This article contains a brief note on various provisions under FEMA, related to Investments to be done Outside India by Indian Entities.
This is just a brief note and relvant expert advise is to be taken before acting upon.
If any further information is required in this case, kindly contact me.
OVERSEAS DIRECT INVESTMENT (Without RBI Approval)
OPTION 1: ABC PVT LTD. INVESTING IN A REGISTERED WHOLLY OWNED SUBSIDIARY COMPANY OUTSIDE INDIA
OPTION 2: ABC PVT. LTD. INVESTING IN A REGISTERED JOINT VENTURE OUTSIDE INDIA (HOLDING LESS THAN 50% OF THE JOIINT VENTURE)
OPTION 3: RESIDENT INVIDIVIDUAL INVESTING IN A REGISTERED WHOLLY OWNED / PARTLY OWNED COMAPNY OUTSIDE INDIA
|
Sr No |
Particulars |
OPTION 1 |
OPTION 2 |
OPTION 3 |
|
1 |
Prohibitions |
Co. Outside India must not be engaged in real estate / banking business |
Co. Outside India must not be engaged in real estate / banking business |
|
|
2 |
Limit of investment |
100% of the net worth as on the date of of last audited accounts of ABC Pvt Ltd. (Total investment / guarantee, by whatever method, in all Foreign Co. Is subject to this limit) |
100% of the net worth as on the date of of last audited accounts of ABC Pvt Ltd. (Total investment / guarantee, by whatever method, in all Foreign Co. Is subject to this limit) |
USD 75,000 per financial year. This limit is inclusive all the payments made by resident individual outside india. |
|
3 |
When Limit not applicable |
a. Investment made out of balance in Exchange Earners’ Foreign Currency account, or
b. Funds raised through ADR / GDR |
a. Investment made out of balance in Exchange Earners’ Foreign Currency account, or
b. Funds raised through ADR / GDR |
Investment made out of balance in Exchange Earners’ Foreign Currency account or Resident Foreign Currency Account |
|
4 |
Loans to Foreign Companies |
Allowed only when the ABC Pvt Ltd. is having equity participation in foreign company |
Allowed only when the ABC Pvt Ltd. is having equity participation in foreign company |
Not Allowed |
|
5 |
Method of Investment |
All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by ABC Pvt Ltd. |
All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by ABC Pvt Ltd. |
All transactions related to Foreign Co. should be routed through one branch of a bank, to be designated by Individual |
|
6 |
Valuation in case of acquisition of existing Co. |
Where investment > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA |
Where investment > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA |
Where investment > USD 5 Million, valuation by Category I Merchant Banker, and in Investment <= USD 5 Million, valuation by a CA |
|
7 |
Reporting of transaction to AD Bank |
a. In Form ODI within 30 days from the date of transaction
b. Receive Share certificates
c. Repatriate to India the dues receivable from Foreign Co.
d. Submit Annual Performance Report to RBI |
a. In Form ODI within 30 days from the date of transaction
b. Receive Share certificates
c. Repatriate to India the dues receivable from Foreign Co.
d. Submit Annual Performance Report to RBI |
a. In Form ODI within 30 days from the date of transaction
b. Receive Share certificates
c. Repatriate to India the dues receivable from Foreign Co.
d. Submit Annual Performance Report to RBI |
|
8 |
RBI Approval |
When the above conditions are not satisfied, RBI Prior approval is required |
When the above conditions are not satisfied, RBI Prior approval is required |
When the above conditions are not satisfied, RBI Prior approval is required |
|
9 |
Factors considered by RBI for giving prior approval |
Viability of Foreign Co. Outside India,
Contribution to external trade and their benefits accruing to India,
Financial position and business track record of Indian Co and Foreign Co.
Expertise and Experience of Indian Co. in the related line of activity of Foreign Co. |
Viability of Foreign Co. Outside India,
Contribution to external trade and their benefits accruing to India,
Financial position and business track record of Indian Co and Foreign Co.
Expertise and Experience of Indian Co. in the related line of activity of Foreign Co. |
Viability of Foreign Co. Outside India,
Contribution to external trade and their benefits accruing to India,
Financial position and business track record of Indian Co and Foreign Co.
Expertise and Experience of Resident in the related line of activity of Foreign Co. |
|
10 |
Income tax on Dividend Income from Foreign Investment |
Taxable in the hands of Indian Co. @ 16.995% (upto FY 2013-14). Further, Dividend Distribution tax @ 16.995% is payable when Dividend is paid to a Shareholder. Effective tax rate is 31.10% |
Taxable in the hands of Indian Co. @ 16.995% (upto FY 2013-14). Further, Dividend Distribution tax @ 16.995% is payable when Dividend is paid to a Shareholder. Effective tax rate is 31.10% |
Taxable in the hands of resident individual @ 30% plus Surcharge @ 10% (applicable when Income > Rs. 1 Cr) plus Education Cess @ 3%. Effective tax rate is 33.99%. |
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