TaxTMI 
TaxTMI 
Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiaries (WOS) abroad
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....ia? A. Direct investment outside India means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity, signifying a long term interest (setting up a Joint Venture (JV) or a Wholly Owned Subsidiary (WOS)) in the overseas entity and thus does not include portfolio investment. Q.4. Does the definition as given in Q.3. mean that one cannot acquire an existing company either partially or wholly? A. No. An eligible entity is free to acquire either a partial stake (JV) or the entire equity (WOS) in an already existing company, provided the valuation is as per the laid down norms. (Please refer answer to Q.16). Q.5. Who is eligible to make overseas direct investment? A. Resident corporate entities and partnership firms registered under the Indian Partnership Act, 1932 (Indian Party) are eligible to make direct investment abroad in JVs/ WOSs. Q.6. Can overseas direct investment be made in any activity? A. An Indian Party can make overseas direct investment in any bonafide activity (except those that are specifically prohibited). However, for undertaking activities in the financial sector, certain additional conditions s....
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....or direct investment in Nepal or Bhutan under the Automatic Route? A. In respect of direct investment in Nepal or Bhutan, the total financial commitment is upto the net worth of the Indian Party in INR. Q. 14. Can direct investment upto the net worth be made on an annual basis? A. No, the networth is the overall ceiling for overseas direct investment. Any fresh overseas investment can be made only on the basis of accretion to the networth. Q.15. What is the procedure to be followed by an eligible entity to make direct investment in a JV/WOS under the Automatic Route? A. The eligible Indian Party intending to make a direct investment under the automatic route is required to fill in the form ODA supported by documents listed therein, i.e., certified copy of the Board Resolution, Statutory Auditors certificate, Valuation report (in case of acquisition of an existing company) as per the valuation norms listed in answer to Q.16 and approach an Authorised Dealer (designated Authorised Dealer) for making the investment/remittance. Q.16. What are these valuation norms referred to in Q. 4 and 15? A. Where the investment is more than USD five million, the valuation has to be done b....
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....ny prior registration with the Reserve Bank is necessary for direct investments under the Automatic Route? A. No prior registration with the Reserve Bank is necessary for direct investments under the automatic route. After the report of remittance/investment in form ODR is received by the Reserve Bank, from the designated Authorised Dealer, an identification number for that particular JV/WOS will be issued for the purpose of taking on record the overseas direct investment with the objective of maintaining a database for monitoring the outflows/inflows in respect of the overseas entities. Subsequent investments in the same project can be made only after allotment of the identification number. Q.22. Does the allotment of an identification number by the Reserve Bank for direct investments under the automatic route constitute an approval from the Reserve Bank? A. No. The allotment of the identification number does not constitute an approval from the Reserve Bank for the investment made/to be made in the JV/WOS. The issue of an identification number only signifies the taking on record of the investment for maintaining the database. Q.23. Is there any prohibition for direct investm....
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....to the acquisition of the shares of an overseas entity by way of exchange of the shares of the Indian entity); * capitalisation of exports, royalties, etc.; * proceeds of ECBs/FCCBs raised abroad. For the purpose of reckoning net worth of an Indian party, the net worth of its holding company (which holds at least 51% stake in the Indian Party) or its subsidiary company (in which the Indian party holds at least 51% stake) may be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished a letter of disclaimer in favour of the Indian Party. However, this facility is not available to partnership firms. Also the partnership firm's networth can not be taken into account by an incorporated entity. Q.28. Can an Indian Party capitalize the proceeds of the exports to its overseas JV/WOS? A. Yes, capitalization of export proceeds by an Indian Party, to its overseas JV/WOS, is permitted under the automatic route provided the export proceeds have not remained unrealised beyond a period of six months from the date of export. Such proceeds shall not be capitalized without the prior permission of the Reserve Bank. Q.29. Can an....
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....ty directly fund such step-subsidiaries? A. Where the JV/WOS has been established through a SPV all funding to the operating subsidiary should be routed through the SPV only. However, in the case of guarantees to be given to the step down subsidiary these can be given directly by the Indian Party provided such exposures are within the permissible financial commitment of the Indian Party. Q.36. Can the shares of a JV/WOS abroad be pledged for the purpose of financial assistance? A. The shares of a JV/WOS can be pledged as a security for availing fund based or non-fund based facility for the concerned entity or for the JV/WOS from an authorised dealer/ public financial institution in India. Q.37. What are the obligations of the Indian party, which has made direct investment outside India? A. An Indian Party will have to comply with the following: - i. receive share certificates or any other documentary evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within six months, failing which an application for extension of time citing reasons for non-receipt will have to be made to the Reserve Bank. ii. repatriate to India, all dues receivable from....
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....d the disinvestment is by private arrangement, the sale price of the share is not less than the value certified by a Chartered Accountant/Certified Public Accountant/Category I Merchant Banker registered with SEBI. The above conditions are applicable even when an Indian Party wants to windup/close its existing JV/WOS. Q.40. What is the procedure to be followed for such disinvestment and what are the documents to be submitted for disinvestment of existing holding in a JV/WOS? A. The Indian Party may apply for disinvestment to the designated Authorized Dealer/Reserve Bank (in case the proposal is not eligible to be considered by the Authorized Dealer) with the following documents/information : i. letter giving the reasons for the disinvestment; ii. latest Annual Performance Report on the working of the JV/WOS; iii. certified true copy of the Board Resolution approving the disinvestment and indicating the amount of disinvestment approved; iv. letter of offer from the purchaser; v. consent letter from the partners in case of disinvestment of share in a JV abroad; vi. valuation certificate on the value of shares of the JV/WOS; vii. certificate from a Chartered Accountant cert....