Toolkit Entry of Foreign Investors in India Aug26 v4 · DP Depository Participant DR Depository...

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Transcript of Toolkit Entry of Foreign Investors in India Aug26 v4 · DP Depository Participant DR Depository...

Page 1: Toolkit Entry of Foreign Investors in India Aug26 v4 · DP Depository Participant DR Depository Receipt ... • Major accounts permitted for Non-Resident include: NRE, NRO and FCNR
Page 2: Toolkit Entry of Foreign Investors in India Aug26 v4 · DP Depository Participant DR Depository Receipt ... • Major accounts permitted for Non-Resident include: NRE, NRO and FCNR

FOREIGN PARTICIPATION IN INDIA

Contents

1. Setting up Business in India

1.1. Overview

2. Types of Foreign Participation

2.1. Overview

2.2. Understanding investors/ instruments

2.2.1 Foreign portfolio investors

2.2.2 Foreign venture capital investors

2.2.3 Depository receipts

2.2.4 NRI/PIO investors

2.2.5 Investment vehicles

2.2.5.1. Infrastructure Investment Trusts (InvITs)

2.2.5.2. Real Estate Investment Trusts (REITs)

2.2.5.3. Alternate Investment Funds

3. Foreign Direct Investment in India

3.1. Understanding FDI

3.2. Prohibited Sectors

3.3. Institutional Set-up

3.4. Eligible Investors

3.5. Eligible Investee Entities

3.6. Types of Instruments for FDI

3.7. Sectoral Caps (%) and Entry Routes

3.8. Reporting requirements

3.9. Issue and Transfer of Shares

3.10. Conversion of ECB/Lump sum fee/Royalty etc. into Equity

3.11. Repatriation of dividends and interest

3.12. Remittance of proceeds from sale and winding up

4. Frequently Asked Questions (FAQs)

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FOREIGN PARTICIPATION IN INDIA

Act or the Act Companies Act, 2013

AD Authorised Dealer

AF Angel Fund

ADR American Depository Receipts

AIF Alternative Investment Fund

BO Branch Office

CA Chartered Accountant

CCEA Cabinet Committee on Economic Affairs

CCFI Cabinet Committee on Foreign Investment

CCS Cabinet Committee on Security

CoI Certificate of Incorporation

DDT Dividend Distribution Tax

DEA Department of Economic Affairs

DP Depository Participant

DR Depository Receipt

DSIM Department of Statistics and Information Management

ECB External Commercial Borrowing

EXIM Export-Import

FCCB Foreign Currency Convertible Bond

FCNR (B) Foreign Currency Non-Resident Account

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act

FII Foreign Institutional Investor

FIPB Foreign Investment Promotion Board

FPI Foreign Portfolio Investor

FVCI Foreign Venture Capital Investor

Abbreviations (1/3)

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Abbreviations (2/3)

GDR Global Depository Receipts

GoI Government of India

InvITs Infrastructure Investment Trusts

JV Joint Venture

KYC Know Your Customer

LLP Limited Liability Partnership

LO Liaison Office

MoA Memorandum of Association

MoU Memorandum of Understanding

NBFC Non-Banking Financial Corporation

NGO Non-Government Organization

NOC No Objection Certificate

NPO Non-Profit Organization

NRE Non-Resident Entity

NRE Account Non-Resident (External) Rupee Account

NRI Non-Resident Indian

NRO Account Non-Resident Ordinary Rupee Account

PAN Permanent Account Number

PIB Press Information Bureau

PIO Person of Indian Origin

PO Project Office

PSU Public Sector Undertaking

RBI Reserve Bank of India

REIT Real Estate Investment Trust

RoC Registrar of Companies

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Abbreviations (3/3)

SEBI Securities and Exchange Board of India

SEZ Special Economic Zone

SIA Secretariat for Industrial Assistance

SME Small and Medium-sized Enterprise

SMS Short Message Service

TDR Transferable Development Rights

TDS Tax Deducted at Source

VAT Value-Added Tax

VC Venture Capital

WOS Wholly-owned Subsidiary

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1 Setting up Business in India

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FOREIGN PARTICIPATION IN INDIA

Setting up Business in India

Entry of Foreign Investors in India

Foreign Investor can commence business in India as:

*Incorporate company in India s.t. sectoral caps and requisite approvals

Note: NRI/PIO can invest in sole proprietorship (repatriable) / partnership firm (non-repatriable), except those in agricultural or plantation or real estate business, or in the printmedia sector, s.t. approval of RBI

An Indian Company

Joint Venture

Wholly Owned

Subsidiary

A Foreign Company*

Liaison Office

Branch Office

Project Office

Limited Liability Partnership

LLP

OR

JV as (i) PrivateLimited or (ii) PublicLimited Company,s.t. Companies Act,2013

Permissible insectors where 100%FDI is permitted

To representparent companyin India

Activities suchas Export Importof goods;research,consultancy etc.

Activities as percontract toexecute project

OR

Subject toprovisions ofLLP Act, 2008

FDI permittedunderautomaticroute in LLPsoperating insectors/activities where 100%FDI is allowed,through theautomaticroute and thereare no FDIlinkedperformanceconditions

RBI guidelines regarding establishment of LO/BO/PO: https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10398&Mode=0

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Types of Foreign Participation

2

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FOREIGN PARTICIPATION IN INDIA

Foreign participation in India

Investment in unlisted/ listed companies (except through Stock Exchange)

Investment in listed companies

through stock exchange

ADRs and GDRs*

Investment Vehicle (REITs, INVITS, AIF)

Foreign Direct Investment

(FDI)

Foreign Venture Capital

Investor

Foreign Portfolio

Investors (FPI)

Investment by NRIs/

PIOs

Repatriable Non- repatriable

Note: An investor can participate in Indian economy by either commencing business in India (forms explained earlierin slide 7) via, say the FDI route as outlined above or can invest in the financial markets via a host of availablefinancial instruments. A few of these have been enumerated in the subsequent slides. In particular, FDI has beenexplained in detail in Section 3 of this document.

Overview of Foreign Participation

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Foreign Portfolio Investors

(FPI)

• Under the SEBI FPI Regulations,2014, Foreign Institutional Investors(FIIs) or sub accounts and QualifiedForeign Investors (QFIs) were mergedinto a single category, referred to asFPIs

• Category I FPI- Government andGovernment related investors;Category II FPI – broad based funds,banks, asset management companies, university and pension funds etc;Category III FPI- others such ascharitable societies, trusts,foundations etc.

• Purchase of equity shares of eachcompany by a single FPI or aninvestor group shall be below 10% oftotal issued capital of the company

• No person can buy, sell or deal in securities asFPI unless obtained a Certificate of Registrationfrom a Designated Depository Participant (onbehalf of SEBI)- Application in Form A alongwith prescribed fees

• Eligibility- Conditions such as person nonresident in India, not a NRI; applicant residentof country whose securities market regulatorsignatory to International Organization ofSecurities Commission's Multilateral MoU or asignatory to bilateral MoU; applicant legallypermitted to invest in securities outside thecountry of its incorporation ; track record ofapplicant etc.

• Bank Account: Appoint a branch of a bankauthorized by RBI for opening a foreign currencydenominated account and special Non ResidentRupee account before making any investmentsin India

• Compliance with acts, rules and regulationsissued by Designated Depository Participant orSEBI

Comments

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Foreign Portfolio Investors

(FPI)

A FPI is permitted to invest only in the following securities:

a) Securities in the primary and secondary markets including shares, debentures and warrants of companies, listed or to be listed on a recognized stock exchange in India;

b) Units of schemes floated by domestic mutual funds, whether or not listed on recognized stock exchange

c) Units of schemes floated by a collective investment scheme;d) Derivatives traded on a recognized stock exchange;e) Treasury bills and dated government securities;f) Commercial papers issued by an Indian company;g) Rupee denominated credit enhanced bonds;h) Security receipts issued by asset reconstruction companiesi) Perpetual debt instruments and debt capital instruments, as specified by

the RBIj) Listed and unlisted non-convertible debentures/bonds issued by an

Indian company in the infrastructure sector k) Non-convertible debentures or bonds issued by NBFC categorized as

‘Infrastructure Finance Companies’(IFCs) by RBIl) Rupee denominated bonds or units issued by infrastructure debt funds;m) Indian depository receipts; andn) Such other instruments specified by the Board from time to time.

Permissible securities

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Foreign Venture Capital Investor

• Venture capital fund means aFund established in the form ofa Trust, a company including abody corporate and registeredunder SEBI (Venture CapitalFund) Regulations, 1996, which(i) has a dedicated pool ofcapital; (ii) raised in the mannerspecified under the Regulations;and (iii) invests in accordancewith the Regulations

• Regulated under the SEBI (Foreign VentureCapital Investor) Regulations, 2000

• Considerations for Eligibility: applicant’s trackrecord financial soundness and competency;approval by RBI; whether investment company/trust/ pension fund/ mutual fund etc.

• Conditions and criteria : Disclose strategy toSEBI, at least 66.67% investable funds in unlistedequity shares/ equity linked instruments

• Registration Certificate: Application to SEBI inForm A along with the application fee

• Appoint a domestic custodian and bank

• Compliance requirement- Maintain books ofaccounts, records, records and documents for 8years

Comments

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Depository Receipts

• Negotiable securities representing INRdenominated equity shares (held as adeposit by custodian bank) of acompany

• Issued outside of India by a Depositorybank on behalf of the company

• Traded on stock exchanges in U.S.,Singapore, Luxembourg etc. - DRs listedand traded in US markets- AmericanDepository Receipts (ADRs), elsewhereGlobal Depository receipts (GDRs)

• Governed by FEMA notification 330/2014-RB, issued by RBI

• A person can issue DRs, if it is eligible toissue eligible instruments to person residentoutside India under Schedules 1, 2, 2A, 3, 5and 8 of Notification No. FEMA 20/2000-RBdated May 3, 2000, as amended from time totime.

• The eligible securities shall not be issued ortransferred to a foreign depository for thepurpose of issuing DRs at a price less thanthe price applicable to a correspondingmode of issue or transfer of such securitiesto domestic investors under FEMA, 1999 asamended from time to time.

• DRs issued shall be reported to RBI inprescribed formats

Comments

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FOREIGN PARTICIPATION IN INDIA

Types of Foreign ParticipationUnderstanding Investors/ Instruments

Investment by NRIs/PIOs

• Major accounts permitted for Non-Resident include: NRE, NROand FCNR (B) accounts- Prior approval of RBI for accounts byindividuals/ entities of Pakistan and Bangladesh

• NRI can invest in capital of Indian companies on non-repatriation basis provided: (i) Amount is invested by inwardremittance or out of NRE/FCNR(B)/NRO account maintainedwith Authorized Dealers/Authorized banks (ii) entity is notengaged in agricultural/plantation or real estate business orprint media sector (iii) amount invested not eligible forrepatriation outside India

• For investments on repatriable basis, provisions of FDI policyapply

• Individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non-repatriation basis andaggregate limit cannot exceed 10 per cent of the total paid-upcapital both on repatriation and non-repatriation basis.However, NRI holding can be allowed up to 24 per cent of thetotal paid-up capital both on repatriation and non-repatriationbasis provided the company passes a special resolution

• NRIs residents in Nepal and Bhutan permitted to invest in thecapital of Indian companies on repatriation basis, s.t. conditionthat the amount of consideration for such investment shall bepaid only by way of inward remittance in free foreign exchangethrough normal banking channels.

• A ‘Non-resident Indian’ (NRI) is aperson resident outside India who is acitizen of India.

• A ‘Person of Indian Origin (PIO)’ is aperson resident outside India who is acitizen of any country other thanBangladesh or Pakistan or such othercountry as may be specified by theCentral Government, satisfying thefollowing conditions: (i) Who was acitizen of India by virtue of theConstitution of India or the CitizenshipAct, 1955 (57 of 1955); or (ii) Whobelonged to a territory that becamepart of India after the 15th day ofAugust, 1947; or (iii) Who is a child or agrandchild or a great grandchild of acitizen of India or of a person referredto in clause (a) or (b); or (iv) Who is aspouse of foreign origin of a citizen ofIndia or spouse of foreign origin of aperson referred to in clause (a) or (b)or (c). PIO included Overseas Citizenof India (OCI)

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Investment Vehicles

Infrastructure Investment Trusts (InvITs)• Governed by the SEBI (InvIT) Regulations, 2014• Structure: Sponsor; trustee, Investment manager and project

manager

• Cumulative project size ≥ INR 500 cr;

• Issue size ≥ INR 250 cr

• Sponsors to set up InvTS (max 3); 3 years min lock in periodfor sponsors

• Minimum distribution- 90% of distributable cash flow of InvITs/SPVs

• Permitted for any project in infrastructure sector- (as definedby vide Ministry of Finance Notification dated Oct. 2013 andany amendments/additions made thereof)

• Foreign investmentspermitted underAUTOMATIC ROUTE

• An entity registered/ incorporated inand a citizen ofPakistan/Bangladesh notpermitted

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Types of Foreign ParticipationUnderstanding Investors/ Instruments

Investment Vehicles Real Estate Investment Trusts (REITs)

• Governed by the SEBI (REITs) Regulations, 2014• Set up as a trust under Indian Trusts Act, 1882 and registered

with SEBI

• Parties: Sponsor, Manager and Trustee (registered with SEBI)

• Investments directly or indirectly through SPVs (must haveholding interest)- cannot invest in vacant or agriculture land ormortgages other than mortgage backed securities

• Mandatory distribution of at least 90% of net distributable cashflows to investors on a half yearly basis and at least 90% of thesale proceeds from sale of assets to unit holders, unlessreinvested in another property.

• Foreigninvestmentspermitted underAUTOMATICROUTE

• An entityregistered /incorporated inand a citizen ofPakistan/Bangladesh notpermitted

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Types of Foreign Participation Understanding Investors/ Instruments

Investment Vehicles

Alternative Investment Funds (AIFs)• Governed by the SEBI (AIFs) Regulations, 2012• Certificate of registration from SEBI

• Pooling or raising of private capital from institutional or high net worthindividuals (HNI) and include private equity fund, venture capital fund, angelinvestors, etc.

• Key conditions- Min size of AIF - INR 200 mn; Minimum investment amount byan investor should be 0.1% of the fund size, subject to a minimum of INR 10million; min 5% investment from sponsor (locked-in)

• 3 categories• Category I- invest in start-up or early stage ventures or social ventures or

SMEs or infrastructure. Includes venture capital funds, SME funds, socialventure funds, infrastructure funds, angel funds, etc.;

• Category II- private equity funds or debt funds for which no specificincentives or concessions are given by the government or any otherregulator;

• Category III- hedge funds, open ended funds etc. which employ diverse orcomplex trading strategies and may employ leverage including throughinvestment in listed or unlisted derivatives

• ‘Control’ of the AIF should be in the hands of ‘sponsors’ and ‘managers/investment managers’, with the general exclusion of others

• ForeigninvestmentspermittedunderAUTOMATICROUTE

• An entityregistered /incorporatedin and acitizen ofPakistan/Bangladeshnot permitted

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Foreign Direct Investment in India

3

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FOREIGN PARTICIPATION IN INDIA

Foreign Direct Investment(FDI) in IndiaUnderstanding FDI

• Foreign Direct Investment (FDI) means investment by non-resident entity/person resident

outside India in the capital of an Indian company

• FDI entails acquiring a “lasting interest” outside of the economy of the investor with an

element of “control” (i.e. ownership of at least 10% shares) and includes capital

investments from abroad in the productive capacity of a Nation in the form of:

– (i) incorporating a wholly owned subsidiary or company anywhere

– (ii) acquiring shares in an associated enterprise

– (iii) merger or an acquisition of an unrelated enterprise

– (iv) equity joint venture with another investor or enterprise

• Government of India has permitted foreign investment in almost all sectors with a few

exceptions, for instance in sectors such as atomic energy, lottery business, and chit funds

etc. where FDI is completely prohibited.

• For other sectors, FDI is either 100% permitted or partially permitted.

• In the permitted sectors, subject to sectoral caps, FDI may be via 2 routes:

– (i) Automatic route or

– (ii) Government route i.e. where prior approval of GoI is required.

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Foreign Direct Investment(FDI)Prohibited Sectors

Lottery Business including Government/private

lottery, online lotteries , etc.*

Gambling and Betting including casinos* Chit funds Nidhi company

Trading in Transferable Development Rights (TDR)

Real Estate Business or Construction of farm

houses*

Manufacturing of cigars, cheroots, cigarillos and

cigarettes, of tobacco or of tobacco substitutes

Sectors not open to private sector investment-

atomic energy, railway operations (other than

permitted activities mentioned in para 5.2, Consolidated FDI policy,

June 07, 2016)

• Notes

• *Foreign technology collaboration in any form including licensing for franchise, trademark, brand name,management contract is also prohibited for Lottery Business and Gambling and Betting activities

• **Real estate business shall not include development of townshops, construction of residential/ commercialpremises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI(REITs) Regulations, 2014

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Foreign Direct Investment(FDI) in IndiaInstitutional and Regulatory Set-up

• FDI in India is regulated under Schedule 1 of Foreign Exchange Management (Transfer or

Issue of Security by a Person Resident Outside India) Regulations,2000 (Original notification

is available at https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174; Subsequent

amendment notifications are available at

https://rbi.org.in/Scripts/BS_FemaNotifications.aspx)

• Besides Foreign Exchange Management Act, 1999, FDI is subject to other regulations as per

Reserve Bank of India (RBI), Foreign Investment Promotion Board (FIPB) (DEA, Ministry of

Finance) and Department of Industrial Policy and Promotion (Ministry of Commerce and

Industry)

• FIPB comprises of (i) Secretary to Government, Department of Economic Affairs, Ministry of

Finance- Chairperson; Secretary to Government, Department of Industrial Policy and

Promotion, Ministry of Commerce and Industry; Secretary to the Government, Department

of Commerce, Ministry of Commerce and Industry; Secretary to Government, Economic

Relations, Ministry of External Affairs

• The procedural instructions are issued by the Reserve Bank of India vide A.P. (DIR Series)

Circulars. The regulatory framework, over a period of time, thus, consists of Acts,

Regulations, Press Notes, Press Releases, Clarifications, etc.

• The level of approvals for cases under the Government route are summarized below:

Equity inflow of and below INR 5000 crore

Equity inflow of more than INR 5000 crore

Minister of Finance (in-charge of FIPB)

Cabinet Committee on Economic Affairs (CCEA)

Government Approval Route

+ Cases referred to CCEA by FIPB

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FOREIGN PARTICIPATION IN INDIA

• Plain paper applications carrying all relevant details are also accepted. Application can be made in Form FC-IL, whichcan be downloaded from http://www.dipp.gov.in - No fee is payable• Link to Forms

Intimation to RBI by AD-Category I bank on receipt of FDI

Foreign Direct Investment(FDI) in IndiaApplication for FIPB Approval

1•Online registration at: http://fipb.gov.in/Public/ApplicantRegister.aspx

2

•Submission of duly signed printout of the application with following prescribed documents to Facilitation Counter, North Block within 10 days of electronic submission•Illustrative list of documents required :

•Summary of proposal on company (applicant) letterhead, Certificate of Incorporation (COI), Memorandum of Association(MoA), Board Resolution, Audited Financial Statement and Income Tax Return of Last Financial Year, Article of Association, LLP Draft; LLP Agreement, Passport Copy/ Identification Proof etc. (list at http://fipb.gov.in/FIPB_FAQ.aspx)

3

•As soon as the physical copy of proposal and documents are received, user will receive email/sms alerts and proposal will be forwarded to FIPB for further processing. During the processing stage user will get email/sms alert at specific stages .

4•Application discussed and decision taken in FIPB meeting

5•Decision communicated to applicant via Press Release or Approval/ rejection Letters

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FOREIGN PARTICIPATION IN INDIA

Any Non resident Entity can invest subject to FDI policy (except in prohibited sectors)

NRI resident in and Citizens of Nepal & Bhutan permitted to invest on repatriation basis (amount of consideration for such investment shall be paid only by way of inward remittances through normal banking channels)

Erstwhile OCBs incorporated outside India can make fresh FDI investments as incorporated non-resident entities (prior approval of GoI if through Government route; RBI if through Automatic route)

Company, trust or partnership firm incorporated outside India and owned and controlled by NRIs

Foreign Institutional Investors (FII) and Foreign Portfolio Investors (FPI)

Registered FIIs/ FPIs/ NRIs as per Schedules 2, 2A and 3respectively of Foreign Exchange Management (Transfer or Issueof Security by a Person Resident Outside India) Regulations,2000 can invest /trade through a registered broker of IndianCompanies on recognized stock exchanges

SEBI registered Foreign Venture Capital Investor (FVCI)

• Citizen of Bangladeshor an entityincorporated inBangladesh can investonly under Governmentroute

• Citizen of Pakistan orentity incorporated inPakistan can invest onlyunder Governmentroute in sector/activities other thendefense, space &atomic energy andprohibited sector/activities

• FII and FPIs may investin capital of Indiancompanies under thePortfolio InvestmentScheme which limitsindividual holding tobelow 10% andaggregate limit ofFII/FPI investment to24% (this may beincreased to thesectoral cap throughresolution of Board ofDirectors followed by aSpecial Resolution)

Foreign Direct Investment(FDI) in IndiaEligible Investors

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FOREIGN PARTICIPATION IN INDIA

Indian Companies can issue capital against FDI

NRI/PIO resident outside India can invest in Partnership Firm/

Proprietary Concern

Non Repatriation Basis

• Amount investedauthorized dealer/authorized banks

• Firm/ proprietaryconcern not engaged inagricultural/plantation/real estate business/ printmedia sector

• Amount invested noteligible for repatriationoutside India

Repatriation Basis

• Prior permission of RBI –application to bedecided in consultationwith the GoI

Non Residents (other than NRI/PIO) can invest

in Partnership Firm/ Proprietary Concern

• Make an application andseek prior approval ofRBI for makinginvestment in capital ofa firm or proprietorshipconcern or anyassociation of persons inIndia

• NRI/PIO not allowed toinvest in firm/proprietorship concernnot engaged inagricultural /plantationor real estate business orprint media sector

Foreign Direct Investment(FDI) in India Eligible Investee Entities

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FOREIGN PARTICIPATION IN INDIA

Trusts

• FDI not permitted intrusts other than VCFregistered and regulatedby SEBI and ‘InvestmentVehicle’

Limited Liability Partnerships (LLPs)

• FDI permitted underautomatic route in LLPsin sectors where 100%FDI allowed throughautomatic route andthere are no FDI linkedperformance conditions

• FDI in LLP s.t.compliance of conditionsof the LLP act

Investment Vehicle

• Investment vehicleregistered and regulatedunder relevantregulations framed bySEBI or any otherauthority designated forthe purpose (incl. REITs,Invites, AIFs etc.)permitted to receiveforeign investment fromperson resident outsideIndia

Foreign Direct Investment(FDI) in IndiaEligible Investee Entities

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FOREIGN PARTICIPATION IN INDIA

• FCCBs/DRs may be issued in accordance with Scheme forissue of Foreign Currency Convertible Bonds, OrdinaryShares (Through Depository Receipt Mechanism) Scheme,1993 and DR Scheme 2014 respectively, as per theguidelines issued by the GoI• A person can issue DRs, if it is eligible under Schedules 1,

2, 2A, 3, 5 and 8 of Notification No. FEMA 20/2000-RBdated May 3, 2000• Under FEMA 1999, price of eligible securities for purpose

of issuing DR should not be less than the price of acorresponding mode of issue or transfer of such securitiesto domestic investors

Equity

DRs and FCCBs

Others

• Indian companies can issueEquity Shares; FullyCompulsorily andMandatorily ConvertibleDebentures and Fully,Compulsorily andMandatorily ConvertiblePreference Shares

• Price at the time of conversion should not be less thanthe fair value worked out at the time of issuance• Optionality clauses allowed s.t. conditions :

• Minimum lock-in period: 1 year• Exit (s.t. FDI policy provisions) without any assured

return

Comments

• Issue of Depository Receiptsand Foreign CurrencyConvertible Bonds countedtowards FDI

Other types of Preference shares/Debentures i.e. non-convertible, optionally convertible or partially convertible forissue of which funds have been received on or after May 1, 2007 are considered as debt- Hence, norms related toECB apply

• Warrants and Partly PaidShares

• s.t. T&C as stipulated by RBI in this behalf from time totime

Foreign Direct Investment(FDI) in India Types of Instruments for FDI

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FOREIGN PARTICIPATION IN INDIA

Sector/ Activity

Automatic

Approval

Government Approval Notes

Agriculture & Animal Husbandry

100

• Floriculture, Horticulture, Apiculture and Cultivation ofVegetables & Mushrooms under controlled conditions

• Development and Production of seeds and planting material• Animal Husbandry (including breeding of dogs), Pisciculture,

Aquaculture• Services related to agro and allied sectorsBesides the above, FDI not allowed in any other agricultural sector/activity

**PIB print release dated 20 June, 2016: FDI in Animal Husbandry(including breeding of dogs), Pisciculture, Aquaculture andApiculture- requirement of 'Controlled Conditions' removed

Plantation 100

• Tea sector including tea plantations• Coffee plantations• Rubber plantations• Cardamom plantations• Palm oil tree plantations• Olive oil tree plantationsBesides the above, FDI not allowed in any other plantation sector/activity

Mining 100*Mining and mineral separation of titanium bearing minerals and

ores, its value addition and integrated activities – 100%, Government Route

For detailed clarifications/ exceptions, please refer to Consolidated FDI Policy, effective from June 07, 2016

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Sector/ Activity Automatic Approval

Government Approval Notes

Petroleum and Natural Gas 100 *Petroleum refining by the PSU without any disinvestment or

dilution of domestic equity in existing PSUs – 49%, Automatic

Food Manufacturing 100

**PIB print release dated 20 June, 2016: Includes trading, even through e-commerce, of food products manufactured/ produced in India

Broadcasting Content Services

0 49 *Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels- 100%, Automatic

Defence 49 51

*Above 49% under the Government approval route on case to case basis (wherever likely to result in access to modern and state of art technology in the country)

**PIB print release dated 20 June, 2016: Condition of state-of-art technology removed; FDI limit also made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959

For detailed clarifications/ exceptions, please refer to Consolidated FDI Policy, effective from June 07, 2016

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Sector/ Activity Automatic Approval

Government Approval Notes

Print Media- Newspapers, Periodicals, Indian Editions of Foreign Magazines 26

Print Media- Scientific/ Technical Magazines, Specialty Journals; Facsimile editions of foreign newspapers

100

Civil Aviation - Greenfields/ Brownfields 100

Air Transport Services- Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline; Regional Air Transport Service

49 51

Foreign Airlines allowed to invest in capital of Indian companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital

Air Transport Services- Non Scheduled Air Transport Service/ Helicopters services/ seaplane services requiring DGCA approval

100

Other Services under Civil Aviation Sector 100

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Sector/ Activity Automatic Approval

Government Approval Notes

Construction Development: Townships, Housing, Built-up Infrastructure

100FDI not permitted in entity engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs)

Satellites – Establishment and Operations 100

Private Security Agencies 49 25

Telecom Services 49 51

Trading 100

E-Commerce Activities 100• 100% FDI under automatic route is permitted in marketplace

model of e-commerce • FDI is not permitted in inventory based model of e-commerce

Single Brand Product Retail Trading 49 51

PIB print release dated 20 June, 2016: Local sourcing norms and sourcing regime for entities in this sector, and having “state-of-art and cutting edge technology” conditions have been relaxed for 3 years and 5 years respectively

Multi Brand Retail Trading 51

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Sector/ Activity Automatic Approval

Government Approval Notes

Duty Free Shops 100 • Duty Free Shop entity shall not engage into any retail tradingactivity in the Domestic Tariff Area of the country

Railway Infrastructure 100• Proposals involving FDI beyond 49% in sensitive areas from

security point of view, will be brought by the Ministry ofRailways before the Cabinet Committee on Security (CCS) forconsideration on a case to case basis

Credit Information Companies 100

Infrastructure Companies in Securities Market 49

• No non-resident investor/ entity, including persons acting inconcert, will hold more than 5% of the equity in commodityexchanges

Insurance 49

Pension Sector 49

Power Exchanges 49 • No non-resident investor/ entity, including persons acting inconcert, will hold more than 5% of equity in these companies

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Sector/ Activity Automatic Approval

Government Approval Notes

White Label ATM Operations 100

Non Banking Financial Institutions 100

Pharmaceuticals -Greenfields 100

Pharmaceuticals -Brownfields 74 26

Asset Reconstruction Companies 100

Banking - Private Sector 49 25• Except in regard to a wholly-owned subsidiary / branch office

of a foreign bank

Banking - Public Sector 20

Foreign Direct Investment(FDI) in India Sectoral Caps (%) and Entry Routes

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Foreign Direct Investment inIndia

33

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TradingofFoodproductsmanufacturedorproducedin…

PrintMedia- Newspapers,Periodicalsetc.

Satellites– EstablishmentandOperations

Banking- PublicSector

AirTransportServices- ScheduledAirTransport…

TelecomServices

Banking- PrivateSector

Insurance

PowerExchanges

Agriculture&AnimalHusbandry

Mining

BroadcastingCarriageServices

AirTransportServices- NonScheduledAirTransport…

ConstructionDevelopment:Townships,Housing,Built-…

Trading

DutyFreeShops

AssetReconstructionCompanies

WhiteLabelATMOperations

Pharmaceuticals- Greenfields

Automatic

Government Approval

No FDI

Sectoral Caps and Entry Routes*

*Pl. refer to latest FDI policy for exceptions/ clarifications

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• Report the details of amount of consideration to the Regional RBI office within 30 days of receipt inthe Form ARF through an AD Category I bank with the following documents

• Foreign Inward Remittance Certificate (FIRC) evidencing receipt and KYC report of the non residentinvestor from overseas bank remitting the amount

• Report acknowledged by the regional Office which will allot lot a UIN for amount reported

Inflow

• File Form FC-GPR not later than 30 days from date of issue of shares• Signed by MD, Director, Secretary of the company (CS) and submitted to AD of the bank along with

following documents:• Certificate from CS; Certificate from SEBI registered Merchant Banker or Chartered Accounts

Issue of Shares

• Submit Form FC-TRS to AD Category I bank within 60 days from date of receipt of amount ofconsideration

• Onus of submission on transferor/ transferee resident in India; and on investee company in caseNon Resident investor (including NRI) acquires stock on stock exchange

Transfer of Shares

Issue of shares against conversion of ECB• Full conversion of ECB into equity- Form FC-GPR to RBI regional office and Form ECB-2 to

Department of Statistics and Information Management (DSIM), RBI within 7 working days from closeof corresponding month

• Partial conversion of ECB- Form FC-GPR to RBI regional office and Form ECB-2 with “ECB partiallyconverted to equity” indicated on top of form. In subsequent months, the outstanding balance ofECB shall be reported in Form ECB-2 to DSIM

Non-Cash

• Domestic custodian shall report issue/ transfer of sponsored/ unsponsored DR as per DR Scheme2014 in Form DRR within 30 days of close of issue/ program

FCCB/ DR

issues

Foreign Direct Investment (FDI) in India Reporting Requirements

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Foreign Direct Investment(FDI) in India Reporting Requirements

35

Entry of Foreign Investor in India

Funds Received from Foreign

Entity

Advance Remittance Form

(ARF)

Allocation of Shares

Form FC-GPR

30 Days 180 Days

30 Days

Illustration: Documents for Form FC-GPR• Unique Identification Number from RBI• KYC report for the beneficiary• CS certificate• Certificate from SEBI registered MerchantBanker / Chartered Accountant• Disclaimer Certificate• Statutory Auditor Certificate• Board resolution• LRN (Loan Registration Number)• Copy of FIPB approval (if required)• Details of Transfer of shares if any• No objection certificate from the remitter

etc.

Illustration: Documents for ARF • Certificate from the bank

evidencing the receipt of theremittance.

• KYC report on the non-residentinvestor from the overseas bankremitting the amount

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Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA20/2000-RB dated May 3, 2000)

Issue of Shares • Capital instruments should be issued within 180 days from day of receipt of

inward remittance; else refunded immediately to the non-resident investor byoutward remittance through normal banking channels or by credit to NRE/FCNR(B) account

• Issue price of shares

• Listed on recognized stock exchange in India- not less than price workedout in accordance with SEBI guidelines

• Not listed on any stock exchange in India- not less than fair valuationdone by SEBI registered Merchant Banker or a Chartered Accountant asper any internationally accepted pricing methodology on an arm’s lengthbasis

• Preferential allotment- as per the pricing guidelines laid down by RBI

Issue and Transfer of Shares

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Transfer of

Shares • General permission granted to non-residents/ NRIs for acquisition of shares byway of transfer s.t. conditions:

1) Government approval not required for transfer of shares in the investeecompany from one non-resident to another non-resident in sectors which areunder automatic route. Government approval required for transfer of stakefrom one non-resident to another non-resident in sectors which are underGovernment approval route

2) NRIs may transfer by way of sale or gift the shares or convertible debenturesheld by them to another NRI

3) A person resident outside India can transfer any security to a person residentin India by way of gift

4) A person resident outside India can sell shares and convertible debentures ofan Indian company on a recognized Stock Exchange in India through aregistered stock broker or a registered merchant banker

5) A person resident in India can transfer by way of sale, shares/ convertibledebentures (including transfer of subscriber’s shares), of an Indian companyunder private arrangement to a person resident outside India, subject to theguidelines given in para 5.2 and Section 1 of Annexure 3 of Consolidated FDIPolicy, effective from June 07 2016

Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA20/2000-RB dated May 3, 2000)

Issue and Transfer of Shares

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Transfer of

Shares • General permission granted to non-residents/ NRIs for acquisition of sharesby way of transfer s.t. conditions (Cont.):

6. General permission is also available for transfer of shares/convertibledebentures, by way of sale under private arrangement by a person residentoutside India to a person resident in India, subject to the guidelines givenin para 5.2 and Section 1 of Annexure 3 of Consolidated FDI Policy,effective from June 07 2016

7. The above General Permission also covers transfer by a resident to a non-resident of shares/convertible debentures of an Indian company, engagedin an activity earlier covered under the Government Route but now fallingunder Automatic Route, as well as transfer of shares by a non-resident toan Indian company under buyback and/or capital reduction scheme of thecompany

Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA20/2000-RB dated May 3, 2000)

Issue and Transfer of Shares

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Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA20/2000-RB dated May 3, 2000)

Transfer of Capital

Instruments Prior approval of RBI required in the following cases

1. Transfer of capital instruments from resident to non-residents by way of salewhere:

• Transfer is at a price which falls outside the pricing guidelines specified bythe Reserve Bank from time to time and the transaction does not fall underthe exception given in para 5.2. of Annexure 3 of Consolidated FDI Policy,effective from June 07 2016

• Transfer of capital instruments by the non-resident acquirer involvingdeferment of payment of the amount of consideration. Further, in caseapproval is granted for a transaction, the same should be reported in FormFC-TRS, to an AD Category-I bank for necessary due diligence, within 60days from the date of receipt of the full and final amount of consideration

2. Transfer of any capital instrument, by way of gift by a person resident inIndia to a person resident outside India. While forwarding applications toReserve Bank for approval for transfer of capital instruments by way of gift,the documents mentioned in Section 2 of Annexure 3 of Consolidated FDI Policy,effective from June 07 2016 should be enclosed.

Issue and Transfer of Shares

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Foreign Exchange Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations, 2000 (notification No. FEMA20/2000-RB dated May 3, 2000)

Transfer of Capital

Instruments Prior approval of RBI not required in the following cases: -

1. Transfer of Shares from a Non-Resident to Resident under the FDI schemewhere pricing guidelines under FEMA are not met, provided that•Original and resultant FDI is in compliance with the FDI policy and FEMAregulations• Pricing for transaction is compliant with SEBI regulations and guidelines• Chartered Accountants Certificate that compliance with the relevant SEBIregulations/guidelines as indicated above is attached to the Form FC-TRS to befiled with the AD bank

2. Transfer of shares from Resident to Non-Resident:• Transfer of shares requires the prior approval of the Government conveyedthrough FIPB as per the Consolidated FDI Policy, effective from June 07 2016and the approval has been obtained and transfer of shares adhered with thepricing guidelines and document requirements specified by RBI• Transfer of shares attract SEBI (Substantial Acquisition of Shares and Takeovers)Regulations subject to the adherence with the pricing guidelines anddocumentation requirements as specified by RBI• Transfer of shares does not meet the pricing guidelines under the FEMA, 1999provided the resultant FDI is in compliance with the FDI policy and FEMAregulations; pricing for transaction is compliant with SEBI regulations andguidelines (Chartered Accountants Certificate that compliance with therelevant SEBI regulations/guidelines as indicated above is attached to the FormFC-TRS to be filed with the AD bank)

Issue and Transfer of Shares

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Conversion of ECB/Lump sum fee/Royalty etc. into Equity

Conversion to Equity • Indian companies have been granted general permission for conversion of

External Commercial Borrowings (ECB) (excluding those deemed as ECB) inconvertible foreign currency into equity shares/fully compulsorily andmandatorily convertible preference shares, subject to the followingconditions and reporting requirements:• The activity of the company is covered under the Automatic Route for

FDI or the company has obtained Government approval for foreignequity in the company;

• The foreign equity after conversion of ECB into equity is within thesectoral cap, if any

• Pricing of shares is as per the provision of para 2 Annexure 3 ofConsolidated FDI Policy

• Compliance with the requirements prescribed under any other statuteand regulation in force; and

• The conversion facility is available for ECBs availed under theAutomatic or Government Route and is applicable to ECBs, due forpayment or not, as well as secured/unsecured loans availed from non-resident collaborators.

• General permission is also available for issue of shares/preference sharesagainst lump sum technical know-how fee, royalty due for payment, subjectto entry route, sectoral cap and pricing guidelines (as per the provision ofpara 2 above)and compliance with applicable tax laws

Foreign ExchangeManagement Act

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• Freely repatriable without any restrictions• Net after tax deduction at source (TDS) or dividend distribution tax (DDT) asapplicable• Governed by Foreign Exchange Management (Current Account Transactions) Rules,2000

Dividend

Interest

• Interest on fully, mandatorily & compulsorily convertible debentures freelyrepatriable without any restrictions• Net of applicable taxes• Governed by Foreign Exchange Management (Current Account Transactions) Rules,2000

Exceptions: Sectors such as Defense which are subject to a minimum lock in period; or where investments in specific non-repatriable schemes

Repatriation

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• Remittance of asset (i.e. sale proceeds of share and securities and their remittance) isgoverned by the Foreign Exchange Management (Remittance of Assets) Regulations, 2000under FEMA• AD Category-1 can allow remittance of sale proceeds (net of applicable taxes) of a

security to the seller of shares outside India provided• Security has been held on repatriation basis• Sale if security has been made in accordance with the prescribed guidelines• NOC/ Tax clearance certificate from the Income Tax department has been produced

• AD Category 1 banks allowed to remit winding up proceeds of companies in Indiawhich are under liquidation s.t. payment of applicable taxes an any order issued bythe court winding up the company or official liquidator• Applicant needs to submit the following to the AD Category 1 bank:

• NOC/ Tax clearance certificate from the Income Tax department• Auditor’s certificate confirming that

• All liabilities in India have been either fully paid or adequately providedfor•Winding up is in accordance with the provisions of the Companies Act asapplicable• In case of winding up otherwise than by a court- No legal proceedingpending in any court in India against the applicant or the company underliquidation and there is no legal impediment in permitting the remittance

Winding up/ liquidation of

companies

Sale proceeds of shares & securities

Remittance

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FAQs4

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FAQs

Who all are theeligible entities thatare permitted toinvest in India?

A number of entities are permitted to invest in India. The investing entity can be anindividual, company, foreign institutional investor, foreign venture capital investor, foreigntrust, private equity fund, pension/provident fund, sovereign wealth fund,partnership/proprietorship firm, financial institution, non-resident Indian/person of Indianorigin, others, etc. The investments can be via the automatic approval or the Governmentapproval route as per the specified policies. However, there are certain restrictions forBangladesh and Pakistan.

Are there any restrictions on investing in India from certain countries?

Yes. A citizen of Bangladesh or an entity incorporated in Bangladesh can invest only underthe Government approval route. Further, a citizen of Pakistan or an entity incorporated inPakistan can invest, only under the Government route, in sectors/activities other thandefence, space and atomic energy and sectors/activities prohibited for foreign investment.

Are domestic and foreign investors treated differently in India?

No. Foreign investors are treated at par with domestic investors and they enjoy similarrights. However, foreign investors need to additionally follow Foreign ExchangeManagement Act (FEMA) guidelines. Investment by NRIs under FEMA (Transfer or Issue ofSecurity by Persons Resident Outside India) Regulations will be deemed to be domesticinvestment at par with the investment made by residents.

Are foreigners allowed to invest in India?

A non-resident entity can invest in India, subject to the prevailing FDI Policy except inthose sectors which are prohibited. However, a citizen or entity incorporated in Bangladeshcan invest only under the Government route. Further, a citizen of Pakistan or an entityincorporated in Pakistan can invest, only under the Government route, in sectors/activitiesother than defence, space and atomic energy and sectors/activities prohibited for foreigninvestment.

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FAQs

How can a foreigninvestor set up business in India?

A foreign company can set up business in India via FDI either by incorporating an Indiancompany, under the Companies Act, 1956 (as a Joint Venture or a Wholly OwnedSubsidiary) or as a Foreign Company (by setting up a Liaison Office / RepresentativeOffice or a Project Office or a Branch Office of the foreign company) which can undertakeactivities permitted under the Foreign Exchange Management (Establishment in India ofBranch Office or Other Place of Business) Regulations, 2000. An Indian company mayreceive FDI under the two routes (i) Automatic Route without prior approval either of theGovernment or the Reserve Bank of India in all activities/sectors as specified in theconsolidated FDI Policy, issued by the Government of India from time to time or (ii)Government Route for FDI in activities that require prior approval of the Governmentwhich are considered by the Foreign Investment Promotion Board (FIPB), Department ofEconomic Affairs, Ministry of Finance.

Can NRI/PIO invest in sole proprietorship / partnership firm in India?

NRI/PIO can invest in sole proprietorship (repatriable) / partnership firm (non-repatriable),except those in agricultural or plantation or real estate business, or in the print mediasector, s.t. approval of RBI

Can foreign investor invest in unlistedshares issued by a company in India?

Yes. As per the regulations/guidelines issued by the Reserve Bank of India/Government ofIndia, investment can be made in unlisted shares of Indian companies.

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FAQs

Who is a ForeignPortfolio Investor(FPI)?

FPIs refers to a class of investors who invest in financial securities of a country withoutdirect ownership of the underlying company. These are considered liquid investments.Under the recent SEBI FPI Regulations, 2014, Foreign Institutional Investors (FIIs) or subaccounts and Qualified Foreign Investors (QFIs) have been merged into a single category,referred to as FPIs.

Can anyone buy or sell securities as a FPI in India?

No person can buy, sell or deal in securities as FPI unless he/she has obtained a certificateof registration from a Designated Depository Participant (on behalf of SEBI) post submissionof an application in Form A along with the prescribed fees

Who is a Foreign Venture Capital Investor (FVCI)?

FVCI refers to an investor incorporated and established outside India, which is registeredunder the Securities and Exchange Board of India (Foreign Venture Capital Investor)Regulations, 2000 {SEBI(FVCI) Regulations} and proposes to make investment in accordancewith these Regulations.

What are Depository Receipts (DRs)?

DRs refer to negotiable securities representing INR denominated equity shares (held as adeposit by custodian bank) of a company and issued outside of India by a Depository bankon behalf of the company

What are American Depository Receipts(ADRs)?

The DRs listed and traded in US markets are known as American Depository Receipts (ADRs)

What are Global Depository Receipts (GDRs)?

The DRs listed and traded except in the US markets are known as the Global Depositoryreceipts (GDRs)

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FAQs

Are investments inIndia repatriable?

Foreign capital invested in India is generally allowed to be repatriated along with capital appreciation, if any, after payment of taxes due, provided the investment was made on a repatriation basis.

Repatriation of Dividend Dividends are freely repatriable without any restrictions (net after Tax deduction at sourceor Dividend Distribution Tax, if any, as the case may be). The repatriation is governed bythe provisions of the Foreign Exchange Management (Current Account Transactions) Rules,2000, as amended from time to time.

Repatriation of InterestInterest on fully, mandatorily & compulsorily convertible debentures is also freelyrepatriable without any restrictions (net of applicable taxes). The repatriation is governedby the provisions of the Foreign Exchange Management (Current Account Transactions)Rules, 2000, as amended from time to time.

Who is a Non Resident Indian (NRI)? A ‘Non-resident Indian’ (NRI) is a person resident outside India who is a citizen of India.

Who is a person of Indian origin (PIO)?

A ‘Person of Indian Origin (PIO)’ is a person resident outside India who is a citizen of anycountry other than Bangladesh or Pakistan or such other country as may be specified bythe Central Government, satisfying the following conditions: (i) Who was a citizen of Indiaby virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or (ii) Whobelonged to a territory that became part of India after the 15th day of August, 1947; or(iii) Who is a child or a grandchild or a great grandchild of a citizen of India or of a personreferred to in clause (a) or (b); or (iv) Who is a spouse of foreign origin of a citizen of Indiaor spouse of foreign origin of a person referred to in clause (a) or (b) or (c). PIO includedOverseas Citizen of India (OCI)

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FAQs

Can NRIs invest inIndia?

An NRI can invest in capital of Indian companies on non- repatriation basis provided: (i)Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintainedwith Authorized Dealers/Authorized banks (ii) entity is not engaged inagricultural/plantation or real estate business or print media sector (iii) amount investednot eligible for repatriation outside India. For investments on repatriable basis, provisions ofFDI policy apply .NRIs residents in Nepal and Bhutan are permitted to invest in the capital of Indiancompanies on repatriation basis, s.t. condition that the amount of consideration for suchinvestment shall be paid only by way of inward remittance in free foreign exchange throughnormal banking channels.

What are investment vehicles?

Investment Vehicles refer to entity registered and regulated under relevant regulationsframed by SEBI or any other authority designated for the purpose and include Real EstateInvestment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014, InfrastructureInvestment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014 and AlternativeInvestment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012.

Are foreigninvestments permitted in investment vehicles?

Yes. Foreign investments are permitted in investment vehicles under the automatic route.However, an entity registered / incorporated in and a citizen of Pakistan/ Bangladesh isnot permitted

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FAQs

What is the institutional framework governing FDI in India?

FDI in India is regulated under Schedule 1 of Foreign Exchange Management (Transfer or Issueof Security by a Person Resident Outside India) Regulations,2000 (Original notification isavailable at https://rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=174 ; Subsequentamendment notifications are available athttps://rbi.org.in/Scripts/BS_FemaNotifications.aspx )Besides Foreign Exchange Management Act, 1999, FDI is subject to other regulations as perReserve Bank of India (RBI), Foreign Investment Promotion Board (FIPB) (DEA, Ministry ofFinance) and Department of Industrial Policy and Promotion (Ministry of Commerce andIndustry).

What is FIPB? The Foreign Investment Promotion Board (FIPB), housed in the Department of EconomicAffairs, Ministry of Finance, is an inter-ministerial body, responsible for processing of FDIproposals and making recommendations for Government approval. The extant FDI Policy,Press Notes and other related notified guidelines formulated by Department of IndustrialPolicy and Promotion (DIPP) in the Ministry of Commerce and Industry are the bases of theFIPB decisions. In the process of making recommendations, the FIPB provides significantinputs for FDI policy-making.

FIPB comprises of (i) Secretary to Government, Department of Economic Affairs, Ministry ofFinance- Chairperson; Secretary to Government, Department of Industrial Policy andPromotion, Ministry of Commerce and Industry; Secretary to the Government, Department ofCommerce, Ministry of Commerce and Industry; Secretary to Government, EconomicRelations, Ministry of External Affairs

What is Foreign Direct Investment (FDI)?

Foreign Direct Investment (FDI) means investment by non-resident entity/person residentoutside India in the capital of an Indian company and entails acquiring a “lasting interest”outside of the economy of the investor with an element of “control” (i.e. ownership of atleast 10% shares) and includes capital investments from abroad in the productive capacityof a Nation ?

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FAQs

Can an investor invest in any sector as FDI?

There are different criteria, application procedures, remittance rules and reportingrequirement for each form of investment. For details regarding the eligibility, permittedactivities, sectoral caps, investment routes and regulatory requirements etc., one canaccess the latest “Consolidated FDI Policy Circular” dated June 07, 2016 which is availablein the public domain and can be downloaded from the website of Ministry of Commerceand Industry, Department of Industrial Policy and Promotion –http://dipp.nic.in/English/policies/FDI_Circular_2016.pdf. A subsequent amendment to thiscircular dated 20 June, 2016 is available at:http://pib.nic.in/newsite/PrintRelease.aspx?relid=146338

Which are theprohibited sectors inwhich FDI is notallowed?

FDI is prohibited in:a) Lottery Business including Government/private lottery, online lotteries, etc. b) Gamblingand Betting including casinos etc. c) Chit funds d) Nidhi company e) Trading in TransferableDevelopment Rights (TDRs) f) Real Estate Business or Construction of Farm Houses ‘Realestate business’ shall not include development of townships, construction of residential/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs)registered and regulated under the SEBI (REITs) Regulations 2014. g) Manufacturing ofcigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes h)Activities/sectors not open to private sector investment e.g.(I) Atomic Energy and (II)Railway operations(other than permitted activities mentioned in para 5.2 of theConsolidated FDI Policy 2016).

What are the levels ofapproval of FDI inIndia?

Ministry of Finance approves cases for equity inflow of and below INR 5000 crore. Forequity inflow of more than INR 5000 crore, the cases are considered by the CabinetCommittee on Economic Affairs (CCEA) .

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Who all can invest inFDI in India? • Any Non resident Entity can invest subject to FDI policy (except in prohibited sectors)

• NRI resident in and Citizens of Nepal & Bhutan permitted to invest on repatriation basis(amount of consideration for such investment shall be paid only by way of inwardremittances through normal banking channels)

• Erstwhile OCBs incorporated outside India can make fresh FDI investments asincorporated non-resident entities (prior approval of GoI if through Government route;RBI if through Automatic route)

• Company, trust or partnership firm incorporated outside India and owned and controlledby NRIs

• Foreign Institutional Investors (FII) and Foreign Portfolio Investors (FPI)• Registered FIIs/ FPIs/ NRIs as per Schedules 2, 2A and 3 respectively of Foreign Exchange

Management (Transfer or Issue of Security by a Person Resident Outside India)Regulations, 2000 can invest /trade through a registered broker of Indian Companies onrecognized stock exchanges

• SEBI registered Foreign Venture Capital Investor (FVCI)

Can citizens ofBangladesh invest viaFDI in India?

Citizen of Bangladesh or an entity incorporated in Bangladesh can invest only underGovernment route

Can citizens ofPakistan invest via FDIin India?

Citizen of Pakistan or entity incorporated in Pakistan can invest only under Governmentroute in sector/ activities other then defense, space & atomic energy and prohibitedsector/ activities

Who are the eligibleinvestment entitieswhich can attract FDIin India?

The eligible instruments for FDI include:• Indian Companies can issue capital against FDI• NRI/PIO resident outside India can invest in Partnership Firm/ Proprietary Concern• Non Residents (other than NRI/PIO) can invest in Partnership Firm/ Proprietary Concern• Trusts• Limited Liability Partnerships (LLP)• Investment Vehicles

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What are the eligibleinstruments for FDI inIndia?

Investments can be made by non-residents in the equity shares/fully, compulsorily andmandatorily convertible debentures/fully, compulsorily and mandatorily convertiblepreference shares of an Indian company, through the Automatic Route or the GovernmentRoute. The company is also permitted to issue Foreign Currency Convertible Bonds (FCCBs) ;Depository Receipts(DRs); warrants and partly paid shares to a person resident outside Indiasubject to terms and conditions as stipulated by the RBI.

Are there any restrictions on the sectors for FDI in India?

Yes. Investments by non-residents can be permitted in the capital of a resident entity incertain sectors/activity with entry conditions. Such conditions may include norms forminimum capitalization, lock-in period, etc. as per the latest FDI policy.

What are the routes for FDI investment in India?

There are 2 routes for FDI in India. Under the Automatic Route, the non-resident investoror the Indian company does not require any approval from Government of India for theinvestment. Under the Government Route, prior approval of the Government of India isrequired. Proposals for foreign investment under Government route, are considered byFIPB.

Which sectors is FDI permitted via the automatic route in India?

FDI via automatic route is permitted in almost all sectors in India, for instance, in mining,plantation, railways infrastructure, pharmaceuticals, NDFCs, petroleum and natural gas,civil aviation etc. subject to certain conditions as specified in the FDI policy. However,these are subject to certain conditions, such as sectoral caps.

In which sectors in India is FDI permitted 100% via automatic route?

The sectors which are 100% automatic include Agriculture & Animal Husbandry , Plantation, Mining, Petroleum and Natural Gas, Broadcasting Carriage Services, Civil Aviation -Greenfields/ Brownfields, Air Transport Services (Non Scheduled Air Transport Service/Helicopters services/ seaplane services requiring DGCA approval); Other Services under CivilAviation Sector; Construction Development: Townships, Housing, Built-up Infrastructure;Industrial Parks; Trading; E-Commerce Activities; Duty Free Shops; Railway Infrastructure;Asset Reconstruction Companies; Credit Information Companies; White Label ATMOperations; Non-Banking Financial companies; Pharmaceuticals – Greenfields. These arefurther s.t. conditions as stipulated in the latest FDI policy circular.

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What are the reporting requirements for FDI in India?

The amount so received must be reported in Advance Remittance Form (ARF) within 30 daysof such receipt. The capital instruments should be issued within 180 days from the date ofreceipt of the inward remittance received through normal banking channels includingescrow account opened and maintained for the purpose or by debit to the NRE/FCNR (B)account of the non-resident investor. The details of issue of capital instruments must bereported within 30 days of such issue in Form FC-GPR.

What if the there is a delay in issue of capital instruments?

In case the capital instruments are not issued within 180 days from the date of receipt ofthe inward remittance or date of debit to the NRE/FCNR (B) account, the amount ofconsideration so received should be refunded immediately to the non-resident investor byoutward remittance through normal banking channels or by credit to the NRE/FCNR (B)account, as the case may be.

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In which sectors is FDI permitted under the Government route ?

FDI partly or fully under Government route is permitted under various sectors includingTrading of Food products manufactured or produced in India; Broadcasting ContentServices; Print Media- Newspapers, Periodicals etc.; Print Media- Scientific Magazines,Specialty Journals etc.; Satellites – Establishment and Operations; Multi Brand RetailTrading; Banking - Public Sector; Defence; Air Transport Services- Scheduled Air TransportService/ Domestic Scheduled Passenger Airline; Regional Air Transport Service; PrivateSecurity Agencies; Telecom Services; Single Brand Product Retail Trading and Banking -Private Sector. These are further s.t. conditions as stipulated in the latest FDI policycircular.

Which are the sectorswhere 100% FDI ispermitted via theGovernment approvalroute?

100% FDI via Government approval route only is permitted in Trading of Food productsmanufactured or produced in India; Print Media- including Scientific Magazines, SpecialtyJournals etc.; Satellites – Establishment and Operations s.t. conditions as stipulated in thelatest FDI policy circular.

What are the modesof payment allowedfor receiving ForeignDirect Investment inan Indian company?

Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India shall receive the amount of consideration required to be paid for such shares /convertible debentures by:(i) inward remittance through normal banking channels.(ii) debit to NRE / FCNR account of a person concerned maintained with an AD category I bank.(iii) conversion of royalty / lump sum / technical know how fee due for payment or conversion of ECB, shall be treated as consideration for issue of shares.(iv) conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of FIPB.(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.

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What are the guidelines for the issue price of shares against FDI received for a company listed in India?

In case the company is listed on recognized stock exchange in India, the issue price mustnot be not less than price worked out in accordance with SEBI guidelines.

What are theguidelines for theissue price of sharesagainst FDI receivedfor an unlistedcompany in India?

In case the company is not listed on any stock exchange in India, the price of the share mustnot be less than fair valuation done by a SEBI registered Merchant Banker or a CharteredAccountant as per any internationally accepted pricing methodology on an arm’s length basis

Is transfer of shares to non-residents/ NRIs permitted as per the FDI policy?

General permission is granted to non-residents/ NRIs for acquisition of shares by way oftransfer s.t. conditions such as following:

1) Government approval is not required for transfer of shares in the investee companyfrom one non-resident to another non-resident in sectors which are under automaticroute. Government approval is required for transfer of stake from one non-residentto another non-resident in sectors which are under Government approval route

2) NRIs may transfer by way of sale or gift shares or convertible debentures to anotherNRI

3) Person resident outside India can transfer any security to a person resident in Indiaby way of gift

4) A person resident outside India can sell shares and convertible debentures of anIndian company on a recognized Stock Exchange in India through a registered stockbroker or a registered merchant banker

5) A person resident in India can transfer by way of sale, shares/ convertible debentures(including transfer of subscriber’s shares), of an Indian company under privatearrangement to a person resident outside India, subject to the FDI Policy guidelines

6. General permission is also available for transfer of shares/convertible debentures, byway of sale under private arrangement by a person resident outside India to a personresident in India, subject to the FDI guidelines

7. The above General Permission also covers transfer by a resident to a non-resident ofshares/convertible debentures of an Indian company, engaged in an activity earliercovered under the Government Route but now falling under Automatic Route, as wellas transfer of shares by a non-resident to an Indian company under buyback and/orcapital reduction scheme of the company

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Is transfer of capital instruments from resident to non-residents permitted?

Yes. Transfer of capital instruments from resident to non-residents is permitted. However,there are certain cases that require prior RBI approval.

Which cases of transfer of capital instruments from resident to non-residents require RBI approval

1. Transfer is at a price which falls outside the pricing guidelines specified by the ReserveBank from time to time and the transaction does not fall under the exception given in para5.2. of Annexure 3 of Consolidated FDI Policy, effective from June 07 2016Transfer of capital instruments by the non-resident acquirer involving deferment ofpayment of the amount of consideration. Further, in case approval is granted for atransaction, the same should be reported in Form FC-TRS, to an AD Category-I bank fornecessary due diligence, within 60 days from the date of receipt of the full and finalamount of consideration2. Transfer of any capital instrument, by way of gift by a person resident in India to aperson resident outside India. While forwarding applications to Reserve Bank for approvalfor transfer of capital instruments by way of gift, the documents mentioned in Section 2 ofAnnexure 3 of Consolidated FDI Policy, effective from June 07 2016 should be enclosed.require prior RBI approval.

Can ECBs beconverted into Equity?

Yes. Indian companies have been granted general permission for conversion of ExternalCommercial Borrowings (ECB) (excluding those deemed as ECB) in convertible foreigncurrency into equity shares/fully compulsorily and mandatorily convertible preferenceshares, subject to conditions and reporting requirements as per the latest FDI policy.

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