TaxTMI 
TaxTMI 
Master Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad
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.... 3. This Master Circular is issued with a sunset clause of one year. This circular will stand withdrawn on July 01, 2010 and be replaced by an updated Master Circular on the subject. Yours faithfully, (Salim Gangadharan) Chief General Manager Click here to download Master Circular ============= Document 1 INDEX PART - I -3 SECTION A - GENERAL 3 A. 1 Introduction- 3 A.2 Statutory basis 3 A.3 Prohibitions- 4 A.4 General Permission 4 SECTION B - DIRECT INVESTMENT OUTSIDE INDIA 5 B.1 Automatic Route 5 B.2 Investment in unincorporated entities overseas in oil sector under the Automatic Route 8 B.3 Method of Funding 9 B.4 Capitalisation of exports and other dues 9 B. 5. Investments in Financial Services Sector- 10 B. 6 Investment in Equity of Companies Registered Overseas / Rated Debt Instruments --- 11 (1) (i) Portfolio Investments by listed Indian companies 11 (ii) Investment by Mutual Funds 11 B.7 Approval of the Reserve Bank- 12 B.8 Investments in energy and natural resources sector 12 B.9 Overseas Investments by Proprietorship Concerns 13 B. 10 Overseas investment by Registered Trust / Society- 14 B....
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....yalty, technical know-how fee and other entitlements on such investments. (2) In keeping with the spirit of liberalisation, which has become the hallmark of economic policy in general, and Foreign Exchange regulations in particular, the Reserve Bank has been progressively relaxing the rules and simplifying the procedures both for current account as well as capital account transactions. A.2 Statutory basis (1) Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to specify, in consultation with the Government of India the classes of permissible capital account transactions and limits up to which foreign exchange is admissible for such transactions. Section 6(3) of the aforesaid Act provides powers to the Reserve Bank to prohibit, restrict or regulate various transactions referred to in the sub-clauses of that sub-section, by making Regulations. (2) In exercise of the above powers, the Reserve Bank has in supersession of earlier Notification No.FEMA19/RB-2000 dated 3rd May 2000 and amendments 2 Email : [email protected] Website : www.fema.rbi.org.in NDIA . R SERV BANK thereto, issued Foreign Exchange Management (Tran....
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.... Subsidiaries (WOS), not exceeding 400 per cent of the net worth of the Indian party as on the date of the last audited balance sheet. (2) The ceiling of 400 per cent of net worth will not be applicable where the investment is made out of balances held in Exchange Earners' Foreign Currency account of the Indian party or out of funds raised through ADRs/GDRs. The Indian party should approach an Authorised Dealer Category - I bank with an application in Form ODI (Annex A) and prescribed enclosures / documents for effecting remittances towards such investments. (3) The above ceiling will include contribution to the capital of the overseas JV / WOS, loan granted to the JV / WOS, and 100 per cent of guarantees issued to or on behalf of the JV/WOS. The investments are subject to the following conditions: a) The Indian entity may extend loan / guarantee to an overseas concern only in which it has equity participation. Indian entities may offer any form of guarantee - corporate or personal / primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that: i) All financial commitments including al....
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....blic Accountant. e) In cases of investment by way of swap of shares, irrespective of the amount, valuation of the shares will have to be made by a Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country. Approval of the Foreign Investment Promotion Board (FIPB) will also be a prerequisite for investment by swap of shares. Website : www.fema.rbi.org.in 5 Email : [email protected] INDIA . RR + RESERVE BANK OF f) In case of investment in overseas JV / WOS abroad by a registered Partnership firm, where entire funding for such investment is done by the firm, it will be in order for individual partners to hold shares for and on behalf of the firm in the overseas JV / WOS if the host country regulations or operational requirements warrant such holdings. g) (i) Investments in JV/WOS abroad by Indian party through the medium of a Special Purpose Vehicle (SPV) are also permitted under the Automatic Route, subject to the conditions that the Indian party is not included in the Reserve Bank's Caution list or is under investigation by the Directorate of Enforcement or included....
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....iated to India in freely convertible currencies only. The automatic route facility is not available for investment in Pakistan. B.2 Investment in unincorporated entities overseas in oil sector under the Automatic Route (1). Investments in unincorporated entities overseas in the oil sector (i.e. for exploration and drilling for oil and natural gas, etc.) by Navaratna PSUs, ONGC Videsh Ltd.(OVL) and Oil India Ltd.(OIL) may be permitted by AD Category - I banks, without any limit, provided such investments are approved by the competent authority. (2). Other Indian companies are also permitted under the Automatic Route to invest in unincorporated entities overseas in the oil sector up to 400 per cent of its net worth provided the proposal has been approved by the competent authority and is duly supported by certified copy of the Board resolution approving such investment. Investment in excess of 400 per cent of the net worth of an Indian company shall require prior approval of the Reserve Bank. 7 Website : www.fema.rbi.org.in Email : [email protected] NDIA . R RESERV BANK B.3 Method of Funding (1). Investment in an overseas JV / WOS may be funded out of on....
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....ould fulfill the following additional conditions: (i) be registered with the regulatory authority in India for conducting the financial sector activities; (ii) has earned net profit during the preceding three financial years from the financial services activities; (iii) has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and (iv) has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India. (2). Any additional investment by an existing JV/WOS or its step down subsidiary in the financial services sector is also required to comply with the above conditions. (3). Unregulated entities in the financial services sector in India may invest in non financial sector activities subject to compliance with the provisions of Regulation 6 of the Notification. Trading in Commodities Exchanges overseas and setting up JV/WOS therefore will be reckoned as financial services activity and require clearance from the Forward Markets Commission. 9 Website : www.fema.rbi.org.in Email : [email protected] NDIA . ER RESERV BANK....
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.... an overall limit of USD 500 million. Mutual Funds / Venture Capital Funds desirous of availing of this facility may approach SEBI for necessary permission. (4). General permission is available to the above categories of investors for sale of securities so acquired. B.7 Approval of the Reserve Bank (1). Prior approval of the Reserve Bank would be required in all other cases of direct investment abroad. For this purpose, application together with necessary documents should be submitted in Form ODI through their Authorised Dealer Category - I banks. (2). Reserve Bank would, inter alia, take into account the following factors while considering such applications: a) Prima facie viability of the JV / WOS outside India; b) Contribution to external trade and other benefits which will accrue to India through such investment; c) Financial position and business track record of the Indian party and the foreign entity; and d) Expertise and experience of the Indian party in the same or related line of activity of the JV / WOS outside India. B.8 Investments in energy and natural resources sector Reserve Bank will consider applications for investment in JV/WOS overse....
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.... investment by Registered Trust / Society Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are allowed to make investment in the same sector(s) in a JV/WOS outside India, with the prior approval of the Reserve Bank. Trusts / Societies satisfying the eligibility criteria, as indicated below, may submit the application/s in Form ODI- Part I, through their AD Category - I bank/s, to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Building, 5th Floor, Fort, Mumbai 400 001, for consideration. Eligibility Criteria : (a) Trust i) The Trust should be registered under the Indian Trust Act, 1882; ii) The Trust deed permits the proposed investment overseas; iii) The proposed investment should be approved by the trustee/s; iv) The AD Category - I bank is satisfied that the Trust is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; v) The Trust has been in existence at least for a period of three years; vi) The Trust has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcem....
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....on to (a) receive share certificate or any other document as an evidence of investment, (b) repatriate to India the dues receivable from foreign entity, and (c) 14 Email : [email protected] Website : www.fema.rbi.org.in Stu Roraf INDIA . RR RESERV BANK submit the documents / Annual Performance Report to the Reserve Bank, in accordance with the provisions specified in Regulation 15 of the Notification. The share certificate or any other document as evidence of investment has to be submitted to and retained by the designated AD Category - I bank, who is required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents. A certificate to this effect should be submitted by the designated AD category - I bank to the Reserve Bank alongwith the APR (Part III of Form ODI). (2). Reporting requirements including submission of Annual Performance Report are also applicable for investors in unincorporated entities in the oil sector. B.14 Transfer by way of sale of shares of a JV / WOS (1) Indian parties may also disinvest without prior approval of the Reserve Bank, in any of the under noted categories: i) in case where the....
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....f Overseas Direct Investments (1). Resident entities having overseas direct investments are permitted to hedge the foreign exchange rate risk arising out of such investments. AD Category - I banks may enter into forward / option contracts with resident entities who wish to hedge their overseas direct investments (in equity and loan), subject to verification of such exposure. Cancellation of such forward contracts may be permitted by AD Category - I banks and 50 per cent of such cancelled contracts may be allowed to be rebooked. 16 Website : www.fema.rbi.org.in Email : [email protected] NDIA . DR RESERV BANK (2). If a hedge becomes naked in part or full owing to shrinking of the market value of the overseas direct investment, the hedge may continue to the original maturity. Rollovers on the due date are permitted up to the extent of market value as on that date. 17 Website : www.fema.rbi.org.in Email : [email protected] t . RESERV NDIA . BR UNI E BANK OF SECTION C - Other Investments in Foreign Securities C.1 Permission for purchase/ acquisition of foreign securities in certain cases General permission has been granted to a person residen....
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....ciaries, etc. f) In all other cases, not covered by general or special permission, approval of the Reserve Bank is required to be obtained before acquisition of a foreign security. C.2 Pledge of a foreign security by a person resident in India The shares acquired by persons resident in India in accordance with the provisions of Foreign Exchange Management Act, 1999 or Rules or Regulations made thereunder are allowed to be pledged for obtaining credit facilities in India from an AD Category - I bank / Public Financial Institution. C.3 General permission in certain cases Residents are permitted to acquire a foreign security, if it represents - a) qualification shares for becoming a director of a company outside India provided it does not exceed 1 per cent of the paid up capital of the overseas company and the consideration for the acquisition does not exceed USD 20,000 in a calendar year; b) rights shares provided that the rights shares are being issued by virtue of holding shares in accordance with the provisions of law for the time being in force; c) purchase of shares of a JV / WOS abroad of the Indian promoter Website : www.fema.rbi.org.in 19 Email : oi....
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....ian party(ies) making investments in a JV/WOS abroad subject to their complying with the conditions specified in Regulation 6 of Notification FEMA No. 120/RB-2004 dated July 7, 2004, as amended from time to time. Investment in financial services should also comply with the norms stipulated at Regulation 7 of the Notification ibid. While forwarding the report of remittance in respect of investment in financial services sector, AD Category - I banks may certify that prior approvals from the Regulatory Authorities concerned in India and abroad have been obtained. Before allowing the remittance, AD Category - I banks are required to ensure that the necessary documents, as prescribed in form ODI, have been submitted and found to be in order. 21 Website : www.fema.rbi.org.in Email : [email protected] dru Ruraf INDIA . R RESERVE . of BANK 3.General procedural instructions (1) With effect from June 01, 2007, reporting system for overseas investment has been revised. All the earlier forms have been subsumed into one form viz. ODI, comprising of four parts: Part I - includes the following: Section A - Details of the Indian Party Section B - Details of Investment in....
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....e followed where the investment is made out of the proceeds of ADR / GDR issues of an Indian party in terms of Regulation 6(5) of the Notification. The Reserve Bank would allot only one Unique Identification Number to the overseas project. (5). AD Category - I banks should allow remittance towards loan to the JV / WOS and / or issue guarantee to / on behalf of the JV / WOS abroad only after ensuring that the Indian party has an equity stake in the JV / WOS. 4. Investments under Regulation 11 of Notification No. FEMA 120/2004-RB dated July 7, 2004 In terms of Regulation 11 of the Notification , Indian parties are permitted to make direct investment in JV / WOS abroad by way of capitalisation of exports or other dues/entitlements like royalties, technical know-how fees, consultancy fees, etc. In such cases also, the Indian party is required to submit details of the capitalisation in form ODI to the designated branch of the AD Category - I bank. Such investments by way of capitalisation are also to be reckoned while computing the cap of 400 per cent prescribed in terms of Regulation 6. Further, in cases where the export proceeds are being capitalised in accordance with the pr....
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....Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI. 8. Purchase of foreign securities under ADR / GDR linked Stock Option Scheme AD Category - I banks may make remittances up to USD 50,000 or its equivalent in a block of five calendar years, without the prior approval of the Reserve Bank, for purchase of foreign securities in the knowledge based sector under the ADR / GDR linked ESOPs, after satisfying that the issuing company has followed the relevant guidelines of SEBI / Government. 9. Remittance towards Earnest Money Deposit or Issue of Bid Bond Guarantee (i) In terms of Regulation 14 of the Notification, AD Category - I banks may, on being approached by an Indian party which is eligible for investment under Regulation 6, allow remittance towards Earnest Money Deposit (EMD) to the extent eligible after obtaining Form A2 duly filled in or may issue bid bond guarantee on their behalf for participation in bidding or tender procedure for acquisition of a company incorporated outside India. On winning the bid, AD banks may remit the acquisition value after obtaining Form A2 duly filled in and report such remittan....
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....serve Bank along with the APR (Part III of Form ODI). 26 Website : www.fema.rbi.org.in Email : [email protected] t . RESERVE NDIA . R UNI E BANK OF Annex - A FORM ODI PART I For office use only Date of Receipt Inward No. Section A: Details of Indian Party (ii) Approval Route (I) Investment under (i) Automatic Route (In case there is more than one Indian party, information may be given on separate sheets for each of the parties) (II) Name of Indian Party (III) Address of Indian Party City State Pin (IV) Contact Person Designation Tel No. Fax e-mail (V) Status of Indian Party: (Please tick appropriate category) (1) Public Ltd. Company (2) Private Limited Company (4) Registered Partnership (3) Public Sector Undertaking (6) Unregistered Partnership (5) Proprietorship (7) Trust (8) Society (9) Others (VI) Activity code of Indian Party* *NIC code at 3-digit level 27 Website : www.fema.rbi.org.in Email : [email protected] NDIA . R RESERV BANK [If the Indian Party is engaged in Financial sector or falls under the category of Proprietorship, Unregistered Partn....
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....nt/ Enhancement of Loan in existing JV/WOS (d) Extension/ Enhancement of Guarantees (e) Remittances to Unincorporated Entity (e) Others (II) Capital Structure [a] Indian Party (ies) % stake [b] Foreign partner(s) % stake (1) (1) (2) (2) (3) (3) 30 Website : www.fema.rbi.org.in Email : [email protected] t . RESERVE NDIA . R ONI BANK OF Section D - Funding for JV / WOS (Amount in FCY 000's) I Full Value of the Overseas Acquisition II Estimated cost of overseas acquisition for the Indian Party III Financial commitment * (in applicable FCY): FYC Amount IV Method of Investment by Indian Party (i) Cash Remittance (a) EEFC (b) Market Purchase (ii) Capitalization of (a) Export of plant and machinery (b) Others (please Specify) (iii)ADRs /GDRs [raised overseas] (iv) ECB/FCCB (v) Swap of shares (vi) Others (Please specify) Total A [Indian Party] V. Whether JV/WOS is SPV (Y/N) (a) If Y, purpose of SPV: i) Full value of the overseas acquisition ii) Direct / Indirect infusion by SPV ii) Funds raised overseas with guarantee/ counter guarantee from Indian party iii) Funds raise....
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....t of foreign exchange proposed to be purchased for remittance towards the investment together with remittances for all overseas investments already made and exports and other dues capitalized / swap of shares / investment from ECB / FCCB balances for investment abroad under the Automatic Route is within the limit stipulated by the Reserve Bank from time to time. This has been verified with reference to the net worth of the Indian party (Name of the Indian Party) as on the date of last audited balance sheet, i. e .------- (date) (iii) has complied with the valuation norms prescribed for the investment (iv) has complied with the ECB guidelines # (v) that the Indian party (a) has made net profits during the preceding three years, (b) has fulfilled the prudential norms of capital adequacy as prescribed by the regulatory authority concerned; (c) has been registered with the appropriate regulatory authority in India and (d) has obtained approval for the investment in financial services sector activities from the regulatory authorities concerned in India and abroad *. Note : * Applicable only in cases where the investment is in the financial services sector (e.g. insurance, mu....
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.... Stamp /Seal Tel. No. : FAX No . . 35 Website : www.fema.rbi.org.in Email : [email protected] NDIA . RR RESERVE UNI BANK OF PART III ANNUAL PERFORMANCE REPORT (APR) (To be submitted certified by Chartered Accountant through the designated AD Category- I bank every year within 3 months of the closing of annual accounts of the JV / WOS as long as the JV/WOS is in existence) I. Date of APR : II. Unique Identification Number : (Please indicate 13 digit Unique Identification number issued by RBI) III. Changes in capital structure since last reporting Amount (new) % share (new) Indian Foreign IV. Operational details of the JV/ WOS for the last two years (Amount in 000's FCY) Previous Year Current Year i) Net Profit / (Loss) ii) Dividend iii) Net worth V. Repatriation from the JV/WOS Foreign exchange earnings from Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) During the last year ended Since commencement of business (i) Profit (ii) Dividend (iii ) Retained Earnings* (iv) Investments into India (v)Others ** (Please specify) *(Represent part of the profits of the JV/WOS which is reta....
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....bsite : www.fema.rbi.org.in NDIA . RR RESERV E BANK (e) The Indian party is not under investigation by CBI/ED/SEBI/IRDA or any other regulatory authority in India. Place Date: (Signature of authorised official of the bank) Name: Designation : Tel.No. : Stamp /Seal FAX No. : 39 Email : [email protected] Website : www.fema.rbi.org.in t . RESERVE NDIA . BR UNI BANK OF Instructions for filling up the Form ODI (This part should be detached and retained by the applicant) This set of forms attempts to capture basic information relating to overseas investments by Indian parties (as defined under Notification FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time). Part I contains details of the JV/WOS, Indian Parties and the financing pattern of the overseas entity. Part II reports remittances certified by AD. Part III is the Annual Performance Report, which contains brief particulars of the performance of the overseas entity and Part IV is to be used at the time of disinvestment/liquidation/winding up. Section D of Part I is critical, since information regarding ownership structure and financing patte....
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....ts of the JV / WOS for as long as the JV/WOS is in existence, at the address above. (7) All amounts of foreign currency (FCY) and Indian rupees (INR) should be in thousands only. (8) When JV / WOS is closed / wound up / disinvested / liquidated, etc., report should be submitted to Reserve Bank at the address above in Part IV of the form within 30 days of the disinvestment. (9) Reserve Bank reserves the right to put the information furnished here in the public domain. For approval by the Reserve Bank, the following documents need to be submitted along with Part I. (a) A report from the bankers of the Indian party in a sealed / closed cover. (b) The latest Annual Accounts, i.e. Balance Sheet and Profit and Loss Account of the Indian party along with the Directors' Report. (c) Additional documents as under, if the application is made for partial / full take over of an existing foreign concern :- (i) A copy of the certificate of incorporation of the foreign concern; (ii) Latest Annual Accounts, i.e. the Balance Sheet and Profit and Loss Account of the foreign concern along with Directors' Report; and (iii) A copy of the share valuation certificate from: ....
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.... is not less than 51% and c) the information furnished above is true and correct to the best of our knowledge and belief. Signature of the Authorised Official . . Name .. Designation .. Date : To The Chief General Manager Reserve Bank of India Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Bldg., 5th Floor, Sir. P.M. Road, Fort, Mumbai 400 001. 43 Website : www.fema.rbi.org.in Email : [email protected] . RESERVE INDIA . RR E BANK OF Annex -C Statement of shares repurchased by the issuing company from Indian employees / directors under ESOP Schemes for the year ended March (to be submitted on the letterhead of the company through their AD bank) We, (Indian company) hereby declare that: a) (foreign company) has repurchased shares issued to our employees under ESOP Scheme during the year, (i) Number of shares allotted : (ii) Number of employees/directors who sold shares : (iii) Amount of remittance (inward) : b) effective holding of the foreign company M/s in the Indian company, as on March 31, is not less than 51% and c) the information furnished above is true and correct to the best of our know....