TaxTMI 
TaxTMI 
Master Circular on Direct Investment by Residents in Joint Venture (JV) /Wholly Owned Subsidiary (WOS) Abroad
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....tand withdrawn on July 01, 2011 and be replaced by an updated Master Circular on the subject. Click here to view the full Part I, II, III and IV ============= Document 1 PART-I Section A General A.1 Introduction (1) Overseas investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs. Joint Ventures are perceived as a medium of economic co-operation between India and other countries. Transfer of technology and skill, sharing of results of R&D, access to wider global market, promotion of brand image, generation of employment and utilisation of raw materials available in India and in the host country are other significant benefits arising out of such overseas investments. They are also important drivers of foreign trade through increased exports of plant and machinery and goods and services from India and also a source of foreign exchange earnings by way of dividend earnings, royalty, technical know-how fee and other entitlements on such investments. (2) In keeping with the spirit of liberalisation, which has become th....
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....eign currency resources outside India. 1 as amended vide Notification No. FEMA 132/2005-RB dated 31st March 2005, Notification No. FEMA 135/2005-RB dated 17th May 2005, Notification No. FEMA 139/2005-RB dated 11th August 2005, Notification No. FEMA 150/2006-RB dated 21st August 2006, Notification No. FEMA 164/2007-RB dated 9th October 2007, Notification No. FEMA173/2007-RB dated 19th December 2007, Notification No. FEMA 180/2008-RB dated 5th September 2008, Notification No. FEMA181/2008-RB dated 1st October 2008 and Notification No. FEMA196/2009-RB dated 30th September 2009 (hereinafter referred to as 'the Notification') General permission is also available to sell the shares so purchased or acquired Section B - Direct Investment Outside India B.1 Automatic Route (1) In terms of Regulation 6 of the Notification, an Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), not exceeding 400 per cent of the net worth 2 of the Indian party, i.e. a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partn....
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..../ list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body. All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party. In case of partial / full acquisition of an existing foreign company, where the investment is more than USD 5 million, valuation of the shares of the company shall be made by a Category | Merchant Banker registered with SEBI or an Investment Banker / Merchant e) f) g) Banker outside India registered with the appropriate regulatory authority in the host country; and, in all other cases by a Chartered Accountant or a Certified Public Accountant. 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 authorit....
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....well as their sale / winding up proceeds are required to be repatriated to India in freely convertible currencies only. The automatic route facility is not available for investment in Pakistan. B.1.1 Investment through Special Purpose Vehicle (SPV) under Automatic Route (i) Investments in JV/WOS abroad by Indian parties through the medium of a Special Purpose Vehicle (SPV) are also permitted under the Automatic Route in terms of Regulation 6 of the Notification, 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 in the list of defaulters to the banking system circulated by the Reserve Bank/any other Credit Information company as approved by the Reserve Bank. Indian parties whose names appear in the Defaulters' list require prior approval of the Reserve Bank for the investment. (ii) Setting up of an SPV under the Automatic Route is permitted for the purpose of making a investment in JV/WOS overseas. B.2 Investment in unincorporated entities overseas under the Automatic Route (1) Investments in unincorporated ent....
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....he guidelines issued thereunder from time to time by the Government of India; balances held in EEFC account of the Indian party; and proceeds of foreign currency funds raised through ADR / GDR issues. In respect of (vi) and (vii) above, the ceiling of 400 per cent of the net worth will not apply. However, in respect of investments in the financial sector, they will be subject to compliance with Regulation 7 of the Notification ibid, irrespective of the method of funding. (2) General permission has been granted to persons resident in India for purchase / acquisition of securities in the following manner : (i) out of funds held in RFC account; (ii) as bonus shares on existing holding of foreign currency shares; and (iii) when not permanently resident in India, out of their foreign currency resources outside India (para A.4 above) B.4 Capitalisation of exports and other dues (1) Indian party is permitted to capitalise the payments due from the foreign entity towards exports, fees, royalties or any other dues from the foreign entity for supply of technical know-how, consultancy, managerial and other services within....
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....ed credit rating agencies, issued by listed overseas companies. (ii) Investment by Mutual Funds Indian Mutual Funds registered with SEBI are permitted to invest within an overall cap of USD 7 billion in : i) ADRs/GDRs of the Indian and foreign companies; ii) equity of overseas companies listed on recognised stock exchanges overseas ; (!!! initial and follow on public offerings for listing at recognized stock exchanges overseas; iv) v) vi) vii) foreign debt securities in the countries with fully convertible currencies, short-term as well as long-term debt instruments with rating not below investment grade by accredited/registered credit agencies; money market instruments rated not below investment grade; repos in the form of investment, where the counterparty is rated not below investment grade. The repos should not, however, involve any borrowing of funds by mutual funds; government securities where the countries are rated not below investment grade; viii) derivatives traded on recognized stock exchanges overseas only for hedging and portfolio balancing with underlying as securities; ix) ã• x) ....
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....Investments by Proprietorship Concerns (1) With a view to enabling recognized star exporters with a proven track record and a consistently high export performance to reap the benefits of globalization and liberalization, proprietorship concerns and unregistered partnership firms are allowed to set up JVS / WOS outside India with the prior approval of the Reserve Bank subject to satisfying certain eligibility criteria. An application in form ODI may be made 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, through the AD Category I bank. AD Category - I banks may forward the applications to the Reserve Bank along with their comments and recommendations, for consideration. (2) Investments by established proprietorship or unregistered partnership exporter firms will be subject to the following conditions: i) ii) iii) iv) The Partnership / Proprietorship firm is a DGFT recognized Star Export House. The AD Category - I bank is satisfied that the exporter is KYC (Know Your Customer) compliant and is....
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....bank is satisfied that the Society is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; The Society has been in existence at least for a period of three years; The Society has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcement, CBI etc. In addition to the registration, the AD Category - I bank should ensure that the special license / permission has been obtained by the applicant in case the activities require special license / permission either from the Ministry of Home Affairs, Government of India or from the relevant local authority, as the case may be. B.11 Post investment changes / additional investment in existing JV/WOS A JV / WOS set up by the Indian party as per the Regulations may diversify its activities / set up step down subsidiary / alter the shareholding pattern in the overseas entity (subject to compliance of Regulation 7 of the Notification in the case of financial services sector companies). The Indian party should report to the Reserve Bank through the AD Category - I bank, the details of such decisions within 30 days of the ap....
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....(iii) (iv) (V) (vi) the sale is effected through a stock exchange where the shares of the overseas JV/ WOS are listed; if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS; the Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the JV or WOS; the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the Reserve Bank; the Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory authority in India. The Indian entity is required to submit details of the disinvestment through its designated AD Category - I bank within 30 days from the date of disinvestment. An Indian party, which does not satisfy....
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....eign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV), is not less than 51 per cent. AD Category - I banks are permitted to allow remittances for purchase of shares by eligible persons under this provision irrespective of the method of operationalisation of the scheme i.e where the shares under the scheme are offered directly by the issuing company or indirectly through a trust / a Special Purpose Vehicle (SPV) / step down subsidiary, provided (i) the company issuing the shares effectively, directly or indirectly, holds in the Indian company, whose employees / directors are being offered shares, not less than 51 per cent of its equity, (ii) the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and (iii) an Annual Return (Annex B) is submitted by the Indian company to the e) f) Reserve Bank through the AD Category - I bank giving details of remittances / beneficiaries, etc. A person resident in India may transfer by way of sale the shares acquired as stated above provided that the proceeds thereof ....
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....chase of foreign securities under ADR / GDR linked stock option schemes by resident employees of Indian companies in the knowledge based sectors, including working directors provided purchase consideration does not exceed USD 50,000 or its equivalent in block of five calendar years. PART-II Operational Instructions to Authorised Dealer Banks 1. Designated branches An eligible Indian party making investment in a Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India is required to route all its transactions relating to the investment through one branch of an AD Category - I bank designated by it in terms of clause (V) of sub regulation 2 of Regulation 6 of the Notification. All communication from the Indian parties, to the Reserve Bank, relating to the investment outside India should be routed through the same branch of the AD Category - I bank that has been designated by the Indian investor for the investment. The designated AD Category - I bank while forwarding the request from their customers to the Reserve Bank, should also forward its comments / recommendations on the request. However, the Indian party may designat....
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.... has been operationalised in a phased manner. The new system would enable on-line generation of the Unique Identification Number (UIN), acknowledgment of remittance/s and filing of the Annual Performance Reports (APRs) and easy accessibility to data at the AD level for reference purposes. a) b) c) d) Initially, Part I (Sections A to D), II and III of form ODI should be filed on-line in the Overseas Investment Application for allotment of UIN, reporting of subsequent remittances, filing of APRs, etc. AD Category - banks would continue to receive the ODI forms in physical form, as stipulated in the A. P. (DIR Series) Circular No. 68 dated June 1, 2007, which should be preserved, UIN wise, for onward submission to the Reserve Bank, if specifically required. Transactions in respect of Mutual Funds, Portfolio Investment Scheme (PIS) and Employees Stock Options Scheme (ESOPS) are also required to be reported on-line in the Overseas Investment Application. - The on-line reporting would be required to be made by the Centralized Unit/Nodal Office of AD Category I banks. The Overseas Investment Application is hosted on the ....
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....ct 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 provisions of Regulation 11, the AD Category - I banks are required to obtain a custom certified copy of the invoice as required under Regulation 12(2) and forward it to the Reserve Bank together with the revised form ODI. Capitalisation of export proceeds or other entitlements, which are overdue, would require prior approval of the Reserve Bank for which the Indian parties should make an application in form ODI to the Reserve Bank for consideration. 5. Allotment of Unique Identification Number (UIN) - The Unique Identification Number allotted to each JV or WOS abroad, is required to be quoted in a....
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....hich 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 remittance (including the amount initially remitted towards EMD) to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI. AD Category - I banks, while permitting remittance towards EMD should advise the Indian party that in case they are not successful in the bid, they should ensure that the amount remitted is repatriated in accordance with Foreign Exchange Management (Realisation, Repatriation & Surrender of Foreign Exchange) Regulations, 2000 (cf. Notification No. FEMA 9/2000- RB dated 3rd May 2000), as amended from time to time (ii) (iii) In cases where an Indian party, after being successful in t....
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....6) Unregistered Partnership (7) Trust (9) Others (VI) Activity code of Indian Party* *NIC code at 3-digit level (8) Society [If the Indian Party is engaged in Financial sector or falls under the category of Proprietorship, Unregistered Partnership or Financial sector, please furnish the details in Item VII below]. (VII) Financial particulars of the Indian Party for the last 3 years (Amt. in Rs. 000s) Particulars Year 1 31-3- Year 2 31-3 Year 3 31-3 Foreign exchange earnings (excluding equity exports to JV/WOS) Net profit Paid-up Capital Net worth of (a) Indian Party (b) Group Company@ @ In terms of Explanation to Regulation 6 (3) of Notification No. FEMA 120/ RB-2004 dated July 7, 2004 (VIII) Particulars of existing Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) already in operation or under implementation, of the Indian party and its group concerns: Sr. Name of Indian Party No. 1. 2. 3. Unique Identification Number allotted by Reserve Bank (IX) Whether the proposed investment is (Tick the appropriate box) (a) New Project (Please furnish the details in Section ....
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....raised overseas without guarantee/ counter guarantee from Indian Party iv) Funds contributed in the form of equity/ preference equity/ shareholder's loans by foreign investors v) Securitisation vi) Any other mode (please specify) Total Amount VI. Guarantees/ Other Non fund based Commitments Note * Financial Commitment as defined in FEMA 120/RB-2004 dated July 7, 2004 Sec 2(f)- Financial Commitment means amount of Direct Investment by way of contribution to equity, loan and 100 per cent of the amount of guarantee issued by Indian Party to or on behalf of its overseas Joint Venture company or Wholly Owned Subsidiary. Section E: Declaration by the Indian Party I (a) Whether the applicant party (ies), its promoters, directors, etc., are under investigations by any investigative/enforcement agency or regulatory body. If yes, the brief details thereof, including present stage of investigation/ adjudication / manner of disposal of the case. (b) Whether the promoter Indian party(ies) is (are) presently on Exporters' Caution List of Reserve Bank for non-realization of export proceeds or on the list of defaulters to the Banking S....
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.... (Signature of the Statutory Auditor of the Company) Name of the firm, Stamp and Registration number PART II REPORTING OF REMITTANCES For office use only Date of Receipt Inward No. In case investment is in the existing JV/WOS, please indicate Unique Identification No. already allotted : No. (I) Name of Indian Company: (II) Is there any change in Company name since last reporting? (Y/N) If yes, specify Old Company Name DETAILS OF CURRENT REMITTANCES EFFECTED (Amount in 000's of FCY) Code of Reporting AD foreign currency**: (a) From EEFC A/c. Equity Loan Guarantee (Invoked) Date of Remittance (b) By Market Purchases Equity Loan Guarantee (Invoked) Date of Remittance (c) From the ADR/GDR funds Equity Loan Guarantee (Invoked) Date of Remittance (d) By Swap of Shares Equity Loan Guarantee (Invoked) XXXX Date of Swap (e) From ECB/ FCCB balances parked in India/outside India Equity Loan (g) Capitalization of Exports/Other dues@ Date of capitalization: (h) Guarantee issued: Date (Fresh Existing Guarantee Period Extended ) Guarantee (Inv....
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.... Stamp/Seal (Signature of the Statutory Auditor of the Company) Name of the firm, Stamp and Registration number Signature of the Authorised Official of the bank: Name: Designation: PART IV Report on Closure / Disinvestment / Voluntary Liquidation /Winding Up of JV/WOS (To be submitted by the designated AD Category -l bank (All Amounts in FCY, in thousands) Name and Address of the AD Category - I bank: AD Code: Unique Identification Number allotted by the Reserve Bank Whether APRs submitted regularly? (Y/N) Date of submission and period to which last APR relates: Details of Investment Equity Loan Details of Remittances Equity Loan Changes in the capital Structure since the last APR Equity Loan Amount Repatriated on disinvestments Equity Loan Guarantees Issued Guarantees Invoked Guarantees Issued It is certified that (Strike out whichever is not applicable) I. (a) the sale is effected through a stock exchange where the shares of the overseas Joint Venture (JV) or Wholly Owned Subsidiary (WOS) are listed; (b) if the shares are not listed on the stock exchange, and the shares are disi....
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....ce / approval undergoes changes by way of expansion, merger, infusion of additional capital, etc. (2) Under Automatic Route, in case of new proposals, immediately after effecting remittance, the designated AD Category - I bank should forward Part I of the form along with Part II to The Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Central Office, Overseas Investment Division, (OID), Amar Bldg., Mumbai 400001 for obtaining the Unique Identification Number.. 3) Under Approval Route, Part I of the form, after scrutiny, should be submitted by the AD Category-l bank, along with their recommendations, to the Reserve Bank at the above address. If approved, Part I of the form will be returned to the AD Category - I bank and should be resubmitted by the AD Category - I bank to Reserve Bank immediately after effecting the remittance, along with Part II of form at the address mentioned above. (4) In case of supplementary remittances, only Part II of the form, complete in all respects, is required to be submitted by the AD Category - I bank to Reserve Bank. However, if capital structure / financing pattern, etc. of the JV /....
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....) has earned net profits during the preceding three financial years from the financial service activity; (ii) is registered with the appropriate regulatory authority in India for conducting the financial services activity; (iii) has obtained approval for investment in financial sector activities abroad from regulatory authority concerned in India and abroad; and (iv) fulfilled the prudential norms relating to capital adequacy as prescribed by the regulatory authority concerned in India. Overseas Investments - Proprietorship concerns / unregistered Partnership firms Eligible Proprietorship concerns / unregistered Partnership firms may apply in Part I of form ODI through their AD Category - I bank, together with the latter's recommendations, in terms of para 4 of A. P. (Dir Series) Circular No 29 dated March 27, 2006 to the Chief General Manager, Reserve Bank of India, Foreign Exchange Department, Overseas Investment Division, Central Office, Amar Building, Fort, Mumbai 400 001. ESOP Reporting Annex - B Statement of shares allotted to Indian employees / directors under ESOP Schemes for the year ended March (to be submitted on the ....