Foreign Investment into India

FOREIGN DIRECT INVESTMENT (FDI)

FDI is a direct investment by an individual investor or a company based in one country in a business enterprise in another country, in the form of either establishing business operations or acquiring business assets in companies operating in the other country, such as ownership or controlling interest in a foreign company. Such investments can take place for many reasons, including to take advantage of cheaper wages, capital formation, transfer of new technologies, management skills, intellectual property, employment generation, increasing exports and special investment privileges (e.g. tax exemptions, increase in tax revenues) etc. offered by the target country. An investment made that establishes either effective control of, or at least substantial influence over, the decision making of a foreign business.

ENTRY ROUTES FOR FOREIGN INVESTMENT IN INDIA

Foreign Direct Investment (FDI) in India is undertaken in accordance with the FDI Policy which is formulated and announced by the Government of India. Foreign investment refers to the direct or indirect investment done by a company or an individual in some other country. A foreign company planning to set up business operations in India can enter by:

  • Incorporating a company under the Companies Act, 2013 as a Joint Venture or a Wholly Owned Subsidiary.
  • Set up a Liaison office/Representative office or a Branch office of the foreign company which can carry out operations and activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

Foreign investments in India can be made by non-residents/foreign company through two routes:

  1. Automatic Route: Under the Automatic Route, the foreign investor/foreign company does not require any approval from the Reserve Bank of India or the Government of India for the investment.
  2. Government Route: Under the Government Route, the foreign investor/foreign company is required to obtain prior approval of the Government of India, which is considered by the Ministry of Finance or Department of Industrial Policy & Promotion, Department of Economic Affairs and Foreign Investment Promotion Board (FIPB) (as the case may be) for the investment. The Application for approval is required to be made in Form FC-IL and has to be addressed to the concerned government department. No fee is payable on such applications.

VISA REQUIREMENTS FOR FOREIGNERS DOING BUSINESS IN INDIA

Foreign nationals/Non-residents visiting India for business purposes for e.g. to establish a business venture or to purchase or sell industrial or commercial products or for recruitment of manpower etc. in India need to strictly comply with the appropriate Visa requirement regulations. There are basically two types of work related Visas in India:

  1. Business Visa designated as ‘B’ Visa. A business Visa is usually granted for 3 months to 1 year or 5 years with single or multiple entries in India.
  2. Employment Visa designated as ‘E’ Visa. An Employment Visa can be granted for up to 2 years or period of contract, whichever is less and can be extended in India.

CONDITIONS TO BE FULFILLED FOR GRANT OF BUSINESS VISA

The conditions to be fulfilled for grant of a Business Visa are as follows:

  1. The foreign national must have a valid travel document and a re-entry permit.
  2. The foreign national must fill out the Indian Visa application form, declaration and provide passport photos and must provide documents to prove bonafide purpose (company’s letter etc.)
  3. The foreign national should be a person of assured financial standing. The Foreign national must prove his/her financial standing by producing recent bank statement(s), sponsorship letter, etc.
  4. The foreign national should not be visiting India for the business of money lending or for running a petty business or petty trade or for full-time employment in India, etc.
  5. ­The foreign national shall comply with all other requirements like payment of tax liabilities etc.
  6. Business Visa must be issued from the country of origin or from the country of habitual domicile of the foreigner provided the period of residence of that foreigner in that particular country is more than 2 years.
  7. The grant of Business Visa is subject to any instructions issued by the Government of India on the basis of reciprocity with other foreign countries from time to time.

PROHIBITED SECTORS FOR FOREIGN INVESTMENT IN INDIA

Foreign Investment is prohibited in the following sectors in India: –

  1. Lottery Business including Government/private lottery, online lotteries, etc.
  2. Gambling and Betting including casinos etc.
  3. Chit funds & Nidhi Companies: ‘Chit funds’ are saving schemes in India. As per Chit Fund Act, 1982, Chit means a transaction whether called chit, chit fund, chitty, kuree or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical instalments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount. A ‘Nidhi’ Company is one of the categories of Non-Banking Financial Company (NBFC) which does not require any Reserve Bank of India (RBI) licence. Nidhi Company works through its members. It can accept deposits and lends loans to its members only.
  4. Trading in Transferable Development Rights (TDRs).
  5. Real Estate Business or Construction of Farm Houses ‘Real estate business’ shall not include development of townships, construction of residential/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations 2014.
  6. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
  7. Activities/sectors not open to private sector investment e.g. (I) Atomic Energy and (II) Railway operations (other than permitted activities).
  8. Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.

RESTRICTIONS ON FOREIGN OWNERSHIP OR OCCUPATION OF REAL ESTATE IN INDIA

The general provisions with respect to purchase/ownership, sale of real estate by foreign corporate bodies or non-residents are provided in the FEMA and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. A person resident outside India who has established in India, a branch/project office or other place of business (excluding a liaison office) for carrying on in India any permitted activity can acquire real estate in India that is necessary for carrying on such activity, subject to compliance with other applicable laws and RBI regulations.

Persons who are residents or nationals of certain specified countries must obtain prior permission of Reserve Bank of India to acquire such real estate in India. These countries include Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, Hong Kong, Macau, Nepal, Bhutan and China.

Further, a Non-Resident Indian or Person of Indian Origin can acquire any immovable property in India other than:

  1. Agricultural land
  2. Plantation
  3. Farm house

RESTRICTION ON PROFITS REMITTED OVERSEAS

The following rules apply to profits remitted overseas:

  1. Dividends on foreign investments (net of applicable taxes) can be remitted freely.
  2. Branch offices are permitted to remit profits from a branch, net of applicable Indian taxes, outside India.
  3. Project offices can remit intermittent remittances pending winding-up/completion of the project.
  4. The RBI has granted general permission to foreign entities to remit the surplus on winding up/completion of projects.

Content Source – India Law Offices

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