RBI Amends 2000 Regulations: Non-Resident Subsidiaries Can Issue Shares for Pre-Incorporation Expenses, Capped at 5% or $500K.

The Reserve Bank of India issued the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eleventh Amendment) Regulations, 2016, amending the 2000 regulations. The amendment allows wholly owned subsidiaries in India, set up by non-resident entities in sectors permitting 100% foreign investment via the automatic route, to issue equity shares, preference shares, convertible debentures, or warrants against pre-incorporation or preoperative expenses. This is capped at 5% of capital or USD 500,000, whichever is lower. Reporting and valuation conditions apply, and expenses must be verified by a statutory auditor.