TaxTMI 
TaxTMI 
Master Direction – Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad (Updated as on June 24, 2021)
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.... to incorporate the changes in the regulatory framework and published through amendment notifications. 2. Within the contours of the Regulations, Reserve Bank of India also issues directions to Authorised Persons under Section 11 of the Foreign Exchange Management Act (FEMA), 1999. These directions lay down the modalities as to how the foreign exchange business has to be conducted by the Authorised Persons with their customers/ constituents with a view to implementing the regulations framed. 3. Instructions issued on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad have been compiled in this Master Direction. The list of underlying circulars/ notifications which form the basis of this Master Direction is furnished in the Appendix. Reporting instructions can be found in Master Direction on Reporting (Master Direction No. 18 dated January 1, 2016) 4. It may be noted that, whenever necessary, Reserve Bank shall issue directions to Authorised Persons through A.P. (DIR Series) Circulars in regard to any change in the Regulations or the manner in which relative transactions are to be conducted by the Authorised Persons with their custome....
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....ign assets B.20 Overseas Direct Investments by resident individuals B.21 Hedging of overseas direct investments B.22 Opening of Foreign Currency Account abroad by an Indian Party SECTION C - Other investments in foreign securities C.1 Permission for purchase/ acquisition of foreign securities in certain cases C.2 Pledge of a foreign security by a person resident in India C.3 General permission in certain cases C.4 Acquiring the shares of SWIFT by a resident bank C.5 Issue of Indian Depository Receipts C.6 Maintenance of Collateral by FIIS for Transactions in Derivative Segment - Opening of Demat Accounts by Clearing Corporations and Clearing Members Operational Instructions to Authorised Dealer Banks 1 Designated branches 2 Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004 3 General procedural instructions 4 Investments (or financial commitment) under Regulation 11 of Notification No. FEMA.120/2004-RB dated July 7, 2004 5 Allotment of Unique Identification Number (UIN) 6 Investment by way of share swap 7 Investments (or financial commitment) und....
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....exercise of the above powers conferred under the Act, the Reserve Bank has in supersession of the earlier Notification No.FEMA19/RB-2000 dated 3rd May 2000 and subsequent amendments thereto, issued Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 vide Notification No. FEMA.120/RB-2004 dated July 7, 2004. The Notification seeks to regulate acquisition and transfer of a foreign security by a person resident in India i.e. investment (or financial commitment) by Indian entities in overseas joint ventures and wholly owned subsidiaries as also investment by a person resident in India in shares and securities issued outside India. Overseas Investment (or financial commitment) can be made under two routes viz. (i) Automatic Route outlined in paragraph B.1 and (ii) Approval Route outlined in paragraph B.8. A.3 Definitions In these Regulations, unless the context otherwise requires: (a) "Act" means Foreign Exchange Management Act, 1999 (42 of 1999); (b) "Authorised Dealer" means a person authorised as an authorised dealer under sub-section (1) of section 10 of the Act; (ba) "Alternative Investment Fund" means a fund as de....
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....Rules, 2004 (k) "Indian Party" means a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932, or a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008 (6 of 2009), making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes any other entity in India as may be notified by the Reserve Bank: Provided that when more than one such company, body or entity make an investment in the foreign entity, all such companies or bodies or entities shall together constitute the "Indian Party"; (l) "Investment Banker" means an investment banker registered with the Securities and Exchange Commission in USA, or the Financial Services Authority in UK, or appropriate regulatory authority in Germany, France, Singapore or Japan; (m) "Joint Venture (JV)" means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian Party makes a direct investment; (n) "Mutual Fund" means a Mutual Fund referred to in clause (23D) of section 10 of the Income-tax Act,....
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....idential/commercial premises, roads or bridges) or banking business, without the prior approval of the Reserve Bank. (b) An overseas entity, having direct or indirect equity participation by an Indian Party, shall not offer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific approval of the Reserve Bank. Any incidence of such product facilitation would be treated as a contravention of the extant FEMA regulations and would consequently attract action under the relevant provisions of FEMA, 1999. A.5 General Permission General permission has been granted to persons residents in India for purchase / acquisition of securities in the following manner: • out of the funds held in RFC account; • as bonus shares on existing holding of foreign currency shares; and • when not permanently resident in India, out of their foreign currency resources outside India. General permission is also available to sell the shares so purchased or acquired. Section B - Direct Investment (or financial commitment) outside Indi....
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....rom the Indian Party for undertaking financial commitment without equity contribution in JV / WOS may be considered by the Reserve Bank under the approval route. AD banks may forward the proposals from their constituents after ensuring that the laws of the host country permit incorporation of a company without equity participation by the Indian Party. Indian entities may offer any form of guarantee - corporate or personal (including the personal guarantee by the indirect resident individual promoters of the Indian Party)/ primary or collateral / guarantee by the promoter company / guarantee by group company, sister concern or associate company in India provided that: • All the financial commitments, including all forms of guarantees and creation of charge are within the overall ceiling prescribed for the Indian Party. • No guarantee should be 'open ended' i.e. the amount and period of the guarantee should be specified upfront. In the case of performance guarantee, time specified for the completion of the contract shall be the validity period of the related performance guarantee. • In cases where invocation of the performance guarant....
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....atory authority in the host country. An Indian company may issue capital instruments to a person resident outside India under automatic route if the Indian investee company is engaged in a sector under automatic route or with prior Government approval if the Indian investee company is engaged in a sector under Government route, as required in terms of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 dated October 17, 2019 as amended from time to time. f) In case of investment in overseas JV / WOS abroad by a registered Partnership firm, where the 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) An Indian Party may acquire shares of a foreign company engaged in a bonafide business activity, in exchange of ADRs/GDRs issued to the latter in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the guidelines issued there under from time to time by the....
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....ation 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 (or financial commitment). B.1.2 Issue of guarantee by an Indian Party to step down subsidiary of JV / WOS (a) Indian Parties are permitted to issue corporate guarantees on behalf of their first level step down operating JV /WOS set up by their JV / WOS operating as either an operating unit or as a Special Purpose Vehicle (SPV) under the Automatic Route, subject to the condition that the financial commitment of the Indian Party is within the extant limit. Such guarantees will have to be reported to the Reserve Bank in Form ODI, as hitherto, through the designated AD Category - I bank concerned. (b) Further, the issuance of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake in the overseas s....
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....xternal Commercial Borrowings (ECBs) / Foreign Currency Convertible Bonds (FCCBs); • in exchange of ADRs/GDRs issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993, and the 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 limit of financial commitment vis-à-vis the net worth will not apply. However, all investments (or financial commitment) made in the financial sector 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 abov....
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....es Listed Indian companies are permitted to invest up to 50 per cent of their net worth as on the date of the last audited balance sheet in (i) shares and (ii) bonds / fixed income securities, rated not below investment grade by accredited / registered credit rating agencies, issued by listed overseas companies. (2) 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 recognized stock exchanges overseas iii) initial and follow on public offerings for listing at recognized stock exchanges overseas; iv) 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; v) money market instruments rated not below investment grade; vi) repos in the form of investment, where the counter party is rated not below investment grade. The repos should not, however, involve any borrowing of funds by mutual funds; vii) government securities where the cou....
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....n Party and the foreign entity; and • Expertise and experience of the Indian Party in the same or related line of activity as of the JV / WOS outside India. B.9 Investments in energy and natural resources sector Reserve Bank will consider applications for investment (or financial commitment) in JV/WOS overseas in the energy and natural resources sectors (e.g. oil, gas, coal and mineral ores) in excess of the prescribed limit of financial commitment. AD Category - I banks may forward such applications from their constituents to the Reserve Bank as per the laid down procedure. B.10 Overseas investments by proprietorship concerns and registered Trust/ Society (1) Keeping in view the changes in the definition / classification of the exporters as per the Foreign Trade Policy of the Ministry of Commerce and Industry, issued from time to time, the following revised terms and conditions are required to be complied with for considering the proposal of overseas direct investment (or financial commitment), by a proprietorship concern / unregistered partnership firm in India, by the Reserve Bank under the approval route: • The proprietorship concern / unre....
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....s permit the Society to make the proposed investment which should also be approved by the governing body / council or a managing / executive committee. iii) The AD Category - I bank is satisfied that the Society is KYC (Know Your Customer) compliant and is engaged in a bonafide activity; iv) The Society has been in existence at least for a period of three years; v) 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. (3) 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 application to the Reserve Bank, after ensuring the above terms an....
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....structuring. B.13 Acquisition of a foreign company through bidding or tender procedure An Indian Party may remit earnest money deposit or issue a bid bond guarantee for acquisition of a foreign company through bidding and tender procedure and also make subsequent remittances through an AD Category - I bank in accordance with the provisions of Regulation 14 of the Notification ibid. B.14 Obligations of Indian Party (IP) and Resident Individual (RI)^6 (1) An IP/ RI which has made direct investment abroad is under obligation to, (i) receive share certificates or any other document as an evidence of investment in the foreign entity to the satisfaction of the Reserve Bank within six months, or such further period as Reserve Bank may permit, from the date of effecting remittance or the date on which the amount to be capitalised became due to the Indian Party or the date on which the amount due was allowed to be capitalised; (ii) repatriate to India, all dues receivable from the foreign entity, like dividend, royalty, technical fees etc., within 60 days of its falling due, or such further period as the Reserve Bank may permit: and (iii) submit to the Reserve Bank, thr....
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.... the APR are as per the un-audited accounts of the overseas JV / WOS; and b. That the un-audited annual accounts of the JV / WOS have been adopted and ratified by the Board of the Indian Party. c. ^8The above exemption from filing the APR based on unaudited balance sheet will not be available in respect of JV/WOS in a country / jurisdiction which is either under the observation of the Financial Action Task Force (FATF) or in respect of which enhanced due diligence is recommended by FATF or any other country / jurisdiction as prescribed by Reserve Bank of India. (4) An annual return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the Indian companies which have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year, to the Director, External Liabilities and Assets Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India. The Annual Return on FLA is available on the RBI website (www.rbi.org.in → Forms category → FEMA Forms) which can be duly filled-in, validated and sent by e-mail, by July 15 every year. B....
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....t exceed USD 10 million. and • where the Indian Party is a listed company with net worth of less than Rs. 100 crore but investment (or financial commitment) in an overseas JV/WOS does not exceed USD 10 million. (2) Such disinvestments shall be subject to the conditions listed at B.15 (1) items (ii) to (vi) and B 15 (2) (3) An Indian Party, which does not satisfy the conditions laid down above for undertaking any disinvestment in its JV/WOS abroad, shall have to apply to the Reserve Bank for prior permission. B.17 Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step Down Subsidiary (SDS) An Indian Party may create charge, by way of pledge, on the shares of Joint Venture (JV) or Wholly Owned Subsidiary (WOS) or Step Down Subsidiary (SDS) outside India as a security in favour of an Authorized Dealer or a public financial institution in India or an overseas lender, for availing of fund based or non-fund based facility for itself (i.e. the Indian Party) or for its JV / WOS / SDS whose shares have been pledged, or for any other JV / WOS / SDS of the Indian Party subject to the terms and conditions prescribed under Regulation 18 of the No....
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....tments by resident individuals With effect from August 05, 2013, a resident individual (single or in association with another resident individual or with an 'Indian Party' as defined in the Notification) satisfying the criteria as per Schedule V of the Notification, may make overseas direct investment in the equity shares and compulsorily convertible preference shares of a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) outside India. The limit of overseas direct investment by the resident individual shall be within the overall limit prescribed by the Reserve Bank of India under the provisions of Liberalised Remittance Scheme, as prescribed by the Reserve Bank from time to time. B.21 Hedging of overseas direct investments (1) Resident entities having overseas direct investments (or financial commitment) are permitted to hedge the foreign exchange rate risk arising out of such investments (or financial commitment). 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. (2) If a hedge becomes naked in part or full owing to....
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....ees Stock Option Programme (ESOP) issued by a company outside India, provided it does not involve any remittance from India; • to acquire shares by way of inheritance from a person whether resident in or outside India; • to purchase equity shares offered by a foreign company under its ESOP Schemes, if he is an employee, or, a director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV) irrespective of the percentage of the direct or indirect equity stake in the Indian company. 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 shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis, and (ii) an Annual Return is submitted by the In....
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.... the Indian promoter company by the employees/directors of Indian promoter company which is engaged in the field of software where the consideration for purchase does not exceed the ceiling as stipulated by Reserve Bank from time to time; the shares so acquired do not exceed 5 per cent of the paid-up capital of the JV / WOS outside India; and after allotment of such shares, the percentage of shares held by the Indian promoter company, together with shares allotted to its employees is not less than the percentage of shares held by the Indian promoter company prior to such allotment; and • An Indian company in the knowledge based sector may allow its resident employees (including working directors) to purchase foreign securities under the ADR/GDR linked stock option schemes. The issue of employees' stock option by a listed company shall be governed by SEBI (Employees' Stock Option and Stock Purchase Scheme) Guidelines, 1999 and the issue of employees stock option by an unlisted company shall be governed by the guidelines issued by the Government of India for issue of ADR/GDR linked stock options. The consideration for the purchase should not exceed the ceiling as stipula....
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....iary (WOS) outside India is required to route all its transactions relating to the investment (or financial commitment) 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 ibid. All communication from the Indian Parties, to the Reserve Bank, relating to the investment (or financial commitment) 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 (or financial commitment). 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 designate different AD Category - I banks / branches of AD Category - I banks for different JV / WOS outside India. For proper follow up, the AD Category - I bank is required to maintain party-wise record in respect of each JV/ WOS. 2. Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004 AD Category - I banks may allow investments (or financial commitment) up to the permissible limits o....
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....f the website. AD Category - I banks would be responsible for the validity of the information reported online. • The application for overseas investment (or financial commitment) under the approval route would continue to be submitted to the Reserve Bank in physical form as hitherto, in addition to the online reporting of Part I as contemplated above, for approval purposes. • In case of disinvestment by way of closure / winding up / voluntary liquidation / merger/ amalgamation of JV/ WOS under the Automatic Route, in terms of A. P. (Dir Series) Circular No. 29 dated March 27, 2006/ A. P. (Dir Series) Circular No. 73 dated June 29, 2011, a report should continue to be submitted by the designated AD Category - I bank, in Part III of form ODI, to Reserve Bank in the online application. In all other cases of disinvestment, an application along with the necessary supporting documents should be submitted to the Reserve Bank as per the existing procedure. • As per the new reporting system, AD Category - I banks would be able to generate the UIN online under the automatic route. However, subsequent remittances (or financial commitment) under....
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....the Reserve Bank. AD Category - I banks may allow investment (or financial commitment) in an overseas concern set up by an Indian Party, in terms of Regulation 6 of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, only after the Reserve Bank has allotted necessary Unique Identification Number to the overseas project. 6. Investment by way of share swap In the case of investment by way of share swap, AD Category - I banks are additionally required to submit to the Reserve Bank the details of transactions such as number of shares received / allotted, premium paid / received, brokerage paid / received, etc., and also confirmation to the effect that the inward leg of transaction has been approved by FIPB (if required) and the valuation has been done as per the laid-down procedure and that the overseas company's shares are issued / transferred in the name of the Indian investing company. AD Category - I bank may also obtain an undertaking from the applicants to the effect that future sale / transfer of shares so acquired by Non-Residents in the Indian company shall be in accordance with the provisions of Notification No. FEMA 20/2000-RB ....
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....ccessful in the bid / tender decides not to proceed further with the investment, AD banks should submit full details of remittance allowed towards EMD / invoked bid bond guarantee, to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001. (iii) In case the Indian Party is successful in the bid, but the terms and conditions of acquisition of a company outside India are not in conformity with the provisions of Regulations in Part I, or different from those for which approval under sub-regulation (3) was obtained, the Indian entity should obtain approval from the Reserve Bank by submitting form ODI. 10. Transfer by way of sale of shares of a JV / WOS outside India The Indian Party should report details of the disinvestment in the online OID application through the AD Category - I bank within 30 days of disinvestment in Part III of the Form ODI as indicated in para 3 (3) (d) above. Sale proceeds of shares / securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares / securities. 11. Verification of e....
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....14 21. Notification No. FEMA 322/2014-RB October 14, 2014 22. Notification No. FEMA 325/2014-RB November 12, 2014 23. Notification No FEMA 326/2014-RB November 12, 2014 24. Notification No FEMA 362/2016-RB February 15, 2016 25. Notification No FEMA 382/2016-RB January 2, 2017 A.P. (DIR Series) Circulars 1. A.P. (DIR Series) Circular No. 32 February 9, 2005 2. A.P. (DIR Series) Circular No. 42 May 12, 2005 3. A.P. (DIR Series) Circular No. 14 October 1, 2004 4. A.P. (DIR Series) Circular No. 9 August 29, 2005 5. A.P. (DIR Series) Circular No. 24 January 25, 2006 6. A.P. (DIR Series) Circular No. 29 March 27, 2006 7. A.P. (DIR Series) Circular No. 30 April 5, 2006 8. A.P. (DIR Series) Circular No. 3 July 26, 2006 9. A.P. (DIR Series) Circular No. 6 September 6, 2006 10. A.P. (DIR Series) Circular No. 41 April 20, 2007 11. A.P. (DIR Series) Circular No. 49 April 30, 2007 12. A.P. (DIR Series) Circular No. 50 May 4, 2007 13. A.P. (DIR Series) Circular No. 59 May 18, 2007 14. A.P. ....