Foreign Direct Investment Consolidated Policy FDI

Transcription

1 Foreign Direct Investment Consolidated Policy FDI D S Vivek ICAI Bangalore Branch 14 th April April 2010 Suresh & Co., FDI background Controlled economy to Open economy Industrial policy liberalized-july 91 Scrapping of Industrial licensing Liberalization of controls on forex Allowing FDI and Technical collaborations 21 April 2010 Suresh & Co.,

2 FDI- Agencies Involved FEMA- Administered by RBI (FED)- Notifications / AP (DIR) Circulars DIPP, Min. of Industry & Commerce- Regulates and Supervises FDI through press notes FIPB/ SIA approves FDI requiring Govt. approval SEBI listed company, FII and FVCI 21 April 2010 Suresh & Co., Consolidated Circular on FDI Need due to scattered Press Notes Regulated by FEMA notifications/ap Dir RBI-Master Circulars Consolidated at one place Bring Transparency in FDI 21 April 2010 Suresh & Co.,

3 Legal Basis of Consolidated Circular Circular No.1 of 2010 of DIPP dt Valid till Sept 30, 2010 fresh updated circulars very 6 months Subsumes all previous Press Notes/ Press Releases/ Clarifications on 31 st March 2010 Legal effect through FEMA notification Notification Prevails over Circular/PN 21 April 2010 Suresh & Co., Structure of Cir No.1 Intent & Objective Definitions Origin,Type,Eligibility,Conditions and Issue/Transfer of Investment Calculations, Entry Routes, Caps, Entry Conditions of Investment Policy on Route, Caps and Entry Conditions-Sector wise Remittance, Reporting and Violation 21 April 2010 Suresh & Co.,

4 Intent & Objective Financial Contribution by Non Residents FDI and Portfolio Investments FDI is long term and strategic degree of influence on entity Portfolio for gain through appreciation in value and dividend Policy of Govt to attract FDI Only consolidates and not to bring changes Earlier actions valid 21 April 2010 Suresh & Co., Definitions Capital : Equity shares, Fully, compulsorily and mandatory convertible preference shares and debentures Warrants and partly paid shares or any other instrument cannot be issued FDI- investment by NR entity / NR person in capital of Indian company as per Sch-1 of FEMA 21 April 2010 Suresh & Co.,

5 Definitions PIO- citizen of any country other than Bangladesh or Pakistan held Indian passport, parents or grand parents were citizens, spouse of Indian citizen or of a PIO as per above 2 conditions 21 April 2010 Suresh & Co., Origin A NR entity/person other than citizen of Pakistan or entity incorporated in Pakistan can invest in India subject to FDI policy Bangladesh citizen or entity can invest only through Govt. approval NRI s and Citizens in/of Nepal or Bhutan can also do on repatriation basis if done through convertible forex 21 April 2010 Suresh & Co.,

6 Origin-Cont. OCB s- either through govt route or RBI approval FII through FDI or Portfolio scheme - 10% or 24% would be applicable even under FDI NR other than FII/NRI/PIO through PIS can invest through secondary market 21 April 2010 Suresh & Co., Types of Instruments Equity Shares, CCPS,CCD-pricing Guidelines to be determined upfront Other Types of PS/ debentures would be treated as ECBs FCCB/ Depository Receipts as per respective guidelines 21 April 2010 Suresh & Co.,

7 Eligibility of FDI in Resident Entities Indian companies including micro and small enterprises NRI/PIO can invest in Firm / Proprietary concern on non repatriation basis (Not In Agri /plantation /real estate /print media) On repatriation basis with RBI approval Other NRs with approval of RBI in consultation with Govt. FDI in Trusts other than VCF not allowed FDI in other entities not allowed. LLP? 21 April 2010 Suresh & Co., Conditions on issue of shares Issue with in 180 days of receipt Issue price as per SEBI guidelines for listed companies Unlisted company-based on CA valuation as per CCI guidelines Can open Foreign Currency account with RBI approval to retain share subscription 21 April 2010 Suresh & Co.,

8 Conditions for transfer of shares NR (other than NRI/OCB) can sell / gift shares to any NR (including NRI) NRI can sell/ gift to another NRI Existing Venture/Tie Up condition to be satisfied in above cases NR can gift to resident NR can sell shares through exchange through broker 21 April 2010 Suresh & Co., Conditions for transfer of shares Resident can sell to NR (including subscription shares ) by private arrangement, other than shares in financial services sector subject to Ann-2 NR can sell to resident by private arrangement subject to Ann-2 Ann-2 pricing, documentation 21 April 2010 Suresh & Co.,

9 Conditions for transfer of shares Also covers transfer of shares earlier under approval and now under Automatic Also covers buy back and capital reduction Above not applicable for Finance sector (R to NR) 21 April 2010 Suresh & Co., RBI approval for transfers btw Residents to Non Residents In finance services sector Transactions attracting takeover code Activity of Indian company not under automatic route and FIPB approval has been obtained Outside pricing guidelines prescribed by RBI Deferred payment transactions Shares of sectors under Govt Route Govt approval and RBI approval 21 April 2010 Suresh & Co.,

10 RBI approval for gift to NR Documents in Ann3 to be given Eligibility of the donee Does not exceed 5% of paid up capital Sectoral cap is complied with Relatives Not exceeding USD 25K per calendar year 21 April 2010 Suresh & Co., Other Conditions for issue Conversion of ECB/Lump sum fee/royalty to equity Rights/Bonus shares subject to sectoral cap-right price not lower than that offered to residents Rights to OCB require RBI approval Additional shares on rights if not breaching sectoral cap ESOP-employees of JV/WOS, not exceeding 5%, report with in 30 days 21 April 2010 Suresh & Co.,

11 Calculation of FDI FDI = Direct + Indirect Holdings Indirect Holdings by Indian company owned or controlled by NR Investment by Indian company not considered if owned and controlled by Resident citizens or by Indian company owned and controlled by Resident citizens 21 April 2010 Suresh & Co., Calculation of FDI Investment in X India by Y India Company Y has FDI less than 50%, then investment in X is not FDI Where company Y has 75% FDI and - Y invests 26% in X, FDI is 26% -Y Invests 80% in X, FDI is 80% -Y invests 100% in X, FDI is only 75% (exception) To be calculated at every stage of investment 21 April 2010 Suresh & Co.,

12 Entry Routes for Investment Automatic Route Government Route -FIPB approval required Existing venture/ Tie Up Condition- Jan 12,2005 conflict of interest clause Not applicable for VCF, JV interest less than 3%, Defunct/Sick, IT or mining sector 21 April 2010 Suresh & Co., Other Conditions for Investments Caps on Investments Entry conditions like minimum capitalization, lock in period etc. Others like relevant sectoral laws, national security, mandatory transfers etc. Downstream investment allowed- Indirect FDI 21 April 2010 Suresh & Co.,

13 Guidelines for FIPB approval Should be put up with in 15 days Decision to be communicated with in 30 days Presentation may be called if further clarification or deliberations are required Sectoral requirements and policies Requirement of licensing 21 April 2010 Suresh & Co., Guidelines for FIPB approval Export projections Strategic or defense related considerations Priority to be given to - Infra -export potential - employment opportunity - linkage to agri / farm sector - induction of technology or capital 21 April 2010 Suresh & Co.,

14 Guidelines for FIPB approval Upto 1200 Cr Minister of Finance in charge of FIPB approval required Above 1200 Cr- CCEA 21 April 2010 Suresh & Co., FDI Prohibition Retail Trade Atomic energy Lottery Gambling (even franchise and technology collaboration not allowed) Chit Fund TDR Real Estate or Construction of Farm houses Activities not opened to Private Sector 21 April 2010 Suresh & Co.,

15 Agriculture Sector 100% under Automatic in floriculture, horticulture, development of seeds,cultivation of vegetables etc, services related to agro and allied sector FDI not allowed in any other Agri sector cereals, pulses For seed development- safety requirements as per Environment Protection Act on genetically modified organism 21 April 2010 Suresh & Co., Manufacturing Sector Require Govt Approval for manufacture of items reserved for MSE sector and investment above 24%. Also require industrial license 21 April 2010 Suresh & Co.,

16 Cigars & Cigarettes Currently with Govt Approval subject to Industrial license Proposal to ban FDI even with Govt Approvals 21 April 2010 Suresh & Co., Defence Sector FDI upto 26% under Govt approval Industrial License required Approval in consultation with Ministry of defence Management in Indian hands Chief Executives to be resident Indian 21 April 2010 Suresh & Co.,

17 Power sector 100% under automatic allowed in generation, non conventional, distribution and power trading FDI not allowed in atomic power plant / atomic energy reserved for public sector 21 April 2010 Suresh & Co., Advertising & Film 100% FDI under Automatic route 21 April 2010 Suresh & Co.,

18 Civil aviation Sector Greenfield airports 100% automatic, existing airports automatic upto 74% and above with Govt Approval upto 100% Scheduled passenger service : FDI upto 49% and NRI upto 100% under Automatic Non Scheduled : upto 49% automatic, from 49% to 74% with Govt Approval 21 April 2010 Suresh & Co., Business Services 100% FDI under automatic Data processing, software development and consultancy, business and management consultancy services, market research, technical testing and analytical services 21 April 2010 Suresh & Co.,

19 Construction Development Projects FDI upto 100% under automatic Serviced housing plots- min 10 hecters acres Construction development projects min 50,000 sq mtr ( 50 lac sq.ft) Combined projects-one of the above criteria Min Cap USD 10mil for WOS and USD 5 Mil for JV Conditions not applicable for NRIs, Tourism and Hospital projects and SEZ 21 April 2010 Suresh & Co., NBFC sector Merchant Banking, Under writing, PMS, Investment Advisory services, Financial Consultancy, Stock Brokers, Venture capital, Forex broking, Housing finance etc- 100% FDI Automatic USD.5 Mil for 51% to be brought upfront USD 5 Mil upto 75% -upfront USD 50 Mil for more than 75%, 7.5Mil upfront and balance with in 24 month For Non Fund based.5mil irrespective of % 21 April 2010 Suresh & Co.,

20 Venture capital Fund Registered FVCI can invest 100% in Indian VC undertaking and can also set up Asset management Company FVCI can also invest in domestic Venture capital Fund If it is a Trust then Govt. approval required Domestic Fund to be registered SEBI 21 April 2010 Suresh & Co., R & D Services 100% allowed under automatic route Excludes Basic Research and Setting up of R & D? Excludes Academic institutions which would award degrees/ diplomas/ certificates ( Foreign Universities?) 21 April 2010 Suresh & Co.,

21 Trading 100% Automatic in Cash Carry Whole sale / Whole sale trading Whole sale Trading defined Sale to group companies less than 25% To have daily sales data to whom sold Ecommerce only in B2B Credit sales allowed Single Brand retailing allowed upto 51% under Govt Approval Test marketing allowed for 2 yrs with set up of manufacturing facility 21 April 2010 Suresh & Co., Repatriation AD can allow if sold as per prescribed guidelines and NOC/tax clearance certificate has been obtained AD can allow remittance on winding up or liquidation of company 21 April 2010 Suresh & Co.,

22 Penalty Upto 3 times the amount involved if amount involved can be determined Upto 2 lacs if it can not be determined Compounding of offence is allowed only if the amount is quantified Only 1 allowed in 3 years 21 April 2010 Suresh & Co.,