Understanding Foreign Direct Investment (FDI) Regulations
Explore the historical background, regulatory structures, and current ecosystem of Foreign Direct Investment (FDI) in India, including NDI schedules, procedural changes, and key regulations governing FDI. Learn about the roles of various entities such as FEMA, FIPB, DIPP, and RBI in regulating FDI activities.
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Presentation Transcript
FOREIGN DIRECT INVESTMENT (FDI) PART OF FOREIGN INVESTMENT CA Pradip K. Modi 16th December, 2020
Historical Background and Structure 2 FEMA, 1999 Consolidated FDI Policy, FIPB, DIPP etc. Master Direction / Circulars. FEMA Regulations TISPRO, 2017 AP Dir Circulars FAQs
Present Ecosystem for FDI 3 Part of FEMA (Non Debt Instruments Rules, 2019 and Regulations ) 17th October, 2019 Amendments : 5th December, 2019, 27th April, 2020, 27th July, 2020 Amendment : 22ndApril, 2020. Land Sharing entity or citizen s investment prior approval of GOI. What is NDI Rules, 2019 (Fin Min, Department Economic Affairs). Superseding FEM- TISPRO Regulation, 2017 (Transfer or Issue of Security by person Resident outside India) Superseding FEM- Acquisition and Transfer of Immovable Property in India, Regulation 2018 NDI Rules Regulate FDI, Share Transfer, Right Bonus Issue, ESOP, M&A, FDI etc. After 3rd Amendment in NDI Rules, RBI is empowered again to administer Rules (U TURN by GOI) Read with Section 139, 143 and 144 of Finance Act, 2015 for Section 6 and 47(power to make regulation by RBI) along with 46 (Power of Central Govt to make Rules).
NDI Schedules 4 1. Schedule : I FDI 2. Schedule : II Registered Foreign Portfolio Investor (FPI-FII) 3. Schedule : II NRI/ OCI Investments in Listed Co/ Mutual Funds etc Repatriation basis 4. Schedule : IV NRI-NR (Non Repatriation basis) (Exception Agri- Plant-Real Estate-TDR-Farm House- Nidhi) 5. Schedule : V Other Non-Resident Investors(Sovereign Wealth Fund, Endowment Fund) 6. Schedule : VI Investment in LLP. 7. Schedule : VII Investment by a Foreign Venture Capital Investors. 8. Schedule : VIII Investment in PROI (Person Resident Outside India) in Inv. Vehicle. 9. Schedule : IX Investment in Depository Receipts by PROI 10. Schedule : X Issue of Indian Depository Receipts. (FEMA Comprises of 49 Sections)
Changes in Procedural Aspects - FDI 5 Status of TISPRO (Transfer or Issue of Security by Person Resident Outside India) FEMA 20(R) / 2017- RB Status of FED Master Director No. 11/ 2017-18 Online Reporting System in SMF on FIRMS Platform Compounding of Contraventions replaced by Late Submission Fees. FDI Policy Review Role of Commerce Ministry FinMin and RBI
FDI Regulated by Rule-6 and Schedule-1 of NDI Rules 6 Foreign Investment in Unlisted Company Treated as FDI Foreign Investment in listed company 10 % FDI, 9.99% FPI (Sch-II) SEBI Registered Investment by NR entity LLC, C Corp, Individual, Partnership etc in Cash or against dividend, expenditure, capital goods etc. Citizen or entity of Bangladesh, Pakistan. 22nd April, 2020, Land Sharing Covid -19 Amendment. 3 Amendments.
FDI Entry Route 7 A. Automatic Route Post Investment Compliance B. Government Ministerial Approval. C.Government CCEA Approval > Investment > Rs. 5000 Crores.
Type of Instruments/Opportunity 8 1. Equity Shares. (Including Partly Paid) 2. Compulsory Convertible Preference / Debentures. 3. Capital in LLP 4. Depository Receipt 5. Convertible Notes 6. Conversion of ECB/ Royalty/ FTS/ Capital Goods/ Import/ Pre-INC Exp. 7. Swap of Shares Unclear. Note : Optionally or Partly Convertible or non convertible preference shares/ debentures are covered under ECB Route (Debt)
Valuation of Shares RBI Administered 9 Unlisted Company by CA/ Merchant Broker under DCF/ NAV/ Price x Book Value (Under Internationally accepted pricing method) CA / CPA Merchant Banker Reg. Valuer Methodology Under Companies Act. Not Prescribed Under I.T. Act IF DCF MB Other Not Prescribed Under FEMA Internationally Accepted Pricing Method Valuation Quasi Capital (CCD / DCP) Formula upfront Price > FMV
Partly Paid Shares and Warrants Convertible Notes 10 Partly Paid Shares : 25 % upfront Balance in 12 Months. Partly Paid Warrants : 25% upfront Balance in 18 Months Unlisted Co. Can Do. Start up Co. Can use convertible Notes Max 5 yrs. Rs. > 25 lacs tranche at holder s option or event based.
FDI Not Permitted 11 1. Chit Fund / Nidhi 2. Agricultural / Plantation * 3. Real Estate Business/ TDS Trading (No Value addition) 4. Gambling/ Lottery/ Casinos 5. Atomic Energy 6. Tobacco / Related Products 7. Sector not open to provide sector e.g. Railway * Horticulture & Floriculture not Agricultural Activity for FDI.
Sectoral Cap 12 FDI Allowed Automatic Sch. I (NDI Rules) Approval Route Nodal Ministry (DIPP Would decide If no Clarity) Time line 4 weeks 100% 74% 49%
Indirect FDI (Downstream) (Citizenship Concept) 13 Foregin Investor I Co1 Owned or Controlled by NRs. (50.01%) (BOD/SHA/Veto) If owned or controlled by NRs all FDI Regulation to be followed. I Co2 (No capital / borrowing can be raised for Inv. ) Entry Route Sectoral Cap Pricing guidelines.
14 THANK YOU CA PRADIP K MODI pkm@pkmodi.com 9824014310
