-Anup P. Shah. Advanced FEMA Course BCAS & CTC 31 st August 2013

Transcription

1 -Anup P. Shah Advanced FEMA Course BCAS & CTC 31 st August 2013

2 35% 30% 25% 20% 15% 10% 5% 0% 33% 27% Majority Tax Havens 15% 9% 6% 4%4% 1%1% 1% Singapore Mauritius Holland USA Dubai BVI UK Cayman HongKong Switzerland PRAVIN P. SHAH & CO., CAs 2

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4 ODI up to 100% of Net Worth (previously 400%) Approach AD in Form ODI Not on Caution / ED / CIBIL/ Defaulter List Route all transactions through One Branch of AD Comply with R. 7 in case of ODI in FSS Auto Route If conditions not satisfied Mandatory for ODI by : Sole Prop. / URF Trusts / Societies Apply to RBI in Form ODI Factors considered Viability of JV/ WOS External Trade Contribution Track record of Parties Experience & Expertise of Indian Party in that line Approval Route PRAVIN P. SHAH & CO., CAs 4

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6 Entity Auto Route Approval Route Company Listed / Unlisted No Provision Reg. Partnership Firm Individuals Sole Proprietory Trust / Society LLP AOP HUF??? PRAVIN P. SHAH & CO., CAs 6

7 Should the Invst. be from an Indian Firm or Indian Co. or LLP? Firm more advantageous taxwise: No DDT No MAT LLP? Only Invst. Activities permissible? PRAVIN P. SHAH & CO., CAs 7

8 ODI by Partnership Firm Partners can hold investments in their name Funding from Firm Provided Host Country Regs warrant such holdings Would not apply if ODI by LLP because LLP is a separate Body Corporate distinct from Partners PRAVIN P. SHAH & CO., CAs 8

9 Res. Ind. - JV/WOS under LRS (5 Aug 2013) Invst. out of EEFC & RFC also restricted to $75000 Res. Ind. can invest alone or with another Res. Ind. or with an Indian Party If 4 Ind. from a Family then limit $75,000 * 4? Every Year? Only Operating Co. no Step down sub allowed Valuation by CA / Merchant Banker No Method Guarantee to / on behalf of JV /WOS? No W/o is allowed in case of Disinvestments Reporting, etc., as per ODI Reg. applicable PRAVIN P. SHAH & CO., CAs 9

10 For bona-fide Business Activities Not for Business of Real Estate /Banking /Financial Services Activity What if JV/WOS to be acquired owns a House which is rented out? BVI Cos. very popular in buying UK Houses JV/WOS for bona-fide business activities but LRS cannot be used for direct or indirect acquisition of Imm. Prop. abroad PRAVIN P. SHAH & CO., CAs 10

11 Shares in lieu of Professional Fees Individual Sole Prop. Concern RBI Approval RBI Approval in Form ODI Credentials / NW / Profession / Forex earnings/ Track record of ForCo / Benefits to India Shs. Value < 50% of Fees + SH<% of Cap of ForCo PRAVIN P. SHAH & CO., CAs 11

12 DGFT Star Export House No Notice of ED / RBI Caution List ODI 10% Avg. Exp. Realisation in 3 FY or 200% of NW - lower RBI Approval in Form ODI Track Record of Exports KYC compliant Overdue Exports 10% Avg. Exp. Realisation in 3 FYs PRAVIN P. SHAH & CO., CAs 12

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14 Business Activity of JV / WOS Can be in any Activity except two prohibited Separate Regs. if in Financial Services Sector Not in Real Estate Business Buying & Selling of Land / TDRs Excludes Construction / development of Townships / Residential & Commercial Premises / Roads / Bridges Not in Banking Business - Indian Banks allowed PRAVIN P. SHAH & CO., CAs 14

15 Unlike FDI Negative List, ODI permitted in following: Agriculture Gambling / Casinos / Online Provided Valid in Host country Multi-brand Retail Trading Tobacco Manufacturing Atomic Energy Rail Transport But check whether Host Country Laws prohibit FDI PRAVIN P. SHAH & CO., CAs 15

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17 Earlier Invst up to 400% of Net Worth Changed wef from 400% to 100% AP Dir Cir: ODI limit is 100% Notification states Financial Commitment is 100% ODI means only contribution to capital of JV / WOS Fin. Commitment is much wider than ODI Fin. Commitment covers ODI + Guarantees to JV / WOS Both covered within 100% limit some Press Reports have expressed confusion but that is not correct PRAVIN P. SHAH & CO., CAs 17

18 ODI: Financial Commitment = 100% of NW (previously 400%) NA if out of EEFC A/c or ADR / GDR Funds Still continues NW= Paid-up Capital + Free Reserves Paid-up Capital : Equity + Preference Free Reserves Meaning? Not defined in FEMA Regs. Different Acts use a Different meaning PRAVIN P. SHAH & CO., CAs 18

19 Reserve Companies Act, 1956 NBFC Dir. SICA S. 58A S.372A Free for Dividend Sec. Premium CRR Silent Silent DRR Silent Silent Reval. Res Silent Bad Debts Silent Silent Sh. Appl. Silent Silent Silent PRAVIN P. SHAH & CO., CAs 19

20 If after ODI NW of IndCo drops / deteriorates Any Implications on existing overseas investment if Investment now exceeds 100% of IndCo? (previously the limit was 400%) Limits to be reckoned as on date of Investment and not to be monitored post-investment. PRAVIN P. SHAH & CO., CAs 20

21 ODI made in JV / WOS under 400% Limit Further investment to be made now Limit is 100% or 400%? Drawing on HoldCo / Subco Networth But no Double Counting Only for Companies Not for Firms Firm s Networth not available for Company PRAVIN P. SHAH & CO., CAs 21

22 Up to 100% (previously 400%) of NW as per Last Audited B/S If substantial addition to NW during current year: Out of profits till date Out of fresh issue of shares Options? RBI Permission Change A/c Year get Audited Additional Investment next year PRAVIN P. SHAH & CO., CAs 22

23 EEFC 100% NA Forex from AD Export Capn. Auto route Approval if O/s > limit ADR / GDR Swap Fund Sources Share Swap ADR/ GDR 100% NA ECB / FCCB PRAVIN P. SHAH & CO., CAs 23

24 100% (previously 400%) of NW covers foll.: 100% of Eq. 100% of CCPS (treated as Capital) 100% of OCPS / RPS (treated as Loan) / Loan 100% of Guarantee for JV / WOS 100% of Bank Guarantee by Indian Bank for JV /WOS backed up by Indian Party 50% of Performance Guarantee Invst. In overseas Agro operations PRAVIN P. SHAH & CO., CAs 24

25 Type of Investment Condition Equity / CCPS -- RPS / OCPS / Loan/ Guarantee Auto if Eq. / CCPS investment Approval if no Eq. / CCPS Guarantee by Indco / Promoter/ Group / Sister / Associate Co. to JV / WOS Guarantee to 1 st level Step-down Sub of JV / WOS 100% Ceiling + No Open-ended Guarantee + Reporting + Norms for Guarantees by Banks Auto Route Within 100% limit of Indian Party Direct Sub can be Op Co or SPV / IHC PRAVIN P. SHAH & CO., CAs 25

26 Type of Investment Guarantee to 2 nd level Step-down Sub of JV / WOS Charge on assets of Indco / Group Co. for loan to JV / WOS Invocation of Performance Guarantee > 100% Limit Condition Approval Route Indco directly / indirectly holds 51% stake in 2 nd Generation Step-down Sub RBI Approval + 100% Limit + NOC from Indian Lenders of Indco / Group Co. Prior RBI approval before effecting excess remittance PRAVIN P. SHAH & CO., CAs 26

27 On Due Date: Indco can invest further in Holdco s Cap 100% Limit to be rechecked? Indco to pay liability of Holdco 100% Limit to be rechecked? IndCo Offshore HoldCo WOS Repayment Guarantee Check Limits NCD to Banks for Loans to OpCo Bankrupt PRAVIN P. SHAH & CO., CAs 27

28 Payments for Exports of Goods, Software, P&M/ FTS/ Royalty / Tech. K-how / Consultancy / Mgmt. Services Can capitalise dues for Shares of Foreign Entity If Export Proceeds unrealised beyond realisation period (e.g., 9 / 12 mts) RBI s approval for capitalisation Software Exporters: 25% of Exports can be capitalised as shares with prior RBI Approval Declare in GR / SDF / SOFTEX Form Submit to RBI Custom Certified copy of Invoice Submit within 6 mts. Share Certificate issued by JV / WOS PRAVIN P. SHAH & CO., CAs 28

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30 FEMA Regulations Up to 100% (previously 400%) of Networth of Ico. ECBs can be used for acquisition Valuation of existing FCo. Irrespective of Amount No specific method If ODI > $5m = Valn. by MB / Foreign Invst. Banker Definition of IB says IB registered in USA, UK, Germany, Japan, France or Singapore But Reg. says IB / MB registered in Host country Hence, any If ODI < $5m = Valn. by CA / CPA? PRAVIN P. SHAH & CO. 30

31 Consider Foreign TOR / Delisting Laws Hart Scott Rodino Act in US In US Open Offers vary Statewise + Federal Act Tender Act London City Code in UK Our Takeover Code modelled on it Apollo Tyres would be delisting Cooper Inc. after acquisition PRAVIN P. SHAH & CO. 31

32 Company Law S.372A = Up to 100% of Free reserves or 60% of Paid-up Capital + Reserves Income-tax S.56(2)(viia) applicable on acquisition of listed FCo.? S.14A Disallowance for Interest? Whether s.14a applicable for overseas investments? PRAVIN P. SHAH & CO. 32

33 Acquisition by Stock Swap Issue of shares Takeover of shares Foreign SHs (FCO) ICO PRAVIN P. SHAH & CO. 33

34 Overseas Direct Invst. by Share Swap: ICo issues its shares in return for shares of FCo Auto Route for Outbound Valuation of FCo by Invst Banker No specific method FIPB permission for Inward Invst. Leg Consideration Other than Cash Undertaking from NR Shs. Sale of ICo shs. to be as per FEMA Regs. only PRAVIN P. SHAH & CO. 34

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36 Overseas Co. ODI FDI Indian Co. 1 Indian Co. 2 PRAVIN P. SHAH & CO., CAs 36

37 No Definition / Provision under FEMA Indian ODI rerouted to India as FDI through tax havens Invst. In Mauritius contains a Clause on Round-tripping Example Legal in several Countries: Very common in China IT Dept.: 8 cases of large FDI in small unknown Real Estate Cos. all from Singapore - Round-tripping suspected PRAVIN P. SHAH & CO., CAs 37

38 Hospital Assets/ Shares bought from Fortis India out of IPO funds Fortis Hospitals India 100% FHIL Mauritius Religare Health Trust Singapore Healthcare Assets in India Sponsor IPO on Singapore St. Ex. S$510m PRAVIN P. SHAH & CO., CAs 38

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40 R.7(1) & 6(1) of FEMA 120/2004 : What is Financial Services Sector (FSS) Not Defined WOS / JV for Com. Brokers abroad / Trading in Overseas Com. Exchange = FSS and requires FMC clearance Is Investment in Stock Exchange / Commodity Exchange / AMC / Insurance Broker an FSS activity? Rely on NBFC Directions, Inbound Regs. & CFDIP? Why not define such an important term? PRAVIN P. SHAH & CO., CAs 40

41 Registered in India Net Profit from FS activities Approvals Obtained Prudential Norms Regulatory Authority For FS activities In Preceding 3 FYs Indian Regulator Foreign Regulator Capital Adequacy Prescribed by Indian Regulator PRAVIN P. SHAH & CO., CAs 41

42 Regulated FSS Co. in India investing in nonfinancial services activity abroad Need to comply with R. 7 conditions Unregulated FSS Co. in India investing in nonfinancial service activity abroad No need to comply with R. 7 conditions Regd. with Authorities in India- RBI, SEBI, IRDA PRAVIN P. SHAH & CO., CAs 42

43 Approval for activity from Regulator Abroad & in India Approval for Acquisition from SEBI, IRDA, RBI Q. Is permission from Regulator abroad required in Advance or Post-facto approval would suffice? If on Auto Route Required in advance or post-facto? Q. How do you get permission for an entity not yet born? Some ADs have allowed & given time to obtain permission If with RBI s permission 6 mts. time to obtain permission What if FSS activity unregulated abroad? PRAVIN P. SHAH & CO., CAs 43

44 Application to SEBI SEBI s approval Required by Intermediaries Brokers / Merchant Bankers / R&T Agents / DPs,etc. SEBI has now standardised Application Format & Documents reqd. Manner of wording of Approval Obtain RBI s Permission Now Modified to necessary approval But because of Foreign Regulators permission invariably require RBI s Approval PRAVIN P. SHAH & CO., CAs 44

45 R.7(1) & 6(1) of FEMA 120/2004: Net Profit from FS Activities in preceding 3FYs Very same Financial Activity or any FS activity? - R. 7(1) Silent - MC Silent PRAVIN P. SHAH & CO., CAs 45

46 FMC Clearance Min. Networth Rs. 5 cr. for 3 preceding FYs But FMC can relax on merit Track Record of Investor Grievance Redressal Arms Length relation with Overseas Sub Segregation of Books/ Infrastructure / Personnel / Control Mechanism Certificate from Domestic Comex No Serious Irregularities in 3 FYs Submit APR to FMC PRAVIN P. SHAH & CO., CAs 46

47 Invst. in Branch / WOS/ JV/LO abroad Require prior Approval of RBI s NBFC Dept. Even for CIC-ND-SI. But Not for Exempt CICs General Conditions for ODI by NBFCs: No ODI in non-financial sectors Not in activities prohibited under FEMA / in sectoral funds ODI in entities whose core activity is regulated by FS regulator No multi-layer or cross-jurisdictional structures Only single intermediate Holdco contrary to FEMA PRAVIN P. SHAH & CO., CAs 47

48 Limits on Invst.: Not exceeding 100% of NOF ODI in single entity + Subs. = 15% of OF Capital to Risk Adequacy Ratio must be met Reqd. level of NOF after ODI to be maintained NPA 5% KYC norms to be met Annual Certificate from Auditors reg. compliance Quarterly Return by NBFC to DNBS PRAVIN P. SHAH & CO., CAs 48

49 No Overseas Branch can be opened No Guarantee for Sub / JV Sub / JV not a Shell Co. must have significant assets / operations Financial Consultancy / Advisory Co. not a Shell Co. Sub / JV not a vehicle for raising resources for creating assets in India : No Round Tripping Liaison Office must be regulated abroad No line of credit can be given to Liaison Office PRAVIN P. SHAH & CO., CAs 49

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51 Investment through SPV permitted If Invst. through Indian SPV Can even consider Holdco or Sub NW But no Double Counting Why SPV? Barrier : Product Liability Can raise funds in SPV against its Holdings Secrecy from competitors Administrative convenience Double taxation must be considered PRAVIN P. SHAH & CO., CAs 51

52 IHC may be used for ODI Cyprus, Mauritius, Dubai, Singapore, Netherlands Can also use a RHC in country of Operating Co Indian Company IHC - Mauritius Mere Holding Co or Operating-cum-Holding Co? Tata Motors IHC in UK Operating Co. - UK PRAVIN P. SHAH & CO., CAs 52

53 Multi-layer Structure Factors : RBI s View FEMA Regs.: SPV permitted if not on ED / Caution / CIBIL List RBI frowns upon Multi-layer structures No express provision Prefers Single Level SPV Dy. Governor s Speech: Need for a clear policy in this respect Multi-layer structures create opacity but are tax beneficial ODI by NBFCs: No Multi-layer or Cross-jurisdictional Structures Only Single level IHC Financial Consultancy / Advisory / NBFC Business Not Shell Co PRAVIN P. SHAH & CO., CAs 53

54 Multi-layer Structure Factors : Companies Bill 2012 Max. 2 layers of Investment Cos. Applicable even to Investment NBFCs Applicable even to Private Ltd Cos. Investment Cos ~ Co. whose Principal Business is acquisition of SH / Deb / Securities NA if IndCo. acquires any ForCo which has more than 2 Invst. Sub. as per foreign laws PRAVIN P. SHAH & CO., CAs 54

55 Commercial Factors: Objective of investment Political, economic & legal stability Entry into African markets which are politically unstable IHC may be a must for retaining profits abroad JSPL s Bolivian Co. s assets have been seized by Govt. Set up requirements / cost Exchange Control Regulations Accounting & Reporting PRAVIN P. SHAH & CO., CAs 55

56 Tax Factors: Taxation of Dividend / Interest / Royalty / FTS Thin Capitalisation Rules in IHC and Op. Country Capital Gains on sale of shares CFC / PFIC Rules Control & Management / PoEM of IHC in India If no Treaty between IndCo & Op. Co. consider IHC Is there a Treaty between Indco. & IHC? Even better if also a Treaty between IHC and Op. Co. PRAVIN P. SHAH & CO., CAs 56

57 Fund Flow Factors: Beneficial for parking money abroad for ultimate use abroad Useful for Effective Management of Funds between Subsidiaries 1 st Op. Sub has funds can remit to IHC IHC can give to 2 nd Op. Sub without routing through India Additional administrative & other costs Indco. can consider listing IHC on a Foreign Stock Exchange 57 PRAVIN P. SHAH & CO., CAs

58 Indian Auto Co. IHC Germany US Op. Co. German Op Co. Sweden Op. Co. Hong Kong RHC UK Op. Co Scottish Op Co. Chinese JV Co. PRAVIN P. SHAH & CO., CAs 58

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60 Write-off Capital Reduction Other Receivables Loans, Royalty, FTS, Management Fees receivable from JV / WOS PRAVIN P. SHAH & CO., CAs 60

61 Factor Listed Indian Co. Unlisted Indian Party W/off from Whom Dues from WOS or 51% + JV Which dues Capital / Loans / Royalty / FTS Limits Up to 25% of Equity Invst Route Auto Approval Excess W/off Approval No Provision? Documents B/S showing Loss 5 Yr. Projections indicating benefit to IndCo. from restructuring PRAVIN P. SHAH & CO., CAs 61

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63 Sale of Shares Buyback of Shares Voluntary Liquidation PRAVIN P. SHAH & CO., CAs 63

64 Condition Sale of listed JV / WOS thru St. Ex. to ForCo / Indian Party No Write-off No O/S Div / Royalty / FTS / Commission from JV / WOS JV / WOS been in operation for 1 full year APR + Audited Accounts for that yr filed with RBI Indian Party not under Investigation by CBI / ED/SEBI / IRDA, etc. Report through AD in 30 days Remarks How can WOS shares be listed? Unless other securities. How can WOS shares be sold through St. Ex.? Receive sale proceeds within 90 days of Date of Sale PRAVIN P. SHAH & CO., CAs 64

65 Condition Sale of Unlisted JV / WOS to Forco / Indian Party Private Arrangement Share Price > FMV by CA / CPA based on Latest Audited Financial Statements Conditions same as for Listed: No Write-off No O/S Div / Royalty / FTS / Commission from JV / WOS JV / WOS been in operation for 1 full year APR + Audited A/c for that yr filed with RBI Indian Party not under Investigation Report through AD in 30 days Remarks No Valuation Method FMV based on latest FS - only NAV Method / ECM? Buyer Indian Party should pay in Forex to Seller Indian Party? If another Indian Party / AE buys consider s.56(2)(vii)/(viia) / Trf P Receive sale proceeds within 90 days of Date of Sale Date of SPA or Share Transfer? PRAVIN P. SHAH & CO., CAs 65

66 Write-off of Investment meaning? Realisation less than Investment Amount If Lesser Realisation in $ but not in Rs. due to forex fluctuations? Consider Amt. invested in Rs. or in $ Terms? E.g., ODI $ 10 million or Rs. 48 crores Sold for $ 8 million or Rs. 51 crores PRAVIN P. SHAH & CO., CAs 66

67 Situation JV / WOS Listed IndCo. is Listed in India + NW Rs. 100 cr. IndCo. is Listed + NW Rs. 100 cr. but ODI $10m Unlisted Indian Party but ODI $10m Condition Auto Route for w/off in all 4 cases Additional Conditions: No O/S Div / Royalty / FTS / Com. from JV / WOS JV / WOS been in operation for 1 full year APR + Audited Accounts for that Yr filed with RBI Indian Party not under Investigation by CBI / ED/SEBI / IRDA, etc. Report through AD in 30 days Sale proceeds within 90 days of Date of Sale For U/L: SPA or Share Transfer? PRAVIN P. SHAH & CO., CAs 67

68 Loss-making WOS Not fulfilling conditions for Auto Route Wanted to sell at Loss : Capital Gain from other sales so S/o Loss Applied to RBI in Feb-end Permission came only in April 1 st Week Orally permission granted before 31 st March Provide for ample time for RBI permission Implications if sold on 31 st March? - Sale Invalid? - Set off of Loss available? PRAVIN P. SHAH & CO., CAs 68

69 Stake sale by JV / WOS Whether RBI Permission reqd.? - No. Even if Write off involved Intimation to RBI within 30 days of approval by WOS Board PRAVIN P. SHAH & CO., CAs 69

70 No specific provision under FEMA Should be same as Sale of Shares of JV / WOS Check local laws Income-tax Implications of Buyback: No Deemed Dividend exemption Dividend taxable Balance taxable as Capital Gains in hands of Indian Party PRAVIN P. SHAH & CO., CAs 70

71 Can VL of JV / WOS be done? No specific permission for VL Does permission for loss cover VL? However, Form ODI & FAQs covers VL / Winding-up How to comply with Disinvestment Conditions: Sale Price not less than FMV certified by CA / CPA based on latest Audited A/c PRAVIN P. SHAH & CO., CAs 71

72 Can VL of JV / WOS be done? Income-tax Implications of VL of Foreign Company S.46(2) & S.2(22)(c) applicable because Company includes a Foreign Body Corporate PRAVIN P. SHAH & CO., CAs 72

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74 Other Modes of Acquisition of For. Bus. by an ICo Merge FCo into ICo Demerger of Bus from Fco into ICo Sale of Bus. By ForCo to ICo PRAVIN P. SHAH & CO., CAs 74

75 Shareholders of Star TV BVI Star India P Ltd Merged Into Star TV BVI PRAVIN P. SHAH & CO. 75

76 Shareholders of Cairns Australia Cairns India Ltd Demerger of Indian Oil Business Cairns Australia PRAVIN P. SHAH & CO. 76

77 Regulations to be Considered Company Law FEMA / FDI Policy Competition Law Income-tax Stamp Duty SEBI Permission if Indco is Listed PRAVIN P. SHAH & CO., CAs 77

78 Equity Funding- TML Cash Resources India SPV 1 (Singapore) Singapore Ford Motors UK Sale of Assets of Jaguar Land Rover SPV 2 (UK) Equity Funding UK PRAVIN P. SHAH & CO., CAs 78

79 Facility only for Listed Indian Cos. Can invest up to 50% of Indian Co s Net Worth In Shares + Rated Bonds / Fixed Income Securities of Overseas Listed Co. Master Cir. & FAQs treat this as Portfolio Investment DI excludes Portfolio Investment Foreign Company can be in any Business? What if ForCo. in Real Estate / Banking Business? R. 5 embargo only applies to DI outside India and not to Portfolio Investment Can Indian Listed Banks buy small Listed Foreign Banks? What if ForCo in FSS restrictions u/r. 7 applicable? PRAVIN P. SHAH & CO., CAs 79

80 Gift from PROI Cashless ESOP Inheritance from PROI/PRII ESOP to Ind. JV / Sub Qualification Shs. by Dirunder LRS Rights Shares Shs. for Fees / Dir. Remn. - LRS Shs. of JV/WOS in IT < $10000 in 5 Yrs + 5% of Cap ADR / GDR ESOP in Know. Sectors < $50,000 in 5 Yrs PRAVIN P. SHAH & CO., CAs 80

81 S.6(4) of FEMA, 1999 PRII can Hold / Own / Transfer / Invest in Foreign Securities If they were Acquired / Held / Owned when he was PROI Or they were Inherited from PROI PRAVIN P. SHAH & CO., CAs 81

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83 Requirement Compliances Remarks Only One Designated AD Obtain UIN Receive Certificates 1 AD for all transactions for one JV / WOS Can have different ADs for different JV / WOS RBI Allots UIN for a JV / WOS All invst. for one ODI -one UIN Auto-generated Further invst. requires UIN Give evidence of Share Certificates / other documentary proof to AD in 6 mts. 2 or more Promoters one AD only for both To switch ADs RBI permission + AD s NOC UIN not a de facto Approval from RBI Non-receipt of UIN write to RBI through AD Country does not issue Share Certificates? E.g., China PRAVIN P. SHAH & CO., CAs 83

84 Requirement Compliances Remarks Repatriate Dues Repatriate all Dividend / Interest / Royalty / FTS within 60 days of falling due RBI can extend period File APR with AD File Form FLA with RBI File APR based on Audited Accounts of preceding FY By 30 th June every year File with Dept of Statistics, RBI By 15 th July every year If Audit not reqd. abroad then based on Unaudited A/c Indian Auditors to certify True & Fair of JV/ WOS? Unaudited A/c adopted & ratified by BoD of IndCo PRAVIN P. SHAH & CO., CAs 84

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86 Automatic Route available Overseas Branch treated as PRII Can have Bank A/c abroad for normal business operations Branch can t enter into Contract in Contravention of FEMA Cannot create Financial Liability (contingent / actual) Surplus Funds can t be invested abroad & must be repatriated Limit on Remittances to Bank A/c for Initial & Recurring Exp. Acq. of Imm Property abroad for Business & Residential Purposes of staff allowed within above limits PRAVIN P. SHAH & CO., CAs 86

87 Factors to be considered Foreign Laws on Overseas Branches Limited Liability Angle Would expose Indian party to Unlimited Liability Taxation on Transfer of Branch Profit Procedure? Form OBR required under FERA s ECM Now PRAVIN P. SHAH & CO., CAs 87

88 Tax DTAA Provisions on Income Streams C&M / PoEM of ForCo Thin Capitalisation Rules abroad CFC / PFIC Rules Transfer Pricing & S. 93 Guarantee Commission & Loans Hindalco / Siva Accounting Impairment Losses Novellis / Corus Consolidation of Accounts Law Company Law - S. 372A International Legal System & Arbitration Rules PRAVIN P. SHAH & CO., CAs 88

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