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FOREIGN DIRECT INVESTMENT POLICY2017- 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
Contents
Information in the following slides is intended to provide only a general outline of the subjectscovered. 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 LLPaccepts no responsibility for loss arising from any action taken or not taken by anyone usingthese slides.
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
Why This?
PROHIBITED 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
PERMITTED SECTORS
In the following Sectors FDI is allowed upto thelimit provided in each Sector. In Sectors not listedbelow, FDI is allowed up to 100% on theautomatic 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 orbridges and REIT’s registered and regulated under the SEBI (REITs) Regulations 2014.
Who Can Invest? - Eligible Investors (Country Specific)
Nepal & Bhutan
On repatriation basis
In free foreign exchange
Through normal banking channels
Bangladesh & Pakistan
Only through government route
Defence, Space & Atomic Energy is prohibited for
Pakistan
Others
Subject to the conditions of FDI policy 2017 as discussed
Who Can Invest? - Eligible Investors (Entity Specific)
Foreign Venture capital investor
Registered with SEBI
Subject to FEMA regulations
Company/Trust/Partnership Firm controlled by NRI’s
Special dispensation as available to NRIs under the FDI Policy.
FII/FPI
Individual Holding <10% of capital
Total Holding < 24% of capital
Board Resolution
Special Resolution
RBI permission
For increase in (b)
(a)
(b)
Govt.approval
Overseas Corporate Bodies
Not under adverse notice of RBI
RBI permission
Automatic route
Govt. route
Others
Subject to the conditions of FDI policy 2017 as discussed
Types of Instruments
Equity Debentures
FDI
Preference
Fully, compulsorily and mandatorily
convertible
Non-convertible, optionally/partially
convertible
Fully, compulsorily and mandatorily
convertible
Non-convertible, optionally/partially
convertible
FDI FDI DebtDebt
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
LLP
Company
Trusts
Proprietary Concern
Partnership Firm
AJP
AOP
Any other
BOI
HUF
*Subject to the terms & conditions of the FDI policy
Partnership Firm/Proprietary
Concern
Non-Repatriation
OptionRepatriation
Option
Investors: NRI, PIO Resident Outside India
Restriction:Agricultural or
Plantation Activity, Real
Estate Business, Print Media.
Prior Permission
Of RBI
By inward remittance
NRE/FCNR(B)/NRO account
maintained with
Authorized banks
Others
Prior Permission Of RBI and
Government
Eligible Investees…..(supplement riders)
Person resident outside
India
Citizens or entities of Pakistan or Bangladesh
Registered Foreign Portfolio Investor (RFPI)
Non-resident Indian (NRI)
Investment Vehicle
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.
Foreign Company
LLP
Foreign Company
LLP
LLP
LLP
Indian Company
Conversion
Eligible Investees…..(supplement riders)
Startup Company (Private
company)
Issue equity/ equity linked/ debt instruments
Foreign Venture Capital
Investor (FVCI)
Issue convertible notes
Person resident outside
India
Against receipt of foreign remittance
Comply regulations as per FEMA
Other than Citizens or entities of Pakistan or Bangladesh
Purchase in amounts of min Rs.25 lakhs in single tranche
Consideration shall be paid by inward remittancethrough banking channels or by debit to NRE/FCNR(B)/ Escrow account (to be closed within max 6months after completion of requirements)
Eligible Investees (supplement riders)
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
Note: If The Application Is Rejected By The
Competent Authority(CA), Concurrence Of DIPP Shall
Compulsorily Be Sought By The CA
Procedure For Government Approval
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 hasalready been taken
No
Application to
Competent Authority
Examination By
Competent Authority As
Per Standard operating Procedure
Application shall be
forwarded to CCEA
APPROVED
If total FDI> Rs.
5000 crore
Yes
Issue 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
*Where non-residents are investing in Indian Co. by way of subscription to MOA, investment may be made at face value
Issue price of shares
Shall not be less than
Price as per SEBI guidelines
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
Transfer of Shares
Acquisition of shares and convertible debentures by way of transfer
General permission granted*
Transferor Mode Transferee
Person resident outside India (other than NRI & OCB)
Sale or gift Person resident outside India (including NRIs)
NRIs Sale or gift NRIs
Person resident outside India
Gift Person resident in India
Person resident outside India
Sale on Stock exchange in India
Any person
Person resident in India
Sale under private arrangement
Person resident outside India
Person resident outside India
Sale under private arrangement
Person resident in India
*Form FC-TRS should be submitted within 60 days from date of receipt of the amount of consideration
Prior permission of RBI
Transfer from resident to non-resident 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 non-resident by way of gift
Approval of RBI not required
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
Fair value, as per SEBI registered
Merchant Banker or Chartered Accountant
Price at which preferential
allotment can be made under SEBI
guidelines
• Documentation
Not more than
Not less than
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
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.
ECBsEligible 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
Lump sum fee
Eligible FDI instruments
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
Conversion to 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
Right/Bonus Shares
Freely issue to existing NRin accordance with otherapplicable laws
Price for offer on right basis
Listed Company Unlisted Company
As determined by the company
Greater than theprice at which theoffer is made toresidentshareholders
Overall issue shouldn’t exceed the Sectorial Cap
Merger/Demerger/Amalgamation
Transferee/Transferor/Newcompany shouldn’t engage inactivities prohibited under FDIPolicy
Percentage of holding by NRshouldn’t exceed the SectorialCap
Non convertible/redeemable bonus preference share or debentures
By way of distribution asbonus from its generalreserve by Court of India
No objection from Income TaxAuthorities
Conditions on Investment Instruments….
Share Swap
No Government approvalrequired under Automaticroute
Valuation by a Merchant Bankerregistered with SEBI or anInvestment Banker registeredwith appropriate authorityoutside India
Pledge of Shares
Loan RegistrationNumber (LRN) shouldbe obtained from RBI
A Promoter of acompany which hasraised ECB’s may pledgeshares subject to noobjection from anauthorized bank dealer
Overseas BankAD Bank
Declaration from statutoryauditor must be obtainedstating that the loan has beenutilized for the declaredpurposes
In case of invocationof pledge, transferof shares should bein accordance withthe FDI policy at thetime of creation ofpledge
Declaration from aCA must beobtained stating thatthe loan has beenutilized for thedeclared purposes
ESOP/Sweat Equity
Subject to SEBI Regulations
Subject to sectoral cap underthe policy
Non ResidentResident
Loan is utilized forgenuine purposeoverseas
Overseas investmentshouldn’t result inany capital inflow inIndia
In accordance withthe FDI policy
Declaration byCA/CPA for genuineutilization of loan
Conditions on Investment Instruments
Remittance & Repatriation
Remittance on sale proceeds
Subject to FEMA regulations
NOC from Income Tax Department
Remittance on Winding up/ Liquidation of Companies
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
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
Reporting of Issue of shares
File form FC-GPR in not later than 30 days from the date of issue along with the following documents:
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
Certificate from SEBI registered Merchant Banker or CA indicating manner of arriving at issue price
Report of receipt of consideration
Annual return on Foreign Liabilities & Assets (by 15th
July of every year)
Reporting of Non-cash
Report issue of shares against conversion of ECB to
Regional Office
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.
Full conversion of ECB into equity
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 non-converted portion
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
Reporting of FDI
Penalties
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
Violation or contravention of any provision of policy
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 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.
Downstream investments by eligible Indian entity not owned by resident entity into another Indian
company
Notify RBI & Foreign Investment Facilitation Portal
within 30 days
Bring in funds from abroad & not from the domestic market
Issue/ transfer/ pricing/ valuation of capital as per
SEBI/RBI guidelines
Duly supported by a Board resolution & shareholder
agreement, if any
Cases Which Don’t Require Fresh Approval For
Bringing In Additional Funds
Into The Same Entity
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 Investment Into the same entity
where approval of Government had
been obtained earlier
Additional FDI upto cumulative amount
of Rs. 5000 crore where within an approved foreign equity percentage
Entities which earlier had
Sectorial Cap but subsequently such cap was increased
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
100% Automatic
Plantation Sector • Tea sector including tea plantations • Coffee plantations • Rubber plantations • Cardamom plantations • Palm oil tree plantations • Olive oil tree plantations
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%Automatic
Banking- Private Sector 74% Automatic up to 49% ,
Government route beyond 49% and up to 74%.
Banking- Public Sector 20% Government
Credit Information Companies 100% Automatic
Infrastructure companies in Securities Markets
Stock exchanges, commodity exchanges, depositories and clearing corporations49% 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 100% Automatic
Financial Services activities regulated by financial sector regulatorsRBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India
100%Automatic
Broadcasting Carriage Services Teleports, DTH, Cable Networks, Mobile TV, Headend-in-the-Sky Broadcasting Service
100% Automatic
Broadcasting Content Services FM Radio, Up-linking of ‘News & Current Affairs’ TV Channels
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
100% Automatic
Print Media Publishing of newspaper & periodicals and Indian editions of foreign magazines dealing with news and current affairs
26% Government
Print Media Publishing/printing of scientific and technical magazines/specialty journals/ periodicals, Publication of facsimile edition of foreign newspapers
100% Government
Civil Aviation-Airports Greenfield projects, Existing projects
100% Automatic
Civil Aviation-Air Transport Services Scheduled & Regional 100%
Automatic up to 49% (Automatic up to 100% for NRIs) Government route
beyond 49%
Civil Aviation-Air Transport ServicesNon-scheduled, Helicopter Services
100% Automatic
Civil Aviation-Others Ground Handling Services, Maintenance & Repair organizations, flying training institutes, technical training institutions
100% Automatic
Construction DevelopmentTownships, Housing, Built-up Infrastructure
100% Automatic
Sector/ Activity FDI Cap Entry Route
Industrial Parks New and existing
100% Automatic
SatellitesEstablishment and operation
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 TradingIncluding 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.
For a deeper discussion on how this issue might effect your business, please contact
Let’s Talk…
Kannan (Ragu)nathan, Partner
Mobile: +91 98490 34032
Email: [email protected]
Siddharth Surana, Associate Manager
Mobile: +91 85000 144333Email: [email protected]
Vikas Choudhary, Associate Manager
Mobile: +91 95503 70400Email: [email protected]
K Vijayaraghavan & Associates LLP
Chartered AccountantsPlot No 54, Sagar Society, Road No 2, Banjara Hills, Hyderabad, 500 034Tel: +91 (0) 40 3016 0333
