FEMA & RBI
Overview: Foreign Direct Investment (FDI) refers to investments made by companies or entities based in one country into companies or entities based in another country. Open economies with skilled workforces and good growth prospects, like India, tend to attract significant amounts of FDI.
Investment Methods: Companies can make overseas investments in various ways, including:
- Setting up a subsidiary or associate company in a foreign country
- Acquiring shares of an overseas company
- Merging with or forming joint ventures with foreign entities
FEMA/RBI Compliance: With globalization, the importance of complying with FEMA/RBI regulations has significantly increased. Compliance involves obtaining certifications from chartered accountants for transactions prescribed in the FEMA/RBI regulations, making necessary applications to the Reserve Bank of India, and providing advisory services related to FEMA/RBI matters.
Services:
- Ensuring compliance with FDI regulations and obtaining regulatory approvals
- Facilitating the procedure, including obtaining chartered accountants’ certifications for repatriation of income/assets from India
- Facilitating the transfer of shares from Indian residents to non-residents
- Filing Form FC-GPR
- Yearly submission of FLA (foreign assets and liabilities) returns
Outward Direct Investment (ODI)
Overview: Outward Direct Investment (ODI) is a strategic business approach where a domestic firm expands its operations to a foreign country through greenfield investments, mergers/acquisitions, or expanding existing foreign facilities. This can be done under the automatic route or the approval route as per RBI guidelines.
Services:
- Assisting in filing Form ODI supported by necessary documents such as certified copies of board resolutions, statutory auditors’ certificates, and valuation reports
- Obtaining prior approvals from the RBI
- Evaluating parameters for proposals under the approval route
- Filing Form FC-TRS
- Yearly submission of APR (annual performance reports)
External Commercial Borrowings (ECB)
Overview: External Commercial Borrowings (ECB) facilitate access to foreign funds by Indian corporations and PSUs. ECBs include various instruments such as commercial bank loans, buyers’ credit, suppliers’ credit, and securitized instruments, which are regulated by the Department of Economic Affairs (DEA) and RBI.
Services:
- Certification of Form 83 for submission to authorized dealers and RBI
- Obtaining loan request numbers and facilitating drawdowns
A. Liaison Office
A liaison office serves as a communication channel between the principal place of business or head office and entities in India. However, it does not engage in any commercial, trading, or industrial activities directly or indirectly. It sustains itself using inward remittances from the parent company and cannot earn income in India.
B. Project Office
A project management office (PMO) is a group or department within an organization that establishes and upholds project management standards. Project offices are established for specific projects and are operational for the duration of the project. They must adhere to certain compliance requirements.
C. Branch Office
A branch office is an additional location, separate from the main office, where business activities are conducted. It must engage in the same activities as the parent company and undergo various regulatory compliances during incorporation.
Services Offered:
DGFT & STPI:
- Assistance with applications for Directorate General of Foreign Trade (DGFT) and Software Technology Parks of India (STPI) approvals.
IEC Application:
- Support in obtaining Importer Exporter Code (IEC) registration.
Bank Realization Certificate:
- Assistance in obtaining Bank Realization Certificates for foreign exchange transactions.
SEIS Application:
- Facilitation of Services Export from India Scheme (SEIS) application process.
STPI Filings:
- Support with filings and compliance requirements for STPI.
State Government:
- Registration under State Government regulations such as the TG Shops and Establishments Act.
Labour License:
- Assistance in obtaining labor licenses as per regulatory requirements.
Trade License:
- Support with obtaining trade licenses for business operations.
FCRA (Ministry of Home Affairs):
- Assistance with Foreign Contribution Regulation Act (FCRA) compliance and filings.
FCRA Filings:
- Support in completing and filing FCRA-related documents and reports.
Before investing in India, companies need to understand the process of repatriating their profits from the country. While sending company profits from India is generally straightforward, the procedures depend on the entity’s investment model.
A. Remitting from Branch Offices:
Profits earned by branches of a foreign company in India are generally repatriable after taxes are paid. However, there are exceptions:
- Certain sectors, such as defense, may have special conditions and lock-in periods requiring government permission for repatriation.
- Non-resident Indians (NRIs) investing under non-repatriable schemes may face restrictions.
In addition to profits, winding-up proceeds of a branch office can also be remitted, subject to prescribed procedures and document submission.
B. Remitting from Wholly Owned Subsidiaries (WOS):
WOS in India have independent legal status from the parent foreign company. They offer longevity, flexibility, and a stronger legal foundation for doing business in India.
Profit repatriation from WOS can be done in two ways:
- Dividends: Profits can be distributed as dividends, which are freely repatriable after paying Dividend Distribution Tax (DDT). Tax credit or relief is not applicable for DDT. RBI permission is not required, but remittances must be made through an authorized dealer.
- Buyback of Shares: Profit can also be repatriated through buyback of shares, subject to a buyback tax of 20%. The tax does not apply to publicly listed companies or their subsidiaries.
Services Offered:
- Filing applications for repatriation of funds with respective authorities/authorized dealers.
- Preparation of required documentation and obtaining necessary certificates from relevant authorities.