FinMin, in consultation with RBI, amends foreign investment rules. Details here

At present, investment abroad by a person resident in India is governed by the Foreign Exchange Management (Transfer or Issue of any Foreign Securities) Regulations, 2004 and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property) Regulations outside India), 2015.

In its statement on Monday, the Ministry of Finance said: “Given the evolving needs of businesses in India, in an increasingly integrated global market, Indian businesses need to be part of the global value chain. The revised regulatory framework for Foreign Investment facilitates the simplification of the existing framework for foreign investment and has been aligned with current business and economic dynamics.”

“Clarity has been introduced on foreign direct investment and overseas portfolio investment and several transactions related to overseas investment which were earlier under approval route are now under automatic route, significantly improving the “Ease of doing business”, FinMin added.

These are some of the changes to the foreign investment rule.

Under the new amendment, the net worth of a registered company or LLP will be the sum of the capital contribution of the partners and the undistributed profits of the partners after deducting the aggregate value of accumulated losses, expenses deferred and unwritten miscellaneous expenses. off, according to the last audited balance sheet.

Meanwhile, the amendment guidelines where investment by an Indian resident in the share capital of a foreign entity is classified as ODI (Foreign Direct Investment), such investment will continue to be treated as ODI even if the investment falls to a level lower than 10. % of the paid-up share capital or that person loses control of the foreign entity.

Further, any resident of India who has acquired and continues to hold share capital of any foreign entity — may invest in the share capital issued by such entity as a rights issue; or free shares may be awarded subject to the terms and conditions of these rules.

Further, RBI, if necessary, in consultation with the Central Government, may stipulate ceiling on aggregate outflows during a financial year on account of financial commitment or portfolio investment abroad. Further, RBI may stipulate the limit beyond which the amount of financial commitment of a person resident in India in a financial year will require its prior approval.

Any resident of India whose account is classified as non-performing assets, or willful defaulter by any bank, or is under investigation by a financial services regulator, will be required to obtain a “No Objection Certificate” from the bank lender or regulatory body. or investigative agency before making any financial commitment or making a divestment.

The amendment states that pricing will be done independently. He said: “The AD bank, before facilitating a transaction under sub-rule (1), shall ensure compliance with arm’s length pricing taking into account valuation under any internationally accepted valuation methodology.”

In addition, any resident of India may transfer share capital by way of sale to a person resident in India, who is eligible to make such investment under these rules, or to a person resident outside India.

In the event that the transfer is due to merger, amalgamation or spin-off or due to the repurchase of foreign securities, such transfer or liquidation must have the approval of the competent authority in accordance with the laws applicable to India or the laws of the host country. or host jurisdiction, as the case may be.

No person resident in India may make a financial commitment to a foreign entity that has invested or is investing in India, at the time of making such financial commitment or at any time thereafter, either directly or indirectly, resulting in a structure with more than two layers. of subsidiaries, according to the modified rule.

An Indian entity having an office abroad may acquire immovable property outside India for business and residential purposes of its staff.

Meanwhile, a resident of India can acquire immovable property outside India from a person resident outside the country through inheritance, purchase with foreign currency held in the RFC account; purchase of remittances sent under the liberalized remittance scheme instituted by RBI; together with a family member; of income or proceeds from the sale of assets, other than ODI.

An Indian entity not engaged in financial services activities in India may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activities, other than banking or insurance, provided that such Indian entity has registered net profits during the previous year. three financial years.

In particular, an Indian entity that is not engaged in the insurance sector can do ODI in general and health insurance where such insurance business supports the core business carried on abroad by that Indian entity.

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