TaxTMI 
TaxTMI 
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2016
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....come into force from the date of their publication in the Official Gazette. 2. Amendment of the Regulation In the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated 3rd May 2000), (A) In Regulation 2, after clause (viiA) and before the existing clause (viia), the following clause shall be inserted, namely: "(vii AA) "Manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure." (B) In Regulation 14, (a) in sub-regulation 1, the existing clause (i) and clause (ia) shall be amended as under respectively : " (i) for the purpose of this regulation, the expression 'ownership and control' shall mean and include (a) a company shall be considered as owned by re....
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....dian company (bb) A group of Indian companies under the same management and ownership control. (b) For the purpose of this Clause, "Indian company" shall be a company which must have a resident Indian or a relative as defined under Section 2 (77) of Companies Act, 2013/ HUF, either singly or in combination holding at least 51% of the shares. (c) Provided that, in case of a combination of all or any of the entities mentioned in Sub-Clauses (i) and (ii) above, each of the parties shall have entered into a legally binding agreement to act as a single unit in managing the matters of the applicant company." (c) The existing sub-regulation 5 shall be amended as under, namely: "Guidelines for establishment of Indian companies/ transfer of ownership or control of Indian companies, from resident Indian citizens to non-resident entities, in sectors under government approval route Foreign investment in sectors/activities under government approval route will be subject to government approval where: (i) An Indian company is being established with foreign investment and is not owned by a resident entity or (ii)&n....
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....in 30 days of such investment, even if capital instruments have not been allotted, along with the modality of investment in new/existing ventures (with/without expansion programme);] b. Downstream investment by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors as also a shareholders agreement, if any; c. Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines; d. For the purpose of downstream investment, the Indian companies/LLPs making the downstream investments would have to bring in requisite funds from abroad and not leverage funds from the domestic market. This would, however, not preclude downstream companies/LLPs, with operations, from raising debt in the domestic market. Downstream investments through internal accruals are permissible (For the purposes of FDI, internal accruals will mean as profits transferred to reserve account after payment of taxes), subject to the provision of clause (i) above and also as elaborated below: A. Foreign investment into an Indian company, engaged only in the activity of investing in the capital of other Ind....
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....ered Office of the company is located and shall also obtain acknowledgement from the RO of having intimated it of the qualified auditor report. RO shall file the action taken report to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, Central Office Building, Shahid Bhagat Singh Road, Mumbai 400001." C In Schedule 1, (i) In paragraph 2, paragraph beginning with "Provided further that the shares or convertible debentures....." and ending with "............permitted to the extent specified in Regulation 14." shall be deleted. ^4[(ii) in paragraph 2, in sub-paragraph 4, after clause (iv), the following shall be added, namely: (v) by way of swap of shares, provided the company in which the investment is made is engaged in an automatic route sector, subject to the condition that irrespective of the amount, valuation of the shares involved in the swap arrangement will have to be made by a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the home country. Note: A company engaged in a sector where foreign inves....
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.... scope of the term 'under controlled conditions' covers- (a) Aquariums (b) Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control. (iv) In the case of apiculture, scope of the term ''under controlled conditions' covers- a) Production of honey by bee-keeping, except in forest/wild, in designated spaces with control of temperatures and climatic factors like humidity and artificial feeding during lean seasons. 2. Plantation 2.1 i. Tea sector including tea plantations ii. Coffee plantations iii. Rubber Plantations iv. Cardamom plantations v. Palm oil tree plantations vi. Olive oil tree plantations Note: FDI is not allowed in any plantation sector/activity except those mentioned above. 100% Automatic route 2.2 Other Condition Prior approval of the State Government concerned is required in case of any future land use change. 3. MINING 3.1 Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titaniu....
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....s also made available for setting up such industries within the country. Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (A) above shall be deemed to be fulfilled. 4. Petroleum & Natural Gas 4.1 Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. 100% Automatic 4.2 Petroleum refining by the Public Sector Undertakings (PSUs), without any disinvestment or dilution of domestic equity in the existing PSUs. 49% Automatic 5 Manufacturing 100% Automatic Subject to the provisions of the FDI policy, foreign investment in 'manufacturing' sector is under a....
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....time, by Ministry of Information & Broadcasting, for grant of permission for setting up of FM Radio stations. 49% Government 7.2.2 Up-Linking of 'News & Current Affairs' TV Channels 49% Government 7.2.3 Up-linking a Non-'News & Current Affairs' TV Channels/Down-linking of TV Channels 100% Automatic 7.3 FDI for Up-linking/Down-linking TV Channels will be subject to compliance with the relevant Up-linking/Down-linking Policy notified by the Ministry of Information & Broadcasting from time to time. 7.4 Foreign Investment (FI) in companies engaged in all the aforestated services will be subject to relevant regulations and such terms and conditions, as may be specified from time to time, by the Ministry of Information and Broadcasting. 7.5 The foreign investment (FI) limit in companies engaged in the afore stated activities shall include, in addition to FDI, investment by Foreign Institutional Investors (FIIs), Foreign Portfolio Investors(FPIs), Non-Resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), [ Depository Receipts issued under Schedule 10 of these Regulations with equity shares or compulsorily and mandatori....
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....t to permission holder/licensee remaining security cleared throughout the currency of permission. In case the security clearance is withdrawn the permission granted is liable to be terminated forthwith. (vi) In the event of security clearance of any of the persons associated with the permission holder/licensee or foreign personnel being denied or withdrawn for any reasons whatsoever, the permission holder/licensee will ensure that the concerned person resigns or his services terminated forthwith after receiving such directives from the Government, failing which the permission/license granted shall be revoked and the company shall be disqualified to hold any such Permission/license in future for a period of five years. Infrastructure/Network/Software related requirement (vii) The officers/officials of the licensee companies dealing with the lawful interception of Services will be resident Indian citizens. (viii) Details of infrastructure/ network diagram (technical details of the network) could be provided on a need basis only, to equipment suppliers/manufactures and the affiliate of the licensee company. Clearance from the licensor would be required if such ....
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....als of the Government or officials of TRAI or its authorized representative(s) in respect of relevant operations/features of their systems. National Security Conditions (xvii) It shall be open to the licensor to restrict the Licensee Company from operating in any sensitive area from the National Security angle. The Government of India, Ministry of Information and Broadcasting shall have the right to temporarily suspend the permission of the permission holder/Licensee in public interest or for national security for such period or periods as it may direct. The company shall immediately comply with any directives issued in this regard failing which the permission issued shall be revoked and the company disqualified to hold any such permission, in future, for a period of five years. (xviii) The company shall not import or utilize any equipment, which are identified as unlawful and/or render network security vulnerable. Other conditions (xix) Licensor reserves the right to modify these conditions or incorporate new conditions considered necessary in the interest of national security and public interest or for proper provision of broadcasting services. ....
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....on sector: (i) "Airport" means a landing and taking off area for aircrafts, usually with runways and aircraft maintenance and passenger facilities and includes aerodrome as defined in clause (2) of section 2 of the Aircraft Act, 1934; (ii) "Aerodrome" means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or pertaining thereto; (iii) "Air transport service" means a service for the transport by air of persons, mails or any other thing, animate or inanimate, for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights; (iv) "Air Transport Undertaking" means an undertaking whose business includes the carriage by air of passengers or cargo for hire or reward; (v) "Aircraft component" means any part, the soundness and correct functioning of which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the aircraft and includes any item of equipment; (vi) "Helicopter" means a heavier than air aircraft supported i....
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....f 49% of their paid-up capital. Such investment would be subject to the following conditions: (i) It would be made under the Government approval route. (ii) The 49% limit will subsume FDI and FII/FPI investment. (iii) The investments so made would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations. (iv) A Scheduled Operator's Permit can be granted only to a company: a) that is registered and has its principal place of business within India; b) the Chairman and at least two-thirds of the Directors of which are citizens of India; and c) the substantial ownership and effective control of which is vested in Indian nationals. (v) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment; and (vi) All technical equipment that might be imported into India as a result of such investment shall requi....
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....t to another non- resident, without repatriation of investment will neither be subject to any lock-in period nor to any government approval. (B) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned. (C) The Indian investee company will be permitted to sell only developed plots. For the purposes of this policy "developed plots" will mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage, have been made available. (D) The Indian investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-Laws/regulations of the State Government/Municipal/Local Body concerned. (E) The State Government/Muni....
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....12. Industrial Parks -New and existing 100% Automatic 12.1 (i) "Industrial Park" is a project in which quality infrastructure in the form of plots of developed land or built up space or a combination with common facilities, is developed and made available to all the allottee units for the purposes of industrial activity. (ii) "Infrastructure" refers to facilities required for functioning of units located in the Industrial Park and includes roads (including approach roads), railway line/sidings including electrified railway lines and connectivities to the main railway line, water supply and sewerage, common effluent treatment facility, telecom network, generation and distribution of power, air conditioning. (iii) "Common Facilities" refer to the facilities available for all the units located in the industrial park, and include facilities of power, roads (including approach roads), railway line/sidings including electrified railway lines and connectivities to the main railway line, water supply and sewerage, common effluent treatment, common testing, telecom services, air conditioning, common facility buildings, industrial canteens, convention/conference ha....
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....TS), Global Mobile Personal Communications Services (GMPCS), All types of ISP licenses, Voice Mail/Audiotex / UMS, Resale of IPLC, Mobile Number Portability services, Infrastructure Provider Category-I (providing dark fibre, right of way, duct space, tower) except Other Service Providers. 100% Automatic upto 49% Government route beyond 49% 15.1.1 Other Condition FDI up to 100% with 49% on the automatic route and beyond 49% on the government route subject to observance of licensing and security conditions by licensee as well as investors as notified by the Department of Telecommunications (DoT) from time to time, except "Other Service Providers", which are allowed 100% FDI on the automatic route. 16. Trading 16.1 (i) Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) 100% Automatic 16.1.1 Definition: Cash & Carry Wholesale trading/Wholesale trading, would mean sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. Wholesale ....
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.... the wholesale venture. (e) WT can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations. (f) A wholesale/cash & carry trader can undertake single brand retail trading, subject to the conditions mentioned in para 16.3. An entity undertaking wholesale/cash and carry as well as retail business will be mandated to maintain separate books of accounts for these two arms of the business and duly audited by the statutory auditors. Conditions of the FDI policy for wholesale/cash and carry business and for retail business have to be separately complied with by the respective business arms. 16.2 B2B E-commerce activities 100% Automatic E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter alia implying that existing restrictions on FDI in domestic trading would be applicable to e­commerce as well. ^6[16.3 Single Brand product retail trading 100% Automatic up to 49% Government route beyond 49% &n....
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....ail trading. f) Subject to the conditions mentioned in this Para, a single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce. 3) Application seeking permission of the Government for FDI exceeding 49% in a company which proposes to undertake single brand retail trading in India would be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion. The applications would specifically indicate the product/product categories which are proposed to be sold under a 'Single Brand'. Any addition to the product/product categories to be sold under 'Single Brand' would require a fresh approval of the Government. In case of FDI up to 49 %, the list of products/product categories proposed to be sold except food products would be provided to the RBI. 4) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval. Note: i. Conditions mentioned at Para (2) (b) & (2) (d) will not be ....
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....mall industry' status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a 'small industry' for this purpose, even if it outgrows the said investment of US $ 2.00 million during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years total value of the manufactured/processed products purchased, beginning lst April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. (v) Self-certification by the company, to ensure compliance of the conditions at serial Nos. (i), (ii) and (iv) above, which could be cross-checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors. (vi) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per the 2011 Census or any other cities as per the decision of the respective State Governments, and may....
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....ms Act, 1962 and other laws, rules and regulations. (iii) Duty Free Shop entity shall not engage into any retail trading activity in the Domestic Tariff Area of the country.] FINANCIAL SERVICES Foreign investment in other financial services, other than those indicated below, would require prior approval of the Government: F.1 Asset Reconstruction Companies F.1.1 'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 100% Automatic up to 49% Government route beyond 49% F.1.1.2 Other Conditions (i) Persons resident outside India can invest in the capital of Asset Reconstruction Companies (ARCs) registered with Reserve Bank, up to 49% on the automatic route, and beyond 49% on the Government route. (ii) No sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or by routing it through an FII/FPI controlled by the single sponsor. (iii) The total shareholding of an individual FII/FPI shall....
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....he total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non- repatriation basis provided the banking company passes a special resolution to that effect in the General Body. b. Applications for foreign direct investment in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI) for consideration in consultation with the Insurance Regulatory and Development Authority of India (IRDAI) in order to ensure that the 49 per cent limit of foreign shareholding applicable for the insurance sector is not being breached. c. Transfer of shares under FDI from residents to non-residents will continue to require approval of RBI and Government as per Regulation 14 (5) as applicable. d. The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, Ministry of Corporate Affairs and IRDAI on these matters will continue to apply. e. RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank, if such acquisition results in an....
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....acts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures market. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges. 2. For the purposes of this Chapter, (i) "Commodity Exchange" is a recognized association under the provisions of the Forward Contracts (Regulation) Act, 1952, as amended from time to time, to provide exchange platform for trading in forward contracts in commodities. (ii) "Recognized association" means an association to which recognition for the time being has been granted by the Central Government under section 6 of the Forward Contracts (Regulation) Act, 1952. (iii) "Association" means any body of individuals, whether incorporated or not, constituted for the purposes of regulating and controlling the business of the sale or purchase of any goods and commodity derivative. (iv) "Forward contract" means a contract for the delivery of goods and which is not a ready delivery contract. (v) "Commodity derivative" means- * a contract for deliver....
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.... Other Conditions: (a) No Indian insurance company shall allow the aggregate holdings by way of total foreign investment in its equity shares by foreign investors, including portfolio investors, to exceed forty-nine percent of the paid up equity capital of such Indian insurance company. (b) Foreign direct investment proposals which take the total foreign investment in the Indian insurance company above 26 percent and up to the cap of 49 percent shall be under Government route. (c) Foreign investment in the sector is subject to compliance of the provisions of the Insurance Act, 1938 and the condition that Companies bringing in FDI shall obtain necessary license from the Insurance Regulatory & Development Authority of India for undertaking insurance activities. (d) An Indian insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities as determined/notified by Department of Fianncial Services. (e) Foreign portfolio investment in an Indian insurance company shall be governed by the provisions contained in sub-regulations (2), (2A), (3) and (8) of regulation 5 of FEMA Regulations, 2000 and prov....
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.... (xvii) Micro Credit (xviii) Rural Credit 100% Automatic F.8.2 Other Conditions (1) Investment would be subject to the following minimum capitalisation norms: (i) US $0.5 million for foreign capital up to 51 % to be brought upfront. (ii) US $ 5 million for foreign capital more than 51 % and up to 75% to be brought upfront. (iii) US $ 50 million for foreign capital more than 75% out of which US $ 7.5 million to be brought upfront and the balance in 24 months. (iv) NBFCs (i) having foreign investment more than 75% and up to 100%, and (ii) with a minimum capitalisation of US$ 50 million, can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition as mandated by para 3.10.4.1 of DIPP Circular 1 on Consolidated FDI Policy, therefore, shall not apply to downstream subsidiaries. (v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiari....
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....ntity, including persons acting in concert, will hold more than 5% of the equity in these companies; and (iii) The foreign investment would be in compliance with SEBI Regulations; other applicable laws/regulations; security and other conditionalities. F.10 Pension Sector 49% Automatic up to 26%; Government route beyond 26% and up to 49 % 17. Pharmaceuticals 17.1 Greenfield 100% Automatic 17.2 Brown Field 100% Government 17.3 Other Conditions (i) 'Non-compete' clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board. (ii) The prospective investor and the prospective investee are required to provide a certificate along with the FIPB application. (iii) Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval. Note : i. FDI upto 100% under the automatic route is permitted for manufacturing of medical devices. The abovementioned conditions will, therefore, not be applicable to greenfield as well as brownfield projects of this indus....
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....als involving FDI beyond 49% in sensitive areas from security point of view, will be brought by the Ministry of Railways before the Cabinet Committee on Security (CCS) for consideration on a case to case basis. D. In Schedule 9, (i) the existing paragraph 4 shall be amended as under, namely: " 4. Entry Route FDI in LLPs is permitted, subject to the following conditions: i. FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions. ii. An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP engaged in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Onus shall be on the Indian company/ LLP accepting downstream investment to ensure compliance with the above conditions. iii. FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008." (ii) the existing paragraph 8 shall stands deleted. E.&nbs....
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....eam investment in an LLP by an Investment Vehicle that is reckoned as foreign investment has to conform to the provisions of Schedule 9 of the principal Regulations as well as the extant FDI policy for foreign investment in LLPs. 7. An Alternative Investment Fund Category III with foreign investment shall make portfolio investment in only those securities or instruments in which a Registered Foreign Portfolio Investor is allowed to invest under the principal Regulations. 8. The Investment Vehicle receiving foreign investment shall be required to make such report and in such format to Reserve Bank of India or to SEBI as may be prescribed by them from time to time." [ No. 1/1/EM/2016] B.P. KANUNGO, Principal Chief General Manager ***************** Notes:- 1. As corrected vide CORRIGENDUM notification dated 12-4-2016, before it was read as, "(ia) 'Control' shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. Explanation: For the purpose of Limited L....
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....ccess to modern and 'state-of-art' technology in the country." 6. As corrected vide CORRIGENDUM notification dated 12-4-2016, before it was read as, "16.3 Single Brand product retail trading 100% Automatic up to 49%. Government route beyond 49% 1) Foreign Investment in Single Brand product retail trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices. 2) FDI in Single Brand product retail trading would be subject to the following conditions: a) Products to be sold should be of a 'Single Brand' only. b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India. c) Single Brand' product-retail trading would cover only products which are branded during manufacturing. A non-resident entity or entities, whether owner of the brand or otherwise, shall ....