The Foreign Exchange Management Act (FEMA) is law “to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India”. Whenever a Foreign Investor invests in India or an Indian Investor invest outside, he needs to comply with regulations framed under FEMA by Directorate of foreign trade and Reserve Bank of India.
An increased flow of funds, inbound as well as outbound has increased the level of check on compliances in context of foreign exchange. A need arises with the Corporate to keep a regular eye on foreign exchange transactions, in context of sectoral caps, investment caps, to circumvent from the huge penalties.
India offers attractive opportunities for Foreign Direct Investment (FDI). Since opening up of economy in 1991 India has adopted gradual yet progressive approach towards FDI. Due to increasingly Economic Reforms and Free trade policy of Indian Govt. and various other benefits like access of Best Human Power available in Indian Market, increasingly Foreign Companies are coming forward to set up business in India. A Foreign Company can set up a business in India as per conditions laid down in FDI policy of RBI. Foreign person can also become a director of Indian company subject to one director being an Indian Citizen and resident in India.
As on date major sectors are available for FDI under Automatic Route. Though for Foreign Direct Investment (FDI) purpose, most of the sectors do not require any prior approval, the Non Resident has to comply with pricing and documentation requirements and that’s where the Company assists the foreigner in effective compliance.
Foreign Direct Investment can also be made by takeover of existing Company or its division/undertaking. FEMA permits such acquisition subject to pricing guidelines. Except for Pharma sector where brownfield project (takeover of existing pharma company) requires Central Government Approval, other form of acquisition can be undertaken without any approval. The acquisition of business or company requires compliances under the Companies Act, the Income Tax Act, Stamp Duty and other statutes.
The various services offered under this segment includes,
FEMA Regulations permit investment in overseas business venture subject to certain limits as prescribed from time to time. Not only large corporate houses but even SME sector has also taken benefit of this opportunity and spread their wings to make direct presence in overseas market, or to bridge supply chain gap by acquiring overseas entities.
Outbound investment being in the nature of capital account transaction is a regulated transaction. Though there are hardly any sectoral caps for outbound investments such as Real Estate trading, else all other sectors are eligible for overseas direct investment.
Remittances towards equity or debt in overseas company are to be routed through designated authorized dealer (banker) and are subject to certain reporting requirements with RBI through authorized dealer bank.
The various services offered under this segment includes,
Commercial transactions between the different parts of the multinational groups involve intercompany transfer of goods and services between the associated enterprise and the Income Tax Act in India requires such transfer at Arm’s Length Price.
Indian tax law mandates complex documentation where Inter Company transaction are of INR 1 crore or more. Documentation capturing Functional, Assets and Risk (FAR) analysis and selection of most appropriate methods from available transfer pricing methods under the Income Tax Act, is must to demonstrate justification of price at which Company has dealt with its Non Resident Associated Enterprise.
The services provided under this category include Transfer Pricing Study including benchmarking and Documentation.
India offers attractive investment opportunities to NRIs. Real Estate Sector, Portfolio Investments, Debt and Debt Securities, Deposits with Banks are the major investment opportunities that are available to NRIs. NRI investment options in India are briefly explained hereunder:
Indian Real Estate investment is only open to NRIs and not to foreign nationals or foreign companies. NRIs can make investment in Residential or Commercial property. NRIs however cannot invest in properties of Agricultural, Plantation or Farm house nature.
Repatriation facility in case of commercial and residential property is available upto two properties, that too for the amount of investment and not for appreciation. However, appreciation from two such properties can be repatriated under USD 1 Million scheme (known as Remittance of assets, Scheme). Also, there is no restriction on number of properties in which NRI can make investment. But, intention should be to invest in properties and not to trade.
NRI investment in Real Estate could fetch good returns, considering that India’s vast population base and growing demand for urbanisation. There are many cities, which have offered descent rental yields coupled with price appreciation.
Indian stock market are open for investment by NRIs on Repatriable basis as well as on Non Repatriable basis. Listed securities be it equity shares, equity linked instruments or debt securities, NRIs can make invest in each of these securities. Dividend and interest on securities is also eligible for repatriation.
FEMA also gets into play for certain transactions such as transfer of shares held by Non Resident Indian under FDI norms to Non Resident i,e, Foreign Company or Foreigner. This transfer requires prior RBI approval.
