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TMI BlogMaster Circular on Direct Investment by Residents in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) Abroad (Amended up to May 06, 2015)X X X X Extracts X X X X X X X X Extracts X X X X ..... hed in the Appendix. 3. This Master Circular is issued with a sunset clause of one year. This circular will stand withdrawn on July 01, 2015 and be replaced by an updated Master Circular on the subject. Yours faithfully, (A. K. Pandey) Chief General Manager INDEX Section A - General A.1 Introduction A.2 Statutory basis A.3 Prohibitions A.4 General Permission Section B - Direct Investment Outside India B.1 Automatic Route B.2 Investment in unincorporated entities overseas under the Automatic Route B.3 Method of Funding B.4 Capitalisation of exports and other dues B.5 Investments in Financial Services Sector B.6 Investment in Equity of Companies Registered Overseas / Rated Debt Instruments B.7 Approval of the Reserve Bank B.8 Investments in energy and natural resources sector B.9 Overseas Investments by Proprietorship Concerns B.10 Overseas investment by Registered Trust / Society B.11 Post investment changes / additional investment in existing JV / WOS B.12 Restructuring of the balance sheet of the overseas entity involving write off of capital and receivables B.13 Acquisition of a foreign company through bidding or tender procedure B.14 O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of dividend earnings, royalty, technical know-how fee and other entitlements on such investments (or financial commitment). (2) In keeping with the spirit of liberalisation, which has become the hallmark of economic policy in general, and Foreign Exchange regulations in particular, the Reserve Bank has been progressively relaxing the rules and simplifying the procedures both for current account as well as capital account transactions. A.2 Statutory Basis (1) Section 6 of the Foreign Exchange Management Act, 1999 provides powers to the Reserve Bank to specify, in consultation with the Government of India the classes of permissible capital account transactions and limits up to which foreign exchange is admissible for such transactions. Section 6(3) of the aforesaid Act provides powers to the Reserve Bank to prohibit, restrict or regulate various transactions referred to in the sub-clauses of that sub-section, by making Regulations. (2) In 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank from time to time. An 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) incorporated under the Limited Liability Partnership Act, 2008 making investment in a Joint Venture or Wholly Owned Subsidiary abroad. With effect from July 03, 2014, the limit of Overseas Direct Investments (ODI)/ Financial Commitment (FC) to be undertaken by an Indian Party under the automatic route has been restored to the limit prevailing, as per the extant FEMA provisions, prior to August 14, 2013. It has, however, been decided that any financial commitment exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC of the Indian Party is within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet). (2) The Indian party should approach an Authorised Dealer Category - I bank with an application in Form ODI (Annex A) and prescribed enclosures / documents for effecting remittances towards such investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the contract shall be the validity period of the related performance guarantee. * In cases where invocation of the performance guarantees breach the ceiling for the financial , the Indian Party shall seek the prior approval of the Reserve Bank before remitting funds from India, on account of such invocation. * As in the case of corporate guarantees, all guarantees (including performance guarantees and Bank Guarantees / SBLC) are required to be reported to the Reserve Bank, in Form ODI-Part II. Guarantees issued by banks in India in favour of WOSs / JVs outside India, and would be subject to prudential norms, issued by the Reserve Bank (DBOD) from time to time. b) The Indian party should not be on the Reserve Bank's Exporters' caution list / list of defaulters to the banking system circulated by the Reserve Bank / Credit Information Bureau (India) Ltd. (CIBIL) / or any other credit information company as approved by the Reserve Bank or under investigation by any investigation / enforcement agency or regulatory body. c) All transactions relating to a JV / WOS should be routed through one branch of an Authorised Dealer bank to be designated by the Indian party. d) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the month in which the acquisition is committed and over and above, the premium, if any, as recommended by the Investment Banker in its due diligence report in other cases. (5) The Indian Party is required to report such acquisition in form ODI to the AD Bank for submission to the Reserve Bank within a period of 30 days from the date of the transaction. Note: Investments / financial commitments in Nepal are permitted only in Indian Rupees. Investments / financial commitments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. All dues receivable on investments (or financial commitment) made in freely convertible currencies, as well as their sale / winding up proceeds are required to be repatriated to India in freely convertible currencies only. Investments / financial commitments in Pakistan by Indian Parties are permissible under the approval route. B.1.1 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 a Special Purpose Vehicle (SPV) under the Automatic Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities overseas in the oil sector up to the limit prescribed provided the proposal has been approved by the competent authority and is duly supported by certified copy of the Board resolution approving such investment. Investment in excess of the prescribed limit shall require prior approval of the Reserve Bank. (3) Indian companies are also permitted to participate in a consortium with other international operators to construct and maintain submarine cable systems on co-ownership basis under the automatic route. Accordingly, AD Category - I banks may allow remittances by Indian companies for overseas direct investment, after ensuring that the Indian company has obtained necessary licence from the Department of Telecommunication, Ministry of Telecommunication & Information Technology, Government of India to establish, install, operate and maintain International Long Distance Services and also by obtaining a certified copy of the Board Resolution approving such investment. Accordingly, these transactions may be reported by the Indian parties investing in the consortium to the AD Category-I banks in Form ODI for enabling on-line submission of the same by the AD Category-I banks to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to make investment (or financial commitment) in an entity outside India, which is engaged in the financial sector, should fulfill the following additional conditions: * be registered with the regulatory authority in India for conducting the financial sector activities; * has earned net profit during the preceding three financial years from the financial services activities; * has obtained approval from the regulatory authorities concerned both in India and abroad for venturing into such financial sector activity; and * has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned regulatory authority in India. (2) Any additional investment (or financial commitment) by an existing JV/WOS or its step down subsidiary in the financial services sector is also required to comply with the above conditions. (3) Regulated entities in the financial sector making investments (or financial commitment) in any activity overseas are required to comply with the above guidelines. Unregulated entities in the financial services sector in India may invest in non financial sector activities subject to compliance with the provisions of Regulation 6 of the Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h SEBI may invest in equity and equity linked instruments of off-shore Venture Capital Undertakings, subject to an overall limit of USD 500 million. Accordingly, Mutual Funds / Venture Capital Funds / Alternative Investment Funds desirous of availing of this facility may approach SEBI for necessary permission. (4) General permission is available to the above categories of investors for sale of securities so acquired. B.7 Approval of the Reserve Bank (1) Prior approval of the Reserve Bank would be required in all other cases of direct investment (or financial commitment) abroad. For this purpose, application together with necessary documents should be submitted in Form ODI through their Authorised Dealer Category - I banks. (2) Reserve Bank would, inter alia, take into account the following factors while considering such applications: * Prima facie viability of the JV / WOS outside India; * Contribution to external trade and other benefits which will accrue to India through such investment (or financial commitment) ; * Financial position and business track record of the Indian party and the foreign entity; and * Expertise and experience of the Indian party in the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and conditions along with their comments and recommendations, for consideration. B.10 Overseas investment by Registered Trust / Society Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are allowed to make investment (or financial commitment) in the same sector(s) in a JV/WOS outside India, with the prior approval of the Reserve Bank. Trusts / Societies satisfying the eligibility criteria, as indicated below, may submit the application/s in Form ODI-Part I, through their AD Category - I bank/s, 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, for consideration. Eligibility Criteria: (a) Trust i) The Trust should be registered under the Indian Trust Act, 1882; ii) The Trust deed permits the proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to the Indian corporates, the Indian promoters who have set up WOS abroad or have at least 51 per cent stake in an overseas JV, may write off capital (equity / preference shares) or other receivables, such as, loans, royalty, technical knowhow fees and management fees in respect of the JV /WOS, even while such JV /WOS continues to function as under: * Listed Indian companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Automatic Route; and * Unlisted companies are permitted to write off capital and other receivables up to 25 per cent of the equity investment in the JV /WOS under the Approval Route. The write-off / restructuring have to be reported to the Reserve Bank through the designated AD Category-I bank within 30 days of write-off/ restructuring. The write-off / restructuring is subject to the condition that the Indian Party should submit the following documents for scrutiny along with the applications to the designated AD Category -I bank under the Automatic as well as the Approval Routes: a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity held by it in a JV or WOS outside India subject to the following conditions: (i) the sale does not result in any write off of the investment (or financial commitment) made. (ii) the sale is effected through a stock exchange where the shares of the overseas JV/ WOS are listed; (iii) if the shares are not listed on the stock exchange and the shares are disinvested by a private arrangement, the share price is not less than the value certified by a Chartered Accountant / Certified Public Accountant as the fair value of the shares based on the latest audited financial statements of the JV / WOS; (iv) the Indian party does not have any outstanding dues by way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and / or export proceeds from the JV or WOS; (v) the overseas concern has been in operation for at least one full year and the Annual Performance Report together with the audited accounts for that year has been submitted to the Reserve Bank; (vi) the Indian party is not under investigation by CBI / DoE/ SEBI / IRDA or any other regulatory authority in India. (2) The Indian party is required to submit details of such disinvestment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to verification of such exposure. (2) If a hedge becomes naked in part or full owing to shrinking of the market value of the overseas direct investment (or financial commitment), the hedge may continue to the original maturity. Rollovers on the due date are permitted up to the extent of market value as on that date. B.19 Overseas Direct Investments 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. The terms and conditions prescribed under Schedule V of the Notification have been provided in Annex D. B.20 Rollover of Guarantees (1) It has been decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent in India who is an individual - * to acquire foreign securities as a gift from any person resident outside India; * to acquire shares under cashless Employees 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of law for the time being in force; * purchase of shares of a JV / WOS abroad of 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 USD 10,000 or its equivalent per employee in a block of five calendar years; 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 * purchase of foreign securities under ADR / GDR linked stock option schemes by resident employees of Indian companies in the knowledge based sectors, including working directors provided purchase consideration does not exceed USD 50,000 or its equivalent in a block of five calendar years. C.4 Acquiring the shares of SWIFT by a resident bank A bank in India, being licensed by the Reserve Bank under the provisions of the Banking Regulation Act, 1949, may acquire the shares of Society for Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re required to ensure that the necessary documents, as prescribed in form ODI, have been submitted and found to be in order. 3. General procedural instructions (1) With effect from June 01, 2007, reporting system for overseas investment (or financial commitment) has been revised. All the earlier forms have been subsumed into one form viz. ODI, comprising of four parts: Part I - includes the following: Section A - Details of the Indian Party Section B - Details of Investment (or financial commitment) in New Project Section C - Details of Investment (or financial commitment) in Existing Project Section D - Funding for JV / WOS Section E - Declaration by the Indian Party (to be retained by AD Category - I bank) Section F - Certificate by the Statutory Auditors of the Indian Party (to be retained by AD Category - I bank) Part II - Reporting of Remittances (or financial commitment) Part III - Annual Performance Report (APR) Part IV - Report on Closure/Disinvestment/Voluntary Liquidation/Winding up of JV / WOS (2) The revised form is only a rationalisation and simplification of the reporting procedure and there is no change or dilution in the existing eligibility criteria / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttances (or financial commitment) under the automatic route and remittances (or financial commitment) under the approval route should be made and reported on-line in Part II, only after receipt of auto generated e-mail from RBI confirming the UIN. (4) In cases where the investment (or financial commitment) is being made jointly by more than one Indian party, form ODI is required to be signed jointly by all the investing entities and submitted to the designated branch of the AD Category - I bank. AD Category - I banks should file on-line a consolidated form ODI indicating details of each party. The same procedure should be followed where the investment (or financial commitment) is made out of the proceeds of ADR / GDR issues of an Indian party in terms of Regulation 6(5) of the Notification. The Reserve Bank would allot only one Unique Identification Number to the overseas project. (5) AD Category - I banks should allow remittance towards loan to the JV / WOS and / or issue guarantee to / on behalf of the JV / WOS abroad only after ensuring that the Indian party has an equity stake in the JV / WOS. However, as has been stated at para B 1 (3) (a) above, wherever the laws of the hos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dated May 3, 2000, as amended from time to time. 7. Investments (or financial commitment) under Regulation 9 of Notification No. FEMA.120/2004-RB dated July 7, 2004 In terms of Regulation 9, investment (or financial commitment) in JV / WOS in certain cases requires the prior approval of the Reserve Bank. AD Category - I banks may allow remittances under these specific approvals granted by the Reserve Bank and report the same to the Chief General Manager, Foreign Exchange Department, Central Office, Overseas Investment Division, Amar Building, 5th floor, Mumbai 400 001 in form ODI. 8. Purchase of foreign securities under ADR / GDR linked Stock Option Scheme AD Category - I banks may make remittances up to USD 50,000 or its equivalent in a block of five calendar years, without the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment through the AD Category - I bank within 30 days of disinvestment in Part IV of the Form ODI as indicated in para 3 (3) (c) 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 evidence of investment The share certificates or any other document as evidence of investment, where share certificates are not issued shall, henceforth, be submitted to and retained by the designated AD Category -I bank, who would be required to monitor the receipt of such documents and satisfy themselves about the bonafides of the documents so received. A certificate to this effect should be submitted by the designated AD Category -I bank to the Reserve Bank along with the APR (Part III of Form ODI). 12. Opening of Foreign Currency Account abroad by an Indian party Wherever, the host country Regulations stipulate that the investments (or financial commitment) into the country are required to be routed through a designated account, an Indian party is allowed to open, hold and maintain Foreign Currency Account (FCA) abroad for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. C. Disinvestment by Resident Individuals * A resident individual, who has acquired / set up a JV or WOS under the provisions of this Schedule, may disinvest (partially or fully) by way of transfer / sale or by way of liquidation / merger of the JV or WOS. * Disinvestment by a resident individual shall be allowed after one year from the date of making first remittance for setting up or acquiring the JV or WOS abroad. * The disinvestment proceeds shall be repatriated to India immediately and in any case not later than 60 days from the date of disinvestment and the same may be reported to the designated AD. * No write off shall be allowed in case of disinvestments by the resident individuals. D. Reporting Requirements * The resident individual, making overseas direct investments under the provisions of this Schedule, shall submit Part I of the Form ODI, duly completed, to the designated authorised dealer, within 30 days of making the remittance. * The investment, as made by a resident individual, shall be reported by the designated authorised dealer to the Reserve Bank in Form ODI Part I and II within 30 days of making the remittance. * The obligations as required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular No. 72 June 08, 2007 16. AP (DIR Series) Circular No.75 June 14, 2007 17. AP (DIR Series) Circular No.76 June 19, 2007 18. AP (DIR Series) Circular No. 11 September 26, 2007 19. AP (DIR Series) Circular No. 12 September 26, 2007 20. AP (DIR Series) Circular No. 34 April 03, 2008 21. AP (DIR Series) Circular No. 48 June 03, 2008 22. AP (DIR Series) Circular No. 53 June 27, 2008 23. AP (DIR Series) Circular No.07 August 13, 2008 24. AP (DIR Series) Circular No. 14 September 05, 2008 25. AP (DIR Series) Circular No. 36 February 24, 2010 26. AP (DIR Series) Circular No. 45 April 01, 2010 27. AP (DIR Series) Circular No.69 May 27, 2011 28. AP (DIR Series) Circular No.73 June 29, 2011 29. AP (DIR Series) Circular No. 96 March 28, 2012 30. AP (DIR Series) Circular No. 97 March 28, 2012 31. AP (DIR Series) Circular No. 101 April 02, 2012 32. AP (DIR Series) Circular No. 131 May 31, 2012 33. AP (DIR Series) Circular No. 15 August 21, 2012 34. AP (DIR Series) Circular No. 25 September 07, 2012 35. AP (DIR Series) Circular No. 29 September 12, 2012 36. AP (DIR Series) Circular No. 99 April 23, 2013 37. AP (DIR Series) Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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