FEMA SERVICES & INVESTMENTS

The provisions of the law with regard to the management of foreign exchange transaction in India are so complex that quite often, a layman is stuck into the legal jargon and conundrum of these provisions. At VSCG, we act as guidepost to provide them our professional opinion on the efficient handling, management and compliance of these laws. These aspects can encompass, but not limited to, the following broad parameters:

• Compliance of the procedure including Chartered Accountants Certification for repatriation of income/assets from India
• Making applications to Reserve Bank of India for purchase/sale of shares, debentures & securities and directly to and from Residents in India and outside India.
• Allotment of Shares to non residents
• Transfer of shares from Indian resident to non-residents.
• Setting up Joint Venture (JV)
• Setting up Partnership / Partnership by NRI’S or persons of Indian origin.
• Other Advisory Services on FEMA / RBI etc.
• Issue of Statutory Certificates under FEMA & RBI regulation.

The FDI regime has been progressively liberalized during the course of the 1990s (particularly after 2000), with most restrictions on foreign investment being removed and procedures simplified. With limited exceptions, foreigners can invest directly in India, either on their own or as a joint venture.

Today, there are very few industries where foreign investment is prohibited. Moreover, investment ceilings, which are applicable in certain cases, are gradually being removed /phased out.

Features of the government’s foreign investment policies and incentives offered by it:

• No government approval is required for FDI in virtually all the sectors/activities, except for a small negative list formulated by the government.
• The government has formulated “Sector Specific Guidelines for FDI,” wherein investments up to specified sectoral caps are covered under the automatic route, with a few exceptions.
• FIPB considers proposals for foreign participation that do not qualify for automatic approval.
• Decisions on all foreign investment proposals are usually taken within 30 days of submitting an application.
• Free repatriation of capital investment is permitted, provided the original investment (on a repatriable basis) was made in convertible foreign exchange. Further, free repatriation of profits on capital investment is permitted, subject to payment of taxes and other specified conditions
• Use of foreign brand names/trademarks is permitted for the sale of goods in India.
• Indian capital markets are open to FIIs.
• Indian companies are permitted to raise funds from international capital markets.
• Special investment and tax incentives are given for exports and sectors, including power, electronics, software and food processing.
• “Single window” clearance facilities and “investor escort services” are available in various states to simplify the approval process for new ventures.

Foreign companies are allowed to set up branch office in India for the purpose of following activities:

• Export/import of goods
• Rendering professional or consultancy services
• Carrying out research work in which the parent company is engaged
• Promoting technical or financial collaboration between Indian companies and the parent
• Representing the parent company in India and acting as a buying/selling agent in the country
• Providing IT services and developing software in India
• Tendering technical support for the products supplied by parent/group companies
• Undertaking activities for foreign airline/shipping companies

A branch office is not allowed to carry out retail trading, manufacturing (except within SEZs) or processing activities in India. Branch offices are allowed to be set up in SEZs to carryout manufacturing and service activities in the country without specific approval from RBI, subject to prescribed conditions.

Such branch offices could be established with the approval of the government of India and may remit outside India profit of the branch, subject to applicable Indian Rules & Regulation.

Foreign corporations are permitted to open liaison/representative offices in India (subject to obtaining specific approval) by RBI, to undertake liaison activities on their behalf. These offices act as a communication channel between the foreign corporations and Indian customers. Such offices are normally established by foreign corporations to promote their business interests by spreading awareness about their products and also to explore opportunities for setting up a more permanent presence in the country.

A liaison office in India is permitted by RBI to undertake the following activities:

• Representing the parent company/group companies in India
• Promoting export/import from/to India
• Promoting technical/financial collaborations between parent/group companies and organizations in India
• Acting as a communication channel between the parent company and Indian companies

Foreign Insurance companies can establish liaison offices in India after obtaining approval from the IRDA, without a specific approval from the RBI.

Foreign Companies planning to execute specific projects in India can set up a temporary project/site office in India for carrying out activities only relating to the project for which it has setup project office. The Government of India has now granted general permission to foreign entities to establish project offices subject to terms & conditions.