Investment by Foreign Nationals

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 October 2010 1) How a foreign national can be a stake holder in a company.
2) How can he invest money, i.e. how can he send the money to India (from America) and how we can send it back when the work is done.

The sector this question applys for is real estate and construction.

taxindiaconnect

taxindiaconnect (Expert)
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29 October 2010 Real estate sector is a regulated sector, so various restriction apply for investment in this sector. However the investment route / process is same as for an resident Indian , through banking channel payment, the NR can purchase shares in an existing company, can form a new company in India , can invest through a firm in India, individual name or can purchase the property directly in his name subject to various conditions under FEMA. The repatriation has several route, such as divided distribution, sale of property / shares and take the money back. This is a very short answer to your wide query, if you want to know more, please send a detailed mail.

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Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2010 I Have an Infrastructure Company in which some NRIs are interested in lending/Investing money upto 1 million $, so now pl quide me about how to proceed with the inflow and after that with the statutory compliances.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 Investing in an Indian company by foreign nationals involves specific regulatory and procedural requirements under Indian law. Here’s a detailed guide on how foreign nationals can become stakeholders and invest in a company, with a focus on real estate and construction sectors:

### **1. How a Foreign National Can Be a Stakeholder in a Company**

#### **Types of Foreign Investment:**

1. **Direct Investment:**
- **Foreign Direct Investment (FDI):** Foreign nationals can invest directly in an Indian company, either through equity or convertible debentures.
- **Ownership Limits:** Depending on the sector, FDI limits are set by the Foreign Exchange Management Act (FEMA) and sector-specific regulations. Real estate and construction have specific FDI regulations.

2. **Indirect Investment:**
- **Through a Foreign Entity:** A foreign company can invest in an Indian company. The foreign entity, which could be a parent company or a subsidiary, can hold equity or debt in the Indian company.

#### **Legal Framework:**
- **Foreign Exchange Management Act (FEMA), 1999:** Governs the investment process and ensures compliance with Indian foreign exchange laws.
- **Reserve Bank of India (RBI):** Regulates foreign investments and remittances.

### **2. How Foreign Nationals Can Invest Money**

#### **Investment Process:**

1. **Investment Channels:**
- **Equity Investment:** Purchase of shares or ownership stakes in the company.
- **Debt Investment:** Lending money or subscribing to debentures, which might be convertible into equity later.

2. **Regulatory Compliance:**
- **FEMA Regulations:** Ensure compliance with FEMA rules regarding foreign investment. FDI in real estate and construction must adhere to specific conditions under FEMA.
- **RBI Approval:** For certain types of investments, especially in sectors with restrictions or for non-resident investors, prior RBI approval may be required.

#### **Procedures for Remittance:**

1. **Incoming Remittance:**
- **Bank Account:** Foreign nationals should remit funds through a designated bank account in India. They should use the Foreign Inward Remittance Certificate (FIRC) as proof of the remittance.
- **KYC Compliance:** The foreign investor must complete KYC (Know Your Customer) requirements as specified by the bank and regulatory authorities.

2. **Documentation Required:**
- **FIRC:** Issued by the bank to confirm receipt of foreign funds.
- **FEMA Declaration:** Required for reporting the foreign investment to the RBI.
- **Form FC-GPR:** For reporting the investment to the RBI. This is filed within 30 days of the allotment of shares or convertible instruments.

### **3. Sending Money Back**

1. **Repatriation Process:**
- **Foreign Investment:** Returns or capital repatriation can be done once the investment has been properly reported and complies with FEMA regulations.
- **Compliance:** Ensure all statutory requirements, such as filing necessary forms with the RBI and the Ministry of Corporate Affairs (MCA), are met.

2. **Tax Considerations:**
- **Tax on Income:** Income or dividends received by foreign investors may be subject to withholding tax in India, as per the Income Tax Act and applicable Double Taxation Avoidance Agreements (DTAAs).
- **Capital Gains Tax:** On the sale of equity or other investments, capital gains tax implications need to be considered. The tax treatment will depend on the holding period and whether it’s short-term or long-term.

### **4. Sector-Specific Compliance for Real Estate and Construction**

- **FDI Policy for Real Estate:**
- **Investment Conditions:** Foreign investment in real estate is regulated under the FDI Policy. Foreign investors can invest in real estate development and construction activities, subject to compliance with specific conditions and guidelines.
- **Minimum Area Requirement:** For residential real estate projects, there might be minimum development area requirements.
- **Restrictions:** Direct investment in agricultural land or real estate not meant for development is restricted.

- **Approval from Authorities:**
- **RBI:** Obtain necessary approvals for foreign investments in restricted sectors or if required by RBI.
- **MCA:** Comply with corporate filing requirements, including reporting changes in shareholding.

### **Summary of Steps for Foreign Investment:**

1. **Ensure Compliance with FEMA and FDI Policies.**
2. **Complete KYC Requirements and Open a Bank Account.**
3. **Remit Funds through a Designated Bank, Obtain FIRC.**
4. **File Required Forms with RBI and MCA (e.g., FC-GPR).**
5. **Comply with Sector-Specific Regulations.**
6. **Follow Tax and Repatriation Procedures.**

### **Consultation with Experts:**

Given the complexity of foreign investment regulations and compliance, it's advisable to consult with a financial advisor, legal expert, or consultant specializing in foreign investments and real estate. They can provide detailed guidance tailored to your specific situation and ensure all regulatory requirements are met effectively.