Inbound & Outbound Investments by NRIs including Investments in Real Estate – FEMA Provisions

1. Inbound & Outbound Investments by NRIs including Investments in Real Estate – FEMA Provisions National Conference on Direct Taxes Rajkot CA Mayur. B. Nayak Sunday, 24h June, 2018

2. IMPORTANT ASPECTS OF FEMA • Introduction • Need for study • The scheme of FEMA CA. Mayur B Nayak

3. What FEMA tries to govern ? CA. Mayur B Nayak

4. Concepts to get started with • Applicability of FEMA • Residential Status • Current Account Transactions • Capital Account Transactions • Classification CA. Mayur B Nayak

5. RESIDENTIAL STATUS CA. Mayur B Nayak

6. Section 2(v) : Person Resident in India means Individual is a person residing in India >182 days during preceding F.Y. but does not include :- In case of INDIVIDUALS • a person who has come to or stays in India, in either case, otherwise than – • a. employment outside India, or • b. business or vocation outside India, or • c. stay outside India for an uncertain period ; • a person who has gone out of India or who stays outside India, in either case – • a. employment outside India, or • b. business or vocation outside India, or • c. stay outside India for an uncertain period ;

7. In case of OTHER ENTITIES CA. Mayur B Nayak

8. CAPITAL ACCOUNT TRANSACTIONS CA. Mayur B Nayak

9. Definition of Capital Account Transactions Section 2(e) defines “Capital Account Transactions” to mean - a transaction which - • alters the assets or liabilities, including contingent liabilities, outside India of a PRI, or • assets or liabilities in India of Non-resident, including capital account transactions as per • Section 6(3) CA. Mayur B Nayak

10. CURRENT ACCOUNT TRANSACTIONS CA. Mayur B Nayak

11. Definition of Current Account Transaction According to section 2 (j) of the Act the “Current Account transaction” means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing, such transaction includes, - (i) payments due in connection with foreign trade, other current business, services, and other short term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii)  remittances for living expenses of parents, spouse and children residing abroad (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children CA. Mayur B Nayak

12. CLASSIFICATION CA. Mayur B Nayak

13. INBOUND INVESTMENTS CA. Mayur B Nayak

14. Foreign Investments By non-residents, NRIs & PIOs (other than entities / citizens of Pakistan and Bangladesh) Foreign Direct Investments Foreign Portfolio Investments Foreign Venture Capital Investments Other Investments Investments on Non-repatriable basis Company LLP FIIs, QFIs, RFPIs NRIs, PIOs SEBI regd. FVCIs G-Sec, NCDs, etc NRIs, PIOs VCF, IVCUs FIIs, QFIs, FVCIs NRIs, PIOs Automatic route Approval Route CA. Mayur B Nayak PROI

15. FDI Regime FEMA Act, 1999 FDI Policy DIPP Press Notes- Ministry of Commerce and Industry – later to be subsumed with updated Consolidated FDI Policy RBI Notification No. 20(R) In case of conflict between FDI Policy & RBI Notification 20R, RBI Notification will prevail CA. Mayur B Nayak

16. FDI- Key Definitions under Notification No. 20(R) • Capital Instruments • Convertible Note • Foreign Direct Investment (FDI) • Foreign Investments • Manufacture • Start Up Company CA. Mayur B Nayak

17. FOREIGN DIRECT INVESTMENTS • Automatic Route • Approval Route CA. Mayur B Nayak

18. GIST OF FDI CA. Mayur B Nayak

19. What are the modes of payment for receiving FDI in an Indian company? CA. Mayur B Nayak

20. India’s FDI Policy – An Overview of a few sectors Sectors – Automatic Route Sectors –Approval Route Prohibited • Agriculture & Animal husbandry • Plantation • Mining • Manufacturing • Insurance- Upto 49% • Construction Development • Defense – upto 49% • Telecom – upto 49% • NBFCs • Power Exchanges • Pharmaceuticals – Greenfield Investments • Pharmaceuticals – Brownfield Investments- upto 49% • Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities • Defense – beyond 49% • Satellites • Private Security Agencies - 49% • Telecom - beyond 49% • Pharmaceuticals – Brownfields Investments- beyond 74% • Lottery, betting and gambling • Business of chit fund • Nidhi company • Trading in TDRs • Cigars, cheroots, cigarillos and cigarettes • Real estate business or construction of farm House • Atomic Energy • Railway Operations CA. Mayur B Nayak

21. CA. Mayur B Nayak

22. Investment in Company/ LLP • NRI or OCI • Company. Firm or trust incorporated outside India and owned and controlled by NRIs or OCIs Eligible Investors • Capital instruments issued by Indian Company • Contribution to Capital of LLP • Convertible notes issued by Start up Companies • Units issued by Investment Vehicle • (Non- Repatriation basis) Eligible Investments CA. Mayur B Nayak

23. Investment in Company/ LLP (Contd..) • Nidhi Company • Company engaged in Agricultural/ Plantation Activities • Companies engaged in Real Estate Business or construction of Farm Houses • Companies Dealing in TDRs Prohibited Sectors • Normal Banking Channel • Debit to NRE/ FCNR(B)/ NRO accounts Mode of Payment • Credit Only to NRO account (Net of taxes) Sale Proceeds CA. Mayur B Nayak

24. Investment in Partnership Firm/ Proprietary Concern Eligible Investment Contribution to capital of Firm or proprietary concern by NRI or OCI on Non- repatriation basis • Firm/ Proprietary concern engaged in • Agricultural/ Plantation Activities • Real Estate Business or construction of Farm Houses • Print Media Prohibited Sectors • Normal Banking Channel • Debit to NRE/ FCNR(B)/ NRO accounts Mode of Payment CA. Mayur B Nayak

25. Investment on Repatriation basis by NRI or OCI CA. Mayur B Nayak

26. Investment on Non-Repatriation basis by NRI or OCI CA. Mayur B Nayak

27. Foreign Portfolio Investment Scheme Eligibility Overseas Corporate Bodies (OCB) × Non- Resident Indians √ Foreign Institutional Investors √ CA. Mayur B Nayak

28. Foreign Portfolio Investment Scheme • Prohibition on Investment • FII’s are not permitted to invest in capital of a company in Defence Industry subject to Industrial license under the Industries. Both FII’s and NRI’s are not allowed to invest in any company which is engaged in the following:- • Business of Chit Fund • Nidhi Company • Agricultural Plantation activities • Real-Estate business • Trading in Transferable Development Rights. CA. Mayur B Nayak

29. FPIS-Foreign Institutional Investors • Limit of Investment (for individual FII/FPI per company) • Limit of Investment (for total holding by all FII/FPI/QFI per company) Total paid up capital or paid-up value of each series of convertible debentures 10 percent Total paid up capital or paid-up value of each series of convertible debentures 24 percent CA. Mayur B Nayak

30. FPIS-Foreign Institutional Investors Increasing the Limit of 24% (Subject to Sectoral Cap/ Statutory Limit) Board Resolution Special Resolution in General Meeting Intimation to RBI CA. Mayur B Nayak

31. FPIS-Non Resident Indians Routes: Recognised Stock Exchange Designated AD Repatriable Non-Repatriable CA. Mayur B Nayak

32. FPIS-Non Resident Indians • Limit of Investment (for individual NRI per Company) • Limit of Investment (for total holding by all NRIs per company) Total paid up capital or paid-up value of each series of debentures of Listed Indian Co 5 percent Total paid up capital or paid-up value of each series of convertible debentures 10 percent CA. Mayur B Nayak

33. FPIS-Non Resident Indians Increasing the Limit from10 to 24% Board Resolution Special Resolution in General Meeting Intimation to RBI CA. Mayur B Nayak

34. Foreign Portfolio Investment Scheme (Other Key Points) CA. Mayur B Nayak

35. Foreign Portfolio Investment Scheme • Responsibilities of Indian Companies An Indian company should keep a record of all FII’s and NRI’s investing in securities of the company and also intimate the Reserve Bank regarding the compliance with regulations of Foreign Direct Investment under FEMA act 1999. CA. Mayur B Nayak

36. Establishment of Place of Business in India FOREIGN ENTITY AS A FOREIGN COMPANY AS A LIMITED LIABILITY PARTNERSHIP AS AN INDIAN COMPA NY PROJECT OFFICE (‘PO’) LIAISON OFFICE (‘LO’) BRANCH OFFICE(‘BO’) WHOLLY OWNED SUBSIDIARY (‘WOS’) JOINT VENTURE (‘JV’) CA. Mayur B Nayak 36

37. Establishment of BO/LO/PO • General Criteria • Application from Foreign Entity • Prior RBI Approval ( However, general permission is given to non resident companies to establish PO/ BO in India) • Foreign entity to have financially sound track record • Validity Period • Funding for Local Operations CA. Mayur B Nayak

38. Establishment of BO/LO/PO • Whether BO/ LO/ PO regarded as PE in India? • Can BO/ LO/ PO acquire immoveable property in India? • Whether LO/ BO/ PO permitted to acquire immoveable property outside India? • What are the permitted activities for LO/ BO/ PO? CA. Mayur B Nayak

39. FDI Compliances CA. Mayur B Nayak

40. Transfer of Shares (Regulation 10) Transfer of shares • Transfer by: • Resident to Non- resident • NRI/ OCI to NRI • Non- Resident to Resident • Resident/ NRI/ OCI being eligible holding investment under Schedule-4 to Non- Resident • Non-Resident holding optionally convertible instrument to Non- resident • Erstwhile OBC to Non- Resident CA. Mayur B Nayak

41. Pricing Guidelines (Regulation 11) • In case of capital instruments issued by an Indian company to a person resident outside India • In case of capital instruments transferred from a person resident in India to a person resident outside India • In case of capital instruments transferred by a person resident outside India to a person resident in India CA. Mayur B Nayak

42. Reporting Requirements (Regulation 13) • RBI, vide A.P (DIR Series) Circular No. 30 dated June 7, 2018 has provided a Single Master Form (“SMF”) for reporting of foreign investments in India. The SMF consolidates the following forms: • Form FC- GPR • Form FC-TRS • Form LLP-I • Form LLP-II • Form ESOP • Form CN • Form DRR • Form DI • Form InVi • Form SMF does not consolidate following 2 Forms- • Form ARF • Form FLA CA. Mayur B Nayak

43. Merger or Demerger/Delay in reporting/ Downstream Investment/ Prohibited Activities (Regulation 9, 13.2, 14 & 15) • Merger or Demerger • Delay in Reporting • Downstream Investment • Prohibited Activities CA. Mayur B Nayak

44. FDI IN • LIMITED LIABILITY • PARTNERSHIP CA. Mayur B Nayak

45. Capital Contribution / Profit share of LLPs • A person resident outside India • Entity incorporated Outside India • ( Except certain persons) Eligible Investors Eligibility of LLP for accepting foreign Investment Allowed for : LLPs operating in sectors where 100% FDI under Automatic route is allowed • Disallowed for : • Sectors eligible to accept 100% FDI under automatic route but are subject to FDI-linked performance related conditions. • Sectors eligible to accept <100% FDI under automatic route; or • Sectors eligible to accept FDI under Government Approval route; or • Agricultural/plantation activity and print media; or • Sectors not eligible to accept FDI i.e. any sector which is prohibited under the extant FDI policy CA. Mayur B Nayak

46. Capital Contribution / Profit share of LLPs CA. Mayur B Nayak

47. Capital Contribution / Profit share of LLPs CA. Mayur B Nayak

48. FDI in Housing & Real Estate Development by NRIs CA. Mayur B Nayak

49. Investment in Immovable Property in India Investment In Immovable Property Investment in Immovable Property by NRI Investment in Immovable Property by OCI CA. Mayur B Nayak

50. FDI in Housing & Real Estate Development by NRI/ OCI CA. Mayur B Nayak