be realise and repatriate the payment for
these services as per the FEMA
72
Export and Import of Goods
• Certain exemptions from this requirement
‒ Trade samples of goods and publicity materials supplied free of payment
‒ Personal effects of travellers
‒ Goods or software accompanied by a declaration by the exporter that they are not more than USD
25,000 in value
‒ By way of gift of goods accompanied by a declaration by the exporter that they are not more than
Rs. 5 lakh in value
‒ Goods imported free of cost on re-export basis
‒ Goods sent outside India for testing subject to re-import into India
• Period within which export value of goods/software to be realised and repatriated
‒ SEZ Units : No time specified
‒ EOU/STP/EHTP/BTP units: Within a period of 12 months
73
Export and Import of Goods
• Exports requiring prior approval
‒ Export of goods on lease, hire etc.- only on approval
‒ Counter Trade: Any arrangement involving adjustment of value of goods imported into India
against value of goods exported from India, shall require prior approval of the Reserve Bank
• Advance payment against exports
‒ Where an exporter receives advance payment (with or without interest), from a buyer
outside India, the exporter shall be under an obligation to ensure that –
• Goods are shipped within one year from the date of receipt of advance payment;
• the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank
Offered Rate (LIBOR) + 100 basis points, and
• the documents covering the shipment are routed through the authorised dealer through whom
the advance payment is received;
• If exporter is unable to ship goods (partly or fully) within one year from the date of receipt
of advance payment, remittance of refund of unutilised portion of advance payment or
payment of interest to be made only with prior approval of RBI
74
Export and Import of Goods
Import of goods and services
• Persons, firms, companies making payments exceeding USD 500 or equivalent towards
imports into India - Form A1
• Importer to submit proof of import goods into India like Exchange Control copy of the Bill
of Entry, Postal Appraisal Form or Customs Assessment Certificate, etc., as proof that
goods equivalent to the value of remittance have been imported
• Evidence of imports:
‒ Goods- bill of entry for home consumption/warehousing
‒ Non physical imports like software/drawings/designs etc received via the internet- CA certificate
stating receipt of such software/drawings/designs
‒ None specified for any services
75
Export and Import of Goods
• Time limit
‒ Remittances against imports should be completed not later than six months from the date of
shipment
• Deferred payment arrangements:
‒ Deferred payment arrangements including suppliers and buyers credit, providing for payments
beyond a period of 6 months from date of shipment up to a period of less than 3 years are treated
as trade credits and External Commercial Borrowings guidelines applicable
• Advance remittance for Imports of goods allowed
‒ Where exceeds USD 200,000 : unconditional, irrevocable Letter of Credit or bank guarantee to be
furnished
• Advance remittance for Imports of services allowed
‒ Where amount of advance exceeds USD 500,000 bank guarantee by international bank to be
furnished
76
Immovable Property
77
Acquisition of Immovable property in India by NRI/PIO
Foreign national of non-Indian origin, resident outside India cannot purchase any
immovable property in India unless acquired by way of inheritance from a person who was
resident in India (exception: lease not exceeding five years)
78
Indian citizen resident outside India Person of Indian Origin (PIO)
Cannot acquire agricultural land/farm
house/plantation
Cannot acquire agricultural land/farm
house/plantation
Can acquire any immovable property in
India
Can acquire immovable property by gift
from person resident in India, person
resident outside India who is a citizen of
India or another PIO
Can transfer any immovable property in
India to a person resident in India, resident
outside India who is a citizen, PIO
Can acquire any immovable property by
inheritance from person resident outside
India
Transfer by sale to person resident in India
Transfer by gift (commercial/residential
property to resident, non-resident or PIO
Bank Accounts
79
Bank Account facilities available for NRI/PIO
80
Non Resident Ordinary Rupee Account (NRO Account)
Who can open account: Any person resident outside India
Savings/current/recurring/ FD
Account denominated in INR
Permissible Credits:
• transfers from rupee accounts of non-resident banks
• remittances received in permitted currency from outside India through normal
banking channels
• permitted currency tendered by account holder during his temporary visit to India
• legitimate dues in India of the account holder like current income like rent, dividend,
pension, interest, etc.
• sale proceeds of assets including immovable property acquired out of rupee/foreign
currency funds or by way of legacy/ inheritance
Permissible debits:
• all local payments in rupees
• remittance outside India of current income like rent, dividend, pension, interest, etc.,
net of applicable taxes, of the account holder
Bank Account facilities available for NRI/PIO
81
Non Resident Ordinary Rupee Account (NRO Account)
Not repatriable except for the following:
i) current income
ii) up to USD 1 million per financial year (April-March) for any bona fide purpose out of
balances in the account e.g., sale proceeds of assets in India acquired by way of
purchase/ inheritance / legacy inclusive of assets acquired out of settlement subject to
certain conditions
Banks free to fix interest rates though should not exceed normal domestic savings
account
Bank Account facilities available for NRI/PIO
82
Non-resident (external) Rupee Account (NRE Account)
Who can open account: NRIs
Savings/current/recurring/FD
Account maintained in INR
Accrued interest income and balances held in NRE accounts are exempt from Income
tax and Wealth tax, respectively
Permissible credits:
• inward remittance to India in permitted currency
• proceeds of account payee cheques, demand drafts / bankers' cheques, issued
against encashment of foreign currency
• transfers from other NRE / FCNR accounts
• sale proceeds of FDI investments
• interest accruing on the funds held in such accounts
• interest on Government securities/dividends on units of mutual funds purchased by
debit to the NRE/FCNR(B) account of the holder
Bank Account facilities available for NRI/PIO
83
Non-resident (external) Rupee Account (NRE Account)
Permissible debits:
• local disbursements
• transfer to other NRE / FCNR accounts of person eligible to open such accounts,
remittance outside India
• investments in shares / securities/commercial paper of an Indian company
Fully repatriable
Banks free to fix interest rates- not to exceed normal domestic rates
Bank Account facilities available for NRI/PIO
84
Foreign Currency Non Resident Bank Account (FCNR-B Account)
Who can open account: NRIs
Term deposits- 1 to 5 years
All debits / credits permissible in respect of NRE accounts, including credit of sale
proceeds of FDI investments, are permissible in FCNR (B) accounts also
Account can be in any freely convertible currency
Interest rates: LIBOR +125 basis points for the currency concerned
Repatriable
Bank Account facilities available for returning NRI/PIO
85
Resident Foreign Currency Account (RFC Account)
Returning NRIs /PIOs may maintain Resident Foreign Currency (RFC) Account to
transfer balances held in NRE/FCNR(B) accounts
Savings/current/term deposits
Proceeds of assets held outside India at the time of return can be credited to RFC
account
Funds in RFC accounts are free from all restrictions regarding utilisation of foreign
currency balances including any restriction on investment in any form outside India
RFC accounts can be maintained in the form of current or savings or term deposit
accounts, where the account holder is an individual and in the form of current or term
deposits in all other cases
Banks can fix interest rates
Other Bank Account facilities
86
Exchange Earner’s Foreign Currency Account (EEFC Account)
• Facility provided to foreign exchange earners (including exporters) to credit 100% of
their foreign exchange earnings to the account
• Account holders do not have to convert foreign exchange into Rupees and vice
versa, thereby minimizing the transaction costs
All categories of foreign exchange earners, such as individuals, companies, etc. who
are resident in India, may open EEFC accounts
Current account- no interest payable
Credit up to 100 % of foreign exchange earnings into the EEFC account allowed
subject to permissible credits and debits
SEZ units not allowed to open EEFC account
Permissible Credits:
• Inward remittance through normal banking channels other than remittances
received on account of foreign currency loan or investment received from abroad or
received for meeting specific obligations by the account holder
• Payments received in foreign exchange by a 100% EOU/STPI/EHTP for supply of
goods to similar such units or to a unit in Domestic Tariff Area
• Payments received in foreign exchange by a unit in the Domestic Tariff Area for
supply of goods to a unit in the Special Economic Zone (SEZ);
Bank Account facilities available for returning NRI/PIO
87
Exchange Earner’s Foreign Currency Account (EEFC Account)
• Payment received by an exporter from an account maintained with an authorised
dealer for the purpose of counter trade
• Advance remittance received by an exporter towards export of goods or service
• Professional earnings including directors fees, consultancy fees, lecture fees,
honorarium and similar other earnings received by a professional by rendering
services in his individual capacity;
• Re-credit of unutilised foreign currency earlier withdrawn from the account;
• Amount representing repayment by the account holder's importer customer, of
loan/advances granted, to the exporter holding such account;
Permissible Debits:
• Payment outside India towards a permissible current account and capital account
transactions
• Payment in foreign exchange towards cost of goods purchased from a 100%
EOU/EHTP/STPI
• payment of customs duty in accordance with the provisions of the Foreign Trade
Policy
• Trade related loans/advances, extended by an exporter holding such account to his
importer customer outside India
• Payment in foreign exchange to a person resident in India for supply of
goods/services including payments for airfare and hotel expenditure
88
Opening of a Foreign Currency Account to make ODI
• Transfer of funds by NRI from NRO account to NRE account within the overall ceiling
of USD 1 million per financial year subject to payment of taxes as applicable is now
permissible
• Such credit of funds to NRE account shall be treated as permissible credits
Transfer of Funds from NRO to NRE account
So what‟s
new…
© 2012 Deloitte Haskins & Sells 89
Case Studies
Case study 1:
Defence Sector
• A India Pvt Ltd – a subsidiary of French Company, providing software
development and back office support to its parent, who is engaged in providing
defence supplies globally
• Is 100% FDI permitted in A Ltd? – being software and services provider or will
the cap of 26% apply to it being services in the area of defence?
90
Case study 1:
Defence Sector
• FDI in companies carrying out defence restricted to 26% and subject to
approval of the Government
• Defence approvals subject to licensing under the Industries (Development &
Regulations) Act, 1956
• Does the cap on investments cover only products specified in the Industries
(Development & Regulations) Act, 1956 or does it also include services?
• Services are not subject to licensing
• FIPB‟s view – Contradictary views emerging. In an existing software company
providing defence services - 100% FDI permitted with approval
• While a company exclusively set up for services in the area of defence – FDI
cap applies
91
Case study 2:
Press Note 1/ 2005
• Where there is an existing JV or technical collaboration in India by a foreign
company and the foreign company proposes to set up its own WOS or acquire
stake in another JV in the same or allied field, prior approval of the JV and FIPB
required
• Prior approval of the JV company done away with; approval required only from
FIPB
• Approval/ clarifications to FIPB on same or allied filed - NIC codes
92
Case study 3:
Merger
• Merger of a foreign company into Indian company permitted with the approval
of the jurisdictional High Court
• Shares to be issued to non-resident consequent to the merger
• Regulations liberalised to permit issue of shares subjection FDI policy and
compliances
Issue
• A India Ltd with a NRI promoter sets up another company in Singapore which in
turn has a subsidiary in India AS India Ltd. A India Ltd proposes to merge into
AS India Ltd and a consequence of the merger, no/minimum shares will be
issued to the NRI promoter. Is this a violation of FEMA/FDI guidelines?
93
Case study 4:
Issue of Shares for non-cash consideration
• Issue of shares for non-cash consideration not permitted
• Exceptions – ECB, royalty, FTS received and payable to the foreign company
• Import of capital goods, machinery, equipment, pre-operation and pre-
incorporation expenses can be capitalised and shares issued with FIPB
approval
• Can the following be capitalised with FIPB approval?
‒ Post incorporation expenses
‒ Raw material purchase
‒ Trade payables
‒ Second had machinery
94
Case study 5:
Share Swap
• Share swap transactions based on mutual benefits accruing to both Indian
entity as well as foreign entity
• Reduces cash flow needs while meeting end objectives of investments,
especially for Indian companies making overseas investments
• Swaps permitted subject to approval based on following requirements:
‒ The overseas investment being in accordance with the Overseas Direct Investment
guidelines and the inward investment compliant with FDI policy
‒ Valuation norms in relation to overseas investment, as well as in relation to inbound
investment in the Indian companies, being complied with
Issue:
• In a scenario where a shareholder gives up his shares in an Indian company, in
exchange for shares in a foreign company – would FIPB have the remit to give approval
in such instances?
95
Case study 6:
Issue of share warrants/ partly paid up shares
• Share warrants to be issued with FIPB approval
• Partly paid up shares can be issued only with FIPB approval
96
Questions???
97