The Foreign Exchange

Management Act, 1999

An Overview

Puneet Gupta
June 2014

Agenda

Section 1

Overview of FEMA

Section 2

Establishment of BO/LO in India

Section 3

Overseas Direct Investment

Section 1
Overview of Foreign
Exchange Management Act,
1999

New era under FEMA

The Foreign Exchange Regulation Act, 1973
(FERA)
Object

The Foreign Exchange Management Act,

1999 (FEMA)
Object

Conservation of foreign Exchange

Severe penal provisions

All acts controlled and regulated

Applied to Indian Citizens in/outside India

and Foreign Citizens in India.

Blanket powers of search, seizure,

imprisonment, etc.

facilitating external trade and payment

and promoting orderly development and
maintenance of foreign exchange market

Contravention attracts penalty / fine and

not imprisonment (except in some cases) /
compounding

Only specified acts regulated

Citizenship - not relevant / Residence Emphasized

Restricted power of search, seizure, etc.

No Presumption of Mens Rea..

Prosecution to prove

Provision for compounding

Presumption of Mens-rea

Broad Framework

FEMA
FEMA 1999
1999
FERA
FERA replaced
replaced by
by FEMA
FEMA on
on June
June 1,
1, 2000.
2000.

Aims
Aims of
of FEMA
FEMA

Facilitate
Facilitate external
external trade
trade and
and payments
payments
Promotion
Promotion of
of orderly
orderly development
development of
of foreign
foreign exchange
exchange markets
markets

FEMA
FEMA Rules
Rules // Regulations
Regulations

Rules
Rules notified
notified by
by Central
Central Government(Current
Government(Current account
account ))

Regulations
Regulations notified
notified the
the Reserve
Reserve Bank
Bank of
of India
India (RBI)
(RBI) .
. (Capital
(Capital account)
account)
Consultation
Consultation between
between RBI
RBI and
and the
the Central
Central Government
Government..

RBI
RBI

A.P.
A.P. (Dir
(Dir Series)
Series) issued
issued from
from time
time to
to time
time
Master
Master Circulars
Circulars one
one in
in aa year
year (July)
(July)
F.A.Qs
F.A.Qs (updated
(updated available
available on
on http://www.rbi.org.in
http://www.rbi.org.in))

Substantive Provisions
Section

Description

Application and Commencement of FEMA

Definitions

3 to 9

Provisions relating to Regulations and Management of Foreign Exchange

10 to 12

Provisions relating to Authorized Person

13 to 15

Provisions relating to Contraventions and Penalties

16 to 38

Provisions relating to Adjudication, Appeal and Directorate of Enforcement

39 to 49

Miscellaneous Provisions

Extent, Application and Commencement

Section 1 of FEMA Scope
Extends to whole of India.
Applies to all branches, offices and agencies outside India, of person

resident in India.

Applies to contravention committed outside India by any person to

whom the Act applies.

Section 2(u) Person

Includes
Includes
An
An individual,
individual,
HUF,
HUF,
Company,
Company,
Firm,
Firm,
AOP
AOP or
or aa BOI,
BOI, whether
whether incorporated
incorporated or
or not,
not,
Every
artificial
juridical
person,
not
falling
Every artificial juridical person, not falling within
within any
any of
of the
the preceding
preceding
sub-clauses,
and
sub-clauses, and
Any
Any agency,
agency, office
office or
or branch
branch owned
owned or
or controlled
controlled by
by such
such persons
persons

Important Definitions
Section 2(v) Person resident in India (PRI) means
Person
Person residing
residing in
in India
India >> 182
182 days
days during
during preceding
preceding financial
financial year
year but
but does
does not
not include:
include:

Person
Person who
who has
has gone
gone out
out of
of India
India or
or who
who stays
stays outside
outside India,
India, in
in either
either case
case
oo For/on
taking
up
employment
outside
India,
or
For/on taking up employment outside India, or
oo Carrying
Carrying on
on outside
outside India
India aa business
business or
or vocation
vocation outside
outside India,
India, or
or
oo For
For any
any purpose,
purpose, indicating
indicating intention
intention to
to stay
stay outside
outside India
India for
for an
an uncertain
uncertain period.
period.

Person
Person who
who has
has come
come to
to or
or stays
stays in
in India,
India, otherwise
otherwise than
than
oo For/on
For/on taking
taking up
up employment
employment in
in India,
India, or
or
oo Carrying
Carrying on
on in
in India
India aa business
business or
or vocation
vocation in
in India,
India, or
or
oo For
any
other
purpose,
indicating
intention
to
stay
in
For any other purpose, indicating intention to stay in India
India for
for an
an uncertain
uncertain period.
period.
Any
Any Person
Person or
or body
body corporate
corporate registered
registered or
or incorporated
incorporated in
in India.
India.
An
An office,
office, branch
branch or
or agency
agency in
in India
India owned
owned or
or controlled
controlled by
by aa person
person resident
resident outside
outside India.
India.
An
An office,
office, branch
branch or
or agency
agency outside
outside India
India owned
owned or
or controlled
controlled by
by aa person
person resident
resident in
in India.
India.

Section 2(w) - Person resident outside India (PROI)

Person resident outside India means a person who is not resident in India.

Important Definitions
Non Resident Indian (NRI)
NRI
NRI has
has been
been defined
defined under
under FEMA
FEMA Regulation
Regulation 2(vi)
2(vi) of
of the
the FEMA
FEMA -- 55 (Deposit)
(Deposit) Regulations
Regulations 2000
2000 as
as follows:
follows:
An
An NRI
NRI is
is aa person
person resident
resident outside
outside India
India who
who is
is aa citizen
citizen of
of India
India or
or is
is aa Person
Person of
of Indian
Indian Origin
Origin
ItIt is
is possible
possible that
that you
you may
may be
be an
an NRI
NRI under
under FEMA,
FEMA, yet
yet you
you may
may be
be aa resident
resident under
under the
the Income
Income tax
tax laws.
laws.

Person of Indian Origin (PIO)

PIO
PIO is
is defined
defined differently
differently in:
in:

Regulation
Regulation 22 of
of FEMA
FEMA 55 (Deposit)
(Deposit) Regulations,
Regulations, 2000
2000

Regulation
Regulation 2(c)
2(c) of
of FEMAFEMA- 21
21 (Acquisition
(Acquisition and
and Transfer
Transfer of
of Immovable
Immovable Property
Property in
in India)
India) Regulations,
Regulations, 2000
2000

Regulation
Regulation 22 of
of FEMA
FEMA 24
24 (( Investment
Investment in
in aa Firm
Firm or
or Proprietary
Proprietary concern
concern in
in India)
India)

Most
Most other
other notifications
notifications follow
follow the
the FEMA
FEMA 55 .
. (Deposit)
(Deposit) definition
definition of
of PIO
PIO

Important Definitions
Section 2(e) Capital Account Transaction
A
A transaction
transaction which
which alters
alters the
the assets
assets or
or liabilities
liabilities

Outside
Outside India
India of
of persons
persons resident
resident in
in India,
India,

(including
(including Contingent
Contingent Liabilities);
Liabilities);

In
In India
India of
of persons
persons resident
resident outside
outside India;
India; and
and

oo
oo
oo
oo
oo
oo
oo
oo
oo

Includes
Includes transactions
transactions specified
specified in
in Section
Section 6(3).
6(3).
Foreign
security
by
resident;
Foreign security by resident;
Any
Any Security
Security by
by non-resident;
non-resident;
Transfer
or
issue
Transfer or issue of
of any
any security
security or
or foreign
foreign
security
by
any
branch,
office
or
agency
security by any branch, office or agency in
in India
India of
of
aa non-resident;
non-resident;
Borrowing
Borrowing // Lending
Lending in
in Foreign
Foreign Exchange;
Exchange;
Borrowing
/
Lending
in
rupees
between
Borrowing / Lending in rupees between residents
residents
and
non-residents;
and non-residents;
Deposits
Deposits between
between residents
residents and
and non
non residents;
residents;
Holding
Holding of
of currency
currency or
or currency
currency notes;
notes;
Acquisition
Acquisition // transfer
transfer of
of immoveable
immoveable property
property in
in
India
/
outside
India
(except
those
on
lease
for
India / outside India (except those on lease for
less
less than
than five
five years);
years);
Giving
Giving of
of guarantee
guarantee // surety
surety by
by resident
resident // nonnonresidents.
residents.

Section 2(j) Current Account Transaction

A
A transaction
transaction other
other than
than aa capital
capital account
account transaction
transaction
which
which include:
include:
Payments
Payments due
due in
in connection
connection with
with foreign
foreign trade,
trade,

other
other current
current business,
business, services,
services, shortshort- term
term
banking
and
credit
facilities
in
the
ordinary
banking and credit facilities in the ordinary course
course
of
of business;
business;

Payments
Payments due
due as
as interest
interest on
on loans
loans and
and as
as net
net

income
income from
from investments;
investments;

Remittances
Remittances for
for living
living expenses
expenses of
of parents,
parents,

spouse
spouse and
and children
children residing
residing abroad;
abroad; and
and

Expenses
Expenses on
on foreign
foreign travel,
travel, education
education and
and

medical
medical care
care of
of parents,
parents, spouse
spouse and
and children.
children.

10

Extent, Application and Commencement (contd.)

Section 3- Dealing in Foreign Exchange, etc.
General or Special permission of RBI required to :
Deal in or transfer of foreign exchange or foreign securities to person other than authorized person;.
Make any payment to or for the credit of a non-resident;
Receive otherwise than through authorized person any payment by order or on behalf of a non-resident

without a corresponding inward remittance;

Enter into a financial transaction in India as consideration for or in association with acquisition or creation or

transfer of a right to acquire any asset outside India.

Section 4- Holding of Foreign Exchange, etc.

Restricts person resident in India to hold, own or possess or transfer any foreign exchange, foreign security

or immovable property situated outside India.

Section 5- Current Account Transactions

Section 6- Capital Account Transactions
11

Extent, Application and Commencement (contd.)

Section 7 Export of goods and services
Exporter of goods/services under obligation to furnish to RBI or specified authority prescribed declaration.
Common form called Export Declaration Form devised to declare all exports from Non-EDI ports and
common Softex forms for single/bulk exports.

Directions by RBI to Exporter of goods for ensuring receipt of export proceeds.

Section 8 Realization and repatriation of foreign exchange

Person resident in India obliged to take all reasonable steps to realize and repatriate to India all foreign

exchange due or accrued.

Section 9 Exemption from realization and repatriation in certain cases

Possession of foreign currency or coins up to limits prescribed by RBI;
Foreign currency accounts up to specified limits by specified persons;
Foreign exchange acquired before 8th July, 1947;
Foreign exchange acquired from employment, business, trade, vocation, services, honorarium, gifts,
inheritance or other legitimate means up to limits prescribed; and
Any other foreign exchange receipt specified by RBI.

12

Extent, Application and Commencement (contd.)

Section 10 Authorized Person (AP)

RBI to authorize persons to act as authorized dealer, money changer or off-shore banking unit or in any other
manner.

Section 11 Control / Penalty on Authorized Person

AP to comply with provisions of Act, Rules, Regulations, Notifications, etc.
Inspection by RBI.
Penalty for contravention of any direction by the authorized person or failure to file any return with RBI up to

Rs 10,000 plus Rs 2,000 per day.

Section 12 19- Penalties/Adjucating Authorities

Section 12 - Power of RBI to inspect AP

Section 13 - Penalties
Section 14 - Orders of Adjudicating Authority
Section 15 - Power to compound contravention
Section 16 - Appointment of Adjudicating Authority
Section 17 - Appeal to Special Director
Section 19 - Appeal to Appellate Tribunal

13

FEMA - Current Account Transactions Rules, 2000

FEMA Current Account Transaction Rules

Transactions expressly prohibited Schedule I read with

Rule 3
Transactions which require prior approval of Government of
India Schedule II read with Rule 4
Transactions which require prior approval of RBI Schedule
III read with Rule 5
Relaxations from Rule 4 and 5 for many items paid from
Resident Foreign Currency (RFC) Account and Exchange
Earners Foreign Currency (EEFC) Accounts.

14

Current Account Transactions

Transactions Expressly Prohibited
(Schedule I read with Rule 3)

Prior approval of Government of India

(Schedule II read with Rule 4)

1.
1. Remittance
Remittance out
out of
of lottery
lottery winnings;
winnings;
2.
Remittance
of
income
from
2. Remittance of income from racing
racing // riding
riding or
or any
any other
other
hobby;
hobby;
3.
Remittance
3. Remittance for
for purchase
purchase of
of lottery
lottery tickets,
tickets,
banned/prescribed
products;
banned/prescribed products;
4.
4. Payment
Payment of
of commission
commission on
on exports
exports made
made towards
towards
equity
equity investment
investment in
in Joint
Joint Venture
Venture // Wholly
Wholly Owned
Owned
Subsidiary
Subsidiary abroad
abroad of
of Indian
Indian companies;
companies;
5.
5. Remittance
Remittance of
of dividend
dividend by
by any
any company
company where
where
dividend
balancing
is
applicable;
dividend balancing is applicable;
6.
Payment
6. Payment of
of commission
commission on
on exports
exports under
under Rupee
Rupee
state
credit
route,
except
commission
up
to
state credit route, except commission up to 10
10
percent
of
invoice
value
of
exports
of
tea
and
percent of invoice value of exports of tea and tobacco;
tobacco;
7.
7. Payment
Payment related
related to
to Call
Call Back
Back Services
Services of
of telephones;
telephones;
8.
8. Remittance
Remittance of
of interest
interest income
income on
on funds
funds held
held in
in Non
Non
Resident
Resident Special
Special Rupee
Rupee (( Account
Account )) Scheme.
Scheme.

1.
1. Cultural
Cultural Tours
Tours
2.
Advertisement
2. Advertisement in
in foreign
foreign print
print media
media exceeding
exceeding
USD
10,000
except
for
promotion
of
tourism,
USD 10,000 except for promotion of tourism,
foreign
foreign investments
investments and
and international
international bidding
bidding
3.
Remittance
of
freight
of
vessel
chartered
3. Remittance of freight of vessel chartered by
by aa
Public
Public Sector
Sector Unit
Unit
4.
4. Payment
Payment for
for import
import by
by aa Government
Government Department
Department
on
on C.I.F.
C.I.F. basis
basis
5.
5. MultiMulti- modal
modal transport
transport operators
operators making
making remittance
remittance
to
their
agents
abroad
to their agents abroad
6.
Remittance
6. Remittance of
of hiring
hiring charges
charges of
of transponders
transponders by
by
TV
channels,
Internet
service
providers
TV channels, Internet service providers
7.
Remittance
7. Remittance of
of container
container detention
detention charges
charges
exceeding
exceeding the
the rate
rate prescribed
prescribed
8.
8. Remittance
Remittance of
of prize
prize money
money // sponsorship
sponsorship of
of sports
sports
activity
activity abroad
abroad exceeding
exceeding USD
USD 1,00,000
1,00,000 by
by person
person
other
than
International
/
National
/
State
Level
other than International / National / State Level
sports
sports bodies
bodies
9.
Remittance
9. Remittance for
for membership
membership of
of P
P&
& II club
club

15

Current Account Transactions Illustrative Transactions

--Schedule III read with Rule 5
Sr. No.

Transaction

Limits without any RBI approval

Private Visit (except Nepal & Bhutan)

USD 10,000 per Financial Year (FY)

Gift Remittance

USD 5000 per FY per remitter or donor *

Donations

USD 5000 per donor*

Exchange facilities for employment abroad

USD 100,000

Medical Treatment abroad

Estimate from doctor in India or doctor / hospital

abroad

Consultancy services
For Infrastructure Projects - USD 10,000,000
per project
For other services USD 1,000,000 per project

Re-imbursement of pre-incorporation expenses

Exceeding higher of:

USD 1,00,000
5 % of investment brought into India

* Remittance of gift and donation are subsumed under the LRS scheme

16

Liberalized Remittance Scheme (LRS)

LRS available to all Resident individuals (RI) including minors (singularly or jointly).
LRS available to all Resident individuals (RI) including minors (singularly or jointly).
RI can remit overseas up to USD 1, 25,000 per financial year for any permissible current / capital account
RI can remit overseas up to USD 1, 25,000 per financial year for any permissible current / capital account
transaction.
transaction.
Acquisition of immovable property, directly or indirectly, outside India by resident individual is no longer
Acquisition of immovable property, directly or indirectly, outside India by resident individual is no longer
permitted under LRS.
permitted under LRS.
RI can acquire and hold shares or any other asset outside India without prior approval of RBI using the LRS.
RI can acquire and hold shares or any other asset outside India without prior approval of RBI using the LRS.
RIs are now permitted to acquire or set up Joint Ventures (JV) or Wholly Owned Subsidiaries (WOS) outside
RIs are now permitted to acquire or set up Joint Ventures (JV) or Wholly Owned Subsidiaries (WOS) outside
India engaged in bonafide operating business activities only (except for real estate business, banking business,
India engaged
in bonafide
operating
business
for real
estateare
business,
banking
business,
business
of financial
services
activity or
holding activities
of a step only
down(except
JV or WOS
which
prohibited)
within
the
business
of financial
activity or holding of a step down JV or WOS which are prohibited) within the
overall
remittance
limitservices
of USD 125,000.
overall remittance limit of USD 125,000.
RI can open, hold and maintain foreign currency accounts with a bank outside India for remittances under the
RI can open, hold and maintain foreign currency accounts with a bank outside India for remittances under the
scheme without the prior approval of RBI.
scheme without the prior approval of RBI.
Income and sum remitted need not be brought back into India and can be reinvested overseas.
Income and sum remitted need not be brought back into India and can be reinvested overseas.
Remittances inter alia not permitted for:
Remittances inter alia not permitted for:
o Remittance
or indirectly to Bhutan, Nepal, Mauritius or Pakistan;
o Remittancedirectly
directly
or indirectly to Bhutan, Nepal, Mauritius or Pakistan;
o Remittances to specified
cooperative countries / territories or those identified by the Financial Action Task
o Remittances to specifiednonnon- cooperative countries / territories or those identified by the Financial Action Task
Force as non-co-operative Countries or Territories; and
Force as non-co-operative Countries or Territories; and
17

Schemes for Inbound Investment

Schedule

Particulars

Schedule 1

FDI Scheme

Schedule 2

Purchase/Sale of Shares and/or Convertible Debentures of an Indian Company by a registered

Foreign Institutional Investor under Portfolio Investment Scheme

Schedule 3

Purchase/Sale of Shares and/or Convertible Debentures by a NRI on a Stock Exchange in India

on repatriation and/or non-repatriation basis under Portfolio Investment Scheme

Schedule 4

Purchase and Sale of Shares/Convertible Debentures by NRI, on Non-Repatriation basis

Schedule 5

Purchase and Sale of Securities other than Shares or Convertible Debentures of an Indian
Company by a Person Resident Outside India

Schedule 6

Investment in an Indian Venture Capital Undertaking by a Registered Foreign Venture Capital

Investor

Schedule 7

Indian Depository Receipts by eligible companies resident outside India

Schedule 8

Scheme for investment by Qualified Foreign Investors in Equity Shares

18

Inbound Investment Process

* A citizen or entities of Bangladesh/Pakistan can invest with prior approval of Foreign Investment Promotion Board (FIPB) in
sectors/activities other than those expressly prohibited in the Foreign Direct Investment (FDI)Policy
19

Routes of Investment

20

Section 2- Establishment of
Liaison Office/Branch Office
in India

21
21

Entry Strategies for Foreign Entity

ENTRY STRATEGIES FOR A
FOREIGN ENTITY

AS A FOREIGN
COMPANY

LIAISON
OFFICE (LO)

AS A LIMITED
LIABILITY
PARTNERSHIP

BRANCH
OFFICE(BO)

PROJECT
OFFICE (PO)

AS AN INDIAN
COMPA NY

WHOLLY
WHOLLY OWNED
OWNED
SUBSIDIARY
SUBSIDIARY
(WOS)
(WOS)

JOINT
JOINT
VENTURE
VENTURE
(JV)
(JV)

22

Background
Provisions
Provisions for
for establishment
establishment of
of LO/BO
LO/BO are
are regulated
regulated by
by Notification
Notification No.
No. FEMA
FEMA 22/
22/ 2000-RB
2000-RB dated
dated 3rd
3rd May
May
2000.
2000.
Available
Available Routes:
Routes:

Reserve
Reserve Bank
Bank Route
Route
Principal
business
Principal business of
of the
the foreign
foreign entity
entity falls
falls under
under sectors
sectors where
where FDI
FDI is
is permissible
permissible under
under 100%
100% automatic
automatic
route.
route.

Government
Government Route
Route
Business
Business other
other than
than above.
above.
Applications
Applications from
from entities
entities falling
falling under
under this
this category
category and
and those
those from
from NGOs/
NGOs/ NPOs/
NPOs/ Government
Government Bodies/
Bodies/
Departments
are
considered
by
RBI
in
consultation
with
the
Ministry
of
Finance,
Government.
Departments are considered by RBI in consultation with the Ministry of Finance, Government.
RBI
RBI has
has freely
freely permitted
permitted establishment
establishment of
of aa branch/unit
branch/unit in
in SEZs
SEZs to
to undertake
undertake manufacturing
manufacturing and
and service
service
activities
activities and
and banking
banking company,
company, subject
subject to
to certain
certain conditions.
conditions.
No
No person,
person, being
being aa citizen
citizen of
of Pakistan,
Pakistan, Bangladesh,
Bangladesh, Sri
Sri Lanka,
Lanka, Afghanistan,
Afghanistan, Iran
Iran or
or China,
China, without
without prior
prior
permission
of
RBI,
shall
establish
in
India,
a
BO/LO/PO
or
any
other
place
of
business
by
whatever
permission of RBI, shall establish in India, a BO/LO/PO or any other place of business by whatever name
name
called.
called.
Applications
Applications from
from entities
entities registered
registered in
in // resident
resident of
of Hong
Hong Kong
Kong and
and Macau,
Macau, for
for establishment
establishment of
of BO/LO/PO
BO/LO/PO or
or
any
other
place
of
business
by
whatever
name
called
shall
also
require
prior
approval
from
Reserve
Bank
of
any other place of business by whatever name called shall also require prior approval from Reserve Bank of
India.
India. [A.P.(DIR
[A.P.(DIR Series)
Series) Circular
Circular No.93
No.93 dated
dated 15th
15th January,2014]
January,2014]
Application
Application shall
shall be
be made
made in
in Form
Form FNC.
FNC. BO/LO
BO/LO established
established with
with the
the RBI's
RBI's approval
approval will
will be
be allotted
allotted aa Unique
Unique
Identification
Identification Number
Number (UIN)
(UIN) post
post which
which BOs
BOs // LOs
LOs shall
shall obtain
obtain PAN
PAN in
in India.
India.
23

Conditions
Additional Criteria

Track
Record

Net
Worth*
For BO >>
A profit making track record
during the immediately
preceding 5 FYs in the home
country.

For BO >>

For LO >>
A profit making track record
during the immediately
preceding 3 FYs in the home
country.

For LO >>

>USD 100,000 or its equivalent.

USD 50,000 or its equivalent

* Net Worth= Total paid up capital+ free reserves less intangible assets, as per the latest Audited Balance Sheet or Account
Statement certifies by CPA or any registered Accounts Practitioner by whatever name.

24

Permissible Activities for LOs

LOs
LOs can
can undertake
undertake the
the following
following activities
activities in
in India:
India:

Representing
Representing in
in India
India the
the parent
parent company
company // group
group companies.
companies.

Promoting
Promoting export
export // import
import from
from // to
to India.
India.

Promoting
Promoting technical/financial
technical/financial collaborations
collaborations between
between parent/group
parent/group companies
companies and
and companies
companies in
in
India.
India.

Acting
Acting as
as aa communication
communication channel
channel between
between the
the parent
parent company
company and
and Indian
Indian companies.
companies.
Prohibited
Prohibited activities
activities for
for LO:
LO:

Cannot
Cannot undertake
undertake any
any commercial/business
commercial/business activity
activity directly
directly or
or indirectly
indirectly

Cannot
Cannot earn
earn any
any income
income in
in India
India

All
All expenses
expenses are
are to
to be
be met
met by
by way
way of
of Inward
Inward remittances
remittances from
from Head
Head Office(HO)
Office(HO) outside
outside India
India

Cannot
Cannot have
have signing/commitment
signing/commitment powers
powers on
on behalf
behalf of
of HO
HO

25

Permissible Activities for BOs

Companies
Companies incorporated
incorporated outside
outside India
India and
and engaged
engaged in
in manufacturing
manufacturing or
or trading
trading activities
activities are
are allowed
allowed to
to set
set up
up
BOs
in
India
with
specific
approval
of
RBI.
Such
BOs
are
permitted
to
represent
the
parent/
group
companies
and
BOs in India with specific approval of RBI. Such BOs are permitted to represent the parent/ group companies and
undertake
undertake the
the following
following activities
activities in
in India:
India:

Export
Export // Import
Import of
of goods.
goods.

Rendering
Rendering professional
professional or
or consultancy
consultancy services.
services.

out
research
work
in
areas
in
which
Carrying
Carrying out research work in areas in which the
the parent
parent company
company is
is engaged.
engaged.

Promoting
technical
or
financial
collaborations
between
Indian
companies
Promoting technical or financial collaborations between Indian companies and
and parent
parent or
or overseas
overseas group
group
company.
company.

Representing
Representing the
the parent
parent company
company in
in India
India and
and acting
acting as
as buying
buying // selling
selling agent
agent in
in India.
India.

Rendering
Rendering services
services in
in information
information technology
technology and
and development
development of
of software
software in
in India.
India.

technical
support
to
the
products
supplied
by
parent/group
companies.
Rendering
Rendering technical support to the products supplied by parent/group companies.

Foreign
Foreign airline
airline // shipping
shipping company
company
Normally,
Normally, the
the BO
BO should
should be
be engaged
engaged in
in the
the activity
activity in
in which
which the
the parent
parent company
company is
is engaged.
engaged.
Prohibited
Prohibited Activities
Activities for
for BOs:
BOs:

Retail
Retail trading
trading activities
activities of
of any
any nature.
nature.

or
processing
activities
Manufacturing
Manufacturing or processing activities in
in India,
India, directly
directly or
or indirectly.
indirectly.
Profits
Profits earned
earned by
by the
the BOs
BOs are
are freely
freely remittable
remittable from
from India,
India, subject
subject to
to payment
payment of
of applicable
applicable taxes.
taxes.

26

Section 3- Overseas Direct

Investment

27

Overseas Direct Investment (ODI)- Background

Investment
Investment by
by an
an Indian
Indian Party
Party by
by way
way of
of contribution
contribution to
to the
the capital
capital or
or subscription
subscription to
to the
the
Memorandum
Memorandum of
of Association
Association (MOA)
(MOA) of
of aa foreign
foreign entity
entity or
or by
by way
way of
of purchase
purchase of
of existing
existing shares
shares of
of aa
foreign
foreign entity
entity by:
by:

Investment
Investment through
through stock
stock exchange;
exchange; or
or
Private
Private placement
placement in
in that
that entity;
entity; or
or
Market
Market purchase;
purchase; or
or
Investment
Investment in
in aa Joint
Joint Venture
Venture or
or Wholly
Wholly Owned
Owned Subsidiary
Subsidiary abroad;
abroad; ..
But
But does
does not
not include
include Portfolio
Portfolio Investment
Investment

28

Possible Routes for Investment

Automatic Route
Overseas
Overseas JV/WOS
JV/WOS to
to be
be engaged
engaged in
in bonafide
bonafide
business
business activity
activity except
except real
real estate
estate and
and banking;
banking;

Approval Route
Cases
Cases not
not covered
covered under
under Automatic
Automatic route
route

Investment
Investment in
in Financial
Financial Sector
Sector should
should comply
comply with
with
additional
conditions
additional conditions

Specific
Specific application
application to
to RBI
RBI with
with necessary
necessary
documents
documents in
in Form
Form ODI
ODI through
through the
the AD
AD (Category
(Category II
Bank)
Bank) along
along with
with prescribed
prescribed supporting
supporting and
and
documents
documents

Indian
Indian party
party not
not on
on RBIs
RBIs Exporters
Exporters Caution
Caution List/list
List/list
of
of defaulters/under
defaulters/under investigation
investigation by
by an
an Authority
Authority
such
as
ED,
SEBI
etc.
such as ED, SEBI etc.

RBI
RBI would
would inter
inter alia
alia consider
consider the
the following
following factors:
factors:

Overall
Overall ceiling
ceiling of
of financial
financial commitment
commitment in
in all
all
JV/WOS
JV/WOS is
is 100%
100% of
of net
net worth
worth as
as on
on last
last audited
audited
Balance
Balance Sheet
Sheet
Submission
Submission of
of Form
Form Annual
Annual Performance
Performance Report
Report in
in
respect
respect of
of all
all its
its overseas
overseas investment
investment

oo
oo

Prima
Prima facie
facie viability
viability of
of JV/WOS
JV/WOS outside
outside India
India
Contribution
to
external
trade
and
other
benefits
Contribution to external trade and other benefits
which
which will
will accrue
accrue to
to India
India through
through such
such investment
investment
oo Financial
Financial position
position and
and business
business track
track record
record of
of the
the
Indian
Indian party
party and
and foreign
foreign entity
entity
oo Expertise
Expertise and
and experience
experience of
of the
the Indian
Indian party
party in
in the
the
same
or
related
line
of
activity
of
the
JV/WOS
outside
same or related line of activity of the JV/WOS outside
India.
India.

29

Overseas Offices
Opening
Opening of
of Branch
Branch Office
Office (BO)
(BO) or
or Representative
Representative Office
Office (RO)
(RO) overseas
overseas is
is allowed
allowed
AD
AD banks
banks in
in India
India are
are permitted
permitted to
to remit
remit funds
funds for
for

Initial
Initial Expenses
Expenses
Remittance
Remittance up
up to
to fifteen
fifteen per
per cent
cent of
of the
the average
average annual
annual sales/income
sales/income or
or turnover
turnover during
during the
the last
last two
two financial
financial
years
years or
or up
up to
to twenty-five
twenty-five per
per cent
cent of
of the
the net
net worth,
worth, whichever
whichever is
is higher
higher

Recurring
Recurring Expenses
Expenses
Remittance
up
Remittance up to
to ten
ten per
per cent
cent of
of the
the average
average annual
annual sales/income
sales/income or
or turnover
turnover during
during the
the last
last two
two financial
financial
years
years
Opening
Opening up
up of
of such
such BO/RO
BO/RO is
is allowed
allowed subject
subject to
to following
following conditions:
conditions:
oo BO/RO
BO/RO should
should be
be conducting
conducting normal
normal business
business activities
activities of
of the
the Indian
Indian company
company
oo Overseas
Overseas branch
branch shall
shall not
not enter
enter into
into any
any contract
contract or
or agreement
agreement in
in contravention
contravention of
of the
the FEMA
FEMA (Act,
(Act, rules
rules or
or
regulations.
regulations. ))
oo Overseas
Overseas office
office (trading/non-trading)/branch
(trading/non-trading)/branch should
should not
not create
create any
any financial
financial liabilities,
liabilities, contingent
contingent or
or otherwise,
otherwise,
oo
oo

for
for the
the head
head office
office in
in India
India and
and also
also not
not invest
invest surplus
surplus funds
funds abroad
abroad without
without prior
prior approval
approval of
of RBI.
RBI.
Any
Any funds
funds rendered
rendered surplus
surplus should
should be
be repatriated
repatriated to
to India
India
Audited
Audited financials
financials of
of BO/RO
BO/RO needs
needs to
to be
be submitted
submitted to
to AD
AD bank
bank
30

Disclaimer
The information contained herein is of a general nature and is not intended to address the circumstances of
any particular individual or entity. Although I have endeavored to provide accurate and timely information, there
can be no guarantee that such information is accurate as it is received or that it will continue to be accurate in
the future. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation.
The views presented by means of this presentation are presenters own and should not construed as position
taken by any organization or any former employer of the author

31

&

Answers

Questions

3232

Thank You