FOREIGN DIRECT INVESTMENT POLICY 2017- A SYNOPSIS FDI is a responsibility for Indians & an opportunity for the world. My definition of FDI for the people India is First Develop India Narendra Modi
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Information in the following slides is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. K Vijayaraghavan & Associates LLP accepts no responsibility for loss arising from any action taken or not taken by anyone using these slides.
Why This? To attract and promote foreign direct investment To supplement domestic capital, technology and skills For accelerated economic growth. The policy has taken effect from August 28, 2017
PROHIBITED SECTORS PERMITTED SECTORS Lottery Business Gambling And Betting Chit Funds Nidhi Company Trading In Transferable Development Rights Real Estate Business Or Construction Of Farm Houses* Manufacturing Items From Tobacco Or Its Substitutes. Sectors Not Open To Private Sector Investment Foreign Technology Collaboration In Any Form In the following Sectors FDI is allowed upto the limit provided in each Sector. In Sectors not listed below, FDI is allowed up to 100% on the automatic route. Agriculture Mining & Petroleum & Natural Gas Manufacturing Services Sector Financial Services Pharmaceuticals *Real estate businesses shall not include development of townships, construction of residential /commercial premises, roads or bridges and REIT s registered and regulated under the SEBI (REITs) Regulations 2014.
Who Can Invest? - Eligible Investors (Country Specific) Nepal & Bhutan Others On repatriation basis In free foreign exchange Through normal banking channels Subject to the conditions of FDI policy 2017 as discussed Bangladesh & Pakistan Only through government route Defence, Space & Atomic Energy is prohibited for Pakistan
Who Can Invest? - Eligible Investors (Entity Specific) FII/FPI Company/Trust/Partnership Firm controlled by NRI s Overseas Corporate Bodies Foreign Venture capital investor Others (a) (b) Individual Holding <10% of capital Total Holding < 24% of capital For increase in (b) Special dispensation as available to NRIs under the FDI Policy. Not under adverse notice of RBI Automatic route Govt. route Registered with SEBI Subject to FEMA regulations Subject to the conditions of FDI policy 2017 as discussed Board Resolution Special Resolution RBI permission RBI permission Govt. approval
Types of Instruments Equity Preference Debentures Fully, compulsorily and mandatorily convertible Non-convertible, optionally/partially convertible Fully, compulsorily and mandatorily convertible Non-convertible, optionally/partially convertible FDI FDI Debt FDI Debt FDI is subjected to FDI Policy Debt is subjected to norms applicable to ECBs Includes FCCBs and Depository receipts Any Indian Company can issue above mentioned eligible instruments against inflow of FDI
Who Can Receive Investment? Eligible Investees Company AOP LLP Proprietary Concern AJP BOI Trusts Partnership Firm Any other HUF *Subject to the terms & conditions of the FDI policy
Eligible Investees..(supplement riders) Partnership Firm/Proprietary Concern Investors: NRI, PIO Resident Outside India Others Non- Repatriation Option Repatriation Option Prior Permission Of RBI and Government By inward remittance NRE/FCNR( B)/NRO account maintained with Authorized banks Restriction: Agricultural or Plantation Activity, Real Estate Business, Print Media. Prior Permission Of RBI
Eligible Investees..(supplement riders) Investment Vehicle Person resident outside India Citizens or entities of Pakistan or Bangladesh Registered Foreign Portfolio Investor (RFPI) Foreign Company LLP Foreign Company LLP LLP Conversion Indian Company Non-resident Indian (NRI) LLP Trusts Registered Venture Capital Fund Regulated by SEBI & Investment Vehicle Through Automatic route and sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.
Eligible Investees (supplement riders) Person resident outside India Issue convertible notes Startup Company (Private company) Issue equity/ equity linked/ debt instruments Foreign Venture Capital Investor (FVCI) Other than Citizens or entities of Pakistan or Bangladesh Purchase in amounts of min Rs.25 lakhs in single tranche Against receipt of foreign remittance Comply regulations as per FEMA Consideration shall be paid by inward remittance through banking channels or by debit to NRE/ FCNR(B)/ Escrow account (to be closed within max 6 months after completion of requirements)
Entry Routes Automatic Route Approval Route No approval from Government is required Approval from Government is required Ownership is by a foreign company through acquisition or transfer of shares of Indian Company Control is by a foreign company through acquisition or transfer of shares of Indian Company
Procedure For Government Approval Application to Competent Authority Examination By Competent Authority As Per Standard operating Procedure If total FDI> Rs. 5000 crore No Yes Application shall be forwarded to CCEA Note: If The Application Is Rejected By The Competent Authority(CA), Concurrence Of DIPP Shall Compulsorily Be Sought By The CA APPROVED For establishment of any other place of business in India, if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, approval of RBI is not required in cases where Government approval has already been taken
Issue of Shares Issue price of shares Time period for Issue of Capital Instruments Within 180 days from date of receipt of inward remittance If not issued within 180 days, refund immediately Price as per SEBI guidelines Shall not be less than Fair valuation done by SEBI registered Merchant Banker or CA Price as applicable to transfer of shares from resident to non-resident as per RBI s pricing guidelines, where the issue is on preferential allotment *Where non-residents are investing in Indian Co. by way of subscription to MOA, investment may be made at face value
Transfer of Shares Acquisition of shares and convertible debentures by way of transfer General permission granted* Prior permission of RBI Approval of RBI not required Transferor Mode Transferee Person resident outside India (other than NRI & OCB) Sale or gift NRIs Sale or gift NRIs Person resident outside India Person resident outside India Person resident in India Person resident outside India Gift Sale on Stock exchange in India Sale under private arrangement Sale under private arrangement Person resident outside India (including NRIs) Person resident in India Any person Person resident outside India Person resident in India *Form FC-TRS should be submitted within 60 days from date of receipt of the amount of consideration Transfer from resident to nonresident by way of sale where: Transfer price is not as per RBI s pricing guidelines Transfer involving deferment of payment of the amount of consideration Transfer from resident to nonresident by way of gift Transfer from non-resident to resident where the pricing guidelines are not met provided that: Original & resultant investment are in line with the extant FDI policy CA certificate to the effect that compliance with the relevant SEBI regulations is attached to the form FC-TRS
Transfer of shares/convertible debentures Resident Non-resident Non-resident Resident Pricing Listed on RSE Not Listed on RSE Not less than Price at which preferential allotment can be made under SEBI guidelines Consent letter signed by buyer and seller POA, if consent letter is signed by Agent Shareholding pattern after transfer Certificate by CA indicating Fair value Broker s note if sale is made on Stock exchange Undertaking by buyer that he is eligible to acquire shares Undertaking of FII, that ceiling limit as per SEBI is adhered to Documentation Fair value, as per SEBI registered Merchant Banker or Chartered Accountant Not more than Consent letter signed by buyer and seller POA, if consent letter is signed by Agent RBI approval, if sellers are NRIs/OCBs Certificate by CA indicating Fair value No objection/tax clearance certificate from IT authority/ca Undertaking by buyer to the effect that the pricing guidelines have been adhered to.
Conversion to eligible FDI instruments ECBs Eligible FDI instruments Lump sum fee Eligible FDI instruments Amount after conversion is within sectoral cap Pricing is according to FDI policy Non-violation of any other statute and regulation in force Conversion facility is available from non-resident collaborators Amount after conversion is within sectoral cap Pricing is according to FDI policy Subject to tax laws conversion to equity shall be net of applicable taxes Pre incorporative expenditure Eligible FDI instruments Wholly owned subsidiary under automatic route No FDI linked conditionality Expenses limit to 5% of capital or $500,000, whichever is less Filing of relevant documents with RBI Valuation as per FDI policy Certificate issued by Statutory Auditor General conditions: Request shall be accompanied by special resolution of the company Issue of equity shares shall be under Govt. route as stated in FDI policy
Conditions on Investment Instruments. Right/Bonus Shares Freely issue to existing NR in accordance with other applicable laws Overall issue shouldn t exceed the Sectorial Cap Price for offer on right basis Merger/Demerger/Amalgamation Percentage of holding by NR shouldn t exceed the Sectorial Cap Transferee/Transferor/New company shouldn t engage in activities prohibited under FDI Policy Non convertible/redeemable bonus preference share or debentures By way of distribution as bonus from its general reserve by Court of India No objection from Income Tax Authorities Listed Company Unlisted Company As determined by the company Greater than the price at which the offer is made to resident shareholders
Conditions on Investment Instruments ESOP/Sweat Equity Subject to SEBI Regulations Subject to sectoral cap under the policy Share Swap Valuation by a Merchant Banker registered with SEBI or an Investment Banker registered with appropriate authority outside India Declaration No Government from statutory approval auditor requiredmust under be Automatic obtained stating route that the loan has been utilized for the declared purposes Resident A Promoter of a company which has raised ECB s may pledge shares subject to no objection from an authorized bank dealer Loan Registration Number (LRN) should be obtained from RBI Pledge of Shares AD Bank Declaration from a CA must be obtained stating that the loan has been utilized for the declared purposes In case of invocation of pledge, transfer of shares should be in accordance with the FDI policy at the time of creation of pledge Non Resident Overseas Bank In accordance with the FDI policy Declaration by CA/CPA for genuine utilization of loan Loan is utilized for genuine purpose overseas Overseas investment shouldn t result in any capital inflow in India
Remittance & Repatriation Remittance on Winding up/ Liquidation of Companies Remittance on sale proceeds Subject to FEMA regulations NOC from Income Tax Department Subject to payment of applicable taxes NOC from Income Tax Department Auditors Certificate conforming that all the liabilities have been paid and Companies Act has been complied with In case of winding up other than by court, an Auditor s Certificate that no legal proceedings/impediment pending in court Repatriation of Dividend and Interest Without any restriction Subject to FEMA Regulations
Reporting of FDI Reporting of Inflow Reporting of Issue of shares 1. Report details of amount of consideration to the RBI s Regional Officer not later than 30 days in Advance Reporting Form 2. FIRCs copies along with KYC 3. Regional Officer will allot UIN for the amount reported CS certificate certifying that Companies Act s requirements have been complied with Terms & conditions of Govt. s approval have been complied with Company is eligible to issue shares Company has all original certificates File form FC-GPR in not later than 30 days from the date of issue along with the following documents: Annual return on Foreign Liabilities & Assets (by 15 th July of every year) Report of receipt of consideration Certificate from SEBI registered Merchant Banker or CA indicating manner of arriving at issue price
Reporting of FDI Partial conversion of ECB into equity Report the converted portion in Form FC-GPR to Regional Office and Form ECB-2 clearly differentiating the converted portion from the nonconverted portion Reporting of Non-cash Report issue of shares against conversion of ECB to Regional Office Full conversion of ECB into equity Report in Form FC- GPR to Regional Office and Form ECB- 2 to Dept. of Statistics within 7 working days from the close of the month. Reporting of transfer of shares File form FC-TRS to be submitted to AD Category-I bank within 60 days from date of receipt of consideration Reporting of FCCBs or Depository receipts The domestic custodian shall report the issue/transfer within 30 days of close of issue as per DR scheme, 2014
Penalties Violation or contravention of any provision of policy Thrice the sum involved in such contraventions where the amount is quantifiable Upto Rs 2 lakh where the amount is not quantifiable Where the contravention is a continuing one, further penalty of Rs. 5000 per day Any Adjudicating Authority may impose additional penalty as he thinks fit *Can be contested in further appeal and offences may be compounded
Downstream investment Downstream investments by eligible Indian entity not owned by resident entity into another Indian company Notify RBI & Foreign Investment Facilitation Portal within 30 days Issue/ transfer/ pricing/ valuation of capital as per SEBI/RBI guidelines Bring in funds from abroad & not from the domestic market Duly supported by a Board resolution & shareholder agreement, if any Downstream investment means indirect foreign investment, by an eligible Indian entity, into another Indian company/llp, by way of subscription or acquisition. Such an Indian company/llp would have indirect foreign investment if the Indian investing entity has foreign investment in it.
Entities which earlier required Government approval and are now placed under Automatic Route Entities which earlier had Sectorial Cap but subsequently such cap was removed Additional FDI upto cumulative amount of Rs. 5000 crore where within an approved foreign equity percentage Cases Which Don t Require Fresh Approval For Bringing In Additional Funds Into The Same Entity Entities which earlier had Sectorial Cap but subsequently such cap was increased Additional Investment Into the same entity where approval of Government had been obtained earlier
Sector/Activity FDI Cap Entry Route Agriculture & Animal Husbandry Floriculture, Horticulture, and Cultivation of Vegetables & Mushrooms under controlled conditions Development and Production of seeds and planting material Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, Apiculture Services related to agro and allied sectors Plantation Sector Tea sector including tea plantations Coffee plantations Rubber plantations Cardamom plantations Palm oil tree plantations Olive oil tree plantations 100% Automatic 100% Automatic Mining Mining and Exploration of metal and non-metal ores Coal & Lignite Setting up coal processing plants Mining and mineral separation of titanium bearing minerals and ores 100% Automatic
Sector/Activity FDI Cap Entry Route Petroleum & Natural Gas 100%/49% Automatic Defence 49% Automatic up to 49% Government route beyond 49% Pharmaceuticals Greenfield Brownfield (Automatic up to 74%, Government route beyond 74% ) 100% Automatic Asset Reconstruction Companies 100% Banking- Private Sector 74% Automatic Automatic up to 49%, Government route beyond 49% and up to 74%. Banking- Public Sector 20% Government Credit Information Companies Infrastructure companies in Securities Markets Stock exchanges, commodity exchanges, depositories and clearing corporations 100% Automatic 49% Automatic
Sector/Activity FDI Cap Entry Route Insurance Insurance Company Insurance Brokers Third Party Administrators Surveyors and Loss Assessors Other Insurance Intermediaries appointed under the provisions of IRDA 49% Automatic Pension Sector 49% Automatic Power Exchanges 49% Automatic White Label ATM Operations Financial Services activities regulated by financial sector regulators RBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India Broadcasting Carriage Services Teleports, DTH, Cable Networks, Mobile TV, Headend-in-the-Sky Broadcasting Service Broadcasting Content Services FM Radio, Up-linking of News & Current Affairs TV Channels 100% Automatic 100% Automatic 100% Automatic 49% Government
Sector/ Activity FDI Cap Entry Route Broadcasting Content Services Up-linking of Non- News & Current Affairs TV Channels/ Down-linking of TV Channels Print Media Publishing of newspaper & periodicals and Indian editions of foreign magazines dealing with news and current affairs Print Media Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, Publication of facsimile edition of foreign newspapers Civil Aviation-Airports Greenfield projects, Existing projects Civil Aviation-Air Transport Services Scheduled & Regional Civil Aviation-Air Transport Services Non-scheduled, Helicopter Services Civil Aviation-Others Ground Handling Services, Maintenance & Repair organizations, flying training institutes, technical training institutions Construction Development Townships, Housing, Built-up Infrastructure 100% Automatic 26% Government 100% Government 100% Automatic 100% Automatic up to 49% (Automatic up to 100% for NRIs) Government route beyond 49% 100% Automatic 100% Automatic 100% Automatic
Industrial Parks New and existing Satellites Establishment and operation Sector/ Activity FDI Cap Entry Route 100% Automatic 100% Government Private Security Agencies 74% Automatic up to 49% Government route beyond 49% and up to 74% Telecom Services 100% Automatic up to 49% Government route beyond 49% Trading-Cash & Carry Wholesale Trading/Wholesale Trading Including sourcing from MSEs, E-commerce activities, Duty free shops 100% Automatic Trading-Single Brand Product Retail 100% Automatic up to 49% Government route beyond 49% Trading-Multi Brand Retail 51% Government Railway Infrastructure 100% Automatic *The above mentioned sectoral caps are subject to conditions as mentioned in the FDI policy
The Road Ahead Liberalization in key sectors leading to investor-friendly climates. Relaxation in regulatory policies facilitating investments and ease of doing business. Transparent and user-friendly system. Drive investment, foster innovation, develop skills and building best-in-class infrastructure. Collaborative models extended to boost public-private partnerships including global partners.
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