Deepa Kuruvilla

Foreign Investment in India: Compliances under RBI/FEMA:

An investment which is more than 10% or more from overseas is considered as Foreign Direct Investment (FDI). The Foreign Direct Investment policy in India is regulated under the Foreign Exchange Management Act (FEMA) 2000 which is governed by the Reserve Bank of India.

Investment in India can be done through 2 ways:

Automatic Route which does not require approval from the RBI.

Government Route which requires approval from concerned Departments/Ministries through Foreign Investment Facilitation Portal (FIFP) which is controlled by Ministry of Commerce, Department of Industrial Policy & Promotion (DIPP) and the Government of India.

The Foreign Institutional Investor (FII) or the Foreign Portfolio Investors (FPI) is only allowed to invest and trade in equity securities with maximum investment which cannot exceed 24% of the paid up capital of the company.

All foreign investor can invest in India either through Automatic or Government Approval route but there are sectors where investment is prohibited; hence prior approval of FIPB is required.

The following are the sectors where FDI is prohibited:

Nidhi Company

Real estate business

Gambling & Betting

Chit Funds

Lottery Business

Activities / sectors not open to private sector investment e.g. Atomic Energy.

Cigars, cheroots, cigarillos and cigarette manufacture.

There are sectors under India where the Government approval is mandatory before investing but under circumstances when it cannot be decided, DIPP has the responsibility to identify the concerned department.

FDI in Limited Liability Partnership:

Upto 100% FDI is allowed in LLPs provided the investor adheres to the set of rules, in which case the approval of FIPB is not required.

a> All investments should comply with LLP act,2008.

b> An LLP can further downstream the investment in a different company or LLP, which was not possible earlier.

c>Foreign companies or individuals can be apointed as Designated Partner.

d> No FDI linked performance conditions.

FDI in Private Limited Company:

FDI in Private Limited Company can be done through 2 ways:

The Indian company can issue equity share and convertible debentures subject to the guidelines.

Registering with Registrar of Company (MCA) and functioning as a foreign company.

FDI Approval Process:

FDI approval process includes the following stages:

Submitting the documents along with the proposal on Foreign Investment Facilitation Portal (FIFP).

The concerned Ministry/Department is assigned the proposal.

The proposal is then forwarded to RBI, Ministry of External affairs & Department of Revenue to be reviewed.

If any changes are to be made in the proposal the concerned party is informed about the same.

After the verification process has been reviewed, the concerned authority has to give the final decision within 2 weeks.

List of documents to be uploaded at the time of submission of application:

Summary of Proposal on Company(Applicant) Letterhead

Certificate of Incorporation(COI) (Investee/Investor/Downstream)

Memorandum of Association(MOA) (Investee/Investor/Downstream)

Board Resolution(Investee/Investor/Downstream)

Audited Financial Statement of Last Financial Year(Investee/Investor/Downstream)

Article of Association(Investee/Investor/Downstream)

LLP Draft

LLP Agreement

Income Tax Return of Last Year

Passport Copy/ Identification Proof

For more information on NRI investments to India, visit Qwinlaw. We also provide Online legal advice for your legal problems in India.

Qwinlaw helps in compliance services & provides LPO in India. We are the best Legal Process Outsourcing Company in India.

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