FEMA - Overseas Direct Investment SIRC Chennai April 22, 2017 VIVEK MALLYA & CO, Bangalore 1
Quick Background Notes Definitions Context Automatic Route / Approval Route Investments by Individuals Reporting and Compliance Funding and Criterion Capitalization of Receipts SPV / Step Down Subsidiaries Overseas Branch / Warehouse Challenges POEM and Tax 2
Important provisions Applicable to Residents NRIs / OCIs? Joint Ventures / Wholly Owned Subsidiary Core Activity Definition 50% of Indian Entity s Turnover Definition of Direct Investment outside India Financial Commitment : - Equity / Loan / Guarantees = 100% - Performance Guarantee = 50% Indian Party LLP, Firms, Companies notified entities 3
General Permission / Automatic Route Conditions General Permission for persons resident in India, to acquire foreign securities out of / being: - RFC Account remittances - bonus shares on existing foreign currency shares - when non-resident, out of forex Automatic Route: - 400% of NW or USD 1 Billion - Guarantees with Equity Participation only - Group / Indian Party (extended definition) commitment considered for Guarantees - No Open Ended Guarantees (Performance Guarantee subject to contract) - JV / WOS can extend BG / SBLC as well (Prudential norms, caution list, etc) - ONE BRANCH UIN (WOS v/s JV) - > 5 Million USD requires Cat I MB Certification - Swap of Shares require FIPB Approvals 4
Quick Background Notes Form ODI Mode of Funding Forex drawal; Capitalization of exports, swap of shares, ECB proceeds, EEFC Activity Code (Financial Services?) Net-worth certification and CA expectation Paid-up Capital for net worth (CCPS / CCDs?) JV / WOS / SDS / SPV (purpose of SPV) APR Filings, subsequent remittances Post Investment Changes reporting 5
Quick Background Notes Form ODI APR (Form ODI Part II) - Capital Structure, Operating results, repatriation - SDS to be reported separately - Certificate from Indian Party - Receipt confirmation of Share Certificates - All repatriation 60 days - APR CA Certificate - audited / unaudited accounts - APR Self Certification by Individuals Form ODI Part III - Reporting of Divestment sale, merger, closure, liquidation - Outstanding dues, ops for more than 1 year, APR filings Care to be taken: - Letter of Representations - Guarantees and Loan Commitments - Overseas Compliance and Audit 6
Important provisions Approval Route RBI Permission: - All Applications to RBI CGM FED Mumbai, through AD - Prima facie viability of the JV / WOS outside India - Trade and other benefits - Financial Position and Track Record - Expertise and experience of the IP Obligations of Indian Party / Resident Individual - receive share certificates 6M - repatriate dues 60 days - APR filings 31 Dec 7
Important provisions Divestment / transfer to NR (Automatic) - Not to result in write off - Stock exchange price / CPA Certified price - Repatriation and filings up to date - Reporting 30 days Write off based transfer listed JV / WOS; net worth of Indian listed party is INR 100 Cr and above; < 10 million for unlisted Indian Party Pledge of Shares Creating charge on domestic and foreign assets 8
ODI by Individuals General Permission: - Gift from person resident outside India - Cashless ESOP - Inheritance - ESOP Indian Director; Employee of Foreign Co (SPV, Indirect, Trust - OK) LRS / Automatic - Auto route other than real estate and financial services - LRS Limits - Operating Company ONLY; no JV / WOS to be acquired - divestment only after 1 year; no write off Reporting under Black Money Law / IT Returns 9
Other Important Points Certificate of Valuation Indian CA? Guarantees for Step-down Subsidiary Investment through SPV POEM Circular Active Business Test Recent Singapore notices for COR issuance and denial of DTAA benefits APA s and Transfer Pricing Mutual Agreement Provision Overseas Incorporation Process and past experience 10