Nri Services | FAQ

Foreign companies can make investments or operate their business in a number of ways such as Liaison/Representative office, Branch Office,?Project Office, 100% Wholly owned Subsidiary?, and? Joint Venture company. The requisite approval can be granted by Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB). Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies, Ministry of Company Affairs and all Indian operations would be conducted through this company.

Development criteria

• Minimum 10 hectares/ 25 acres area to be developed for serviced housing plots
• For construction-development projects, minimum built-up area of 50,000 sq mts prescribed
• In case of a combination project, any one of above two conditions would suffice

Investment conditions>

• Minimum capitalization of US$ 10 million for wholly owned subsidiaries & US$ 5 million for joint ventures with Indian partners
• Funds to be brought in within 6 months of commencement of business
• Original investment cannot be repatriated before a period of 3 years from completion of minimum capitalization. Investor may be permitted to exit earlier with prior Government approval

Other conditions

• At least 50% of project must be developed within of 5 years from date of obtaining all statutory clearances
• Investor not permitted to sell undeveloped plots**
• Project to conform to norms & standards laid down by respective State authorities
• Investor responsible for obtaining all necessary approvals as prescribed under applicable rules/bye-Iaws/regulations of the State
• Concerned Authority to monitor compliance of prescribed conditions by developer

** “Undeveloped” plot means where roads, water supply, street lighting, drainage, sewerage & other conveniences have not been made available. It will be necessary that investor provides this infrastructure & obtains a completion certificate prior to sale of serviced housing plot.

Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

Some of the important Labour Acts, which are applicable for carrying out business in India, are:

• Employees’ Provident Fund and Miscellaneous Provisions Act, 1952

• Employees’ State Insurance Act 1948

• Workmen’s Compensation Act, 1923

• Maternity Benefit Act, 1961

• Payment of Gratuity Act, 1972

• Factories Act, 1948

• Dock Workers (Safety, Health & Welfare) Act, 1986

• Mines Act, 1972

• Minimum Wages Act, 1948

• Payment of Bonus Act 1965

• Contract Labour [Regulation & Abolition] Act 1970

• Payment of Wages Act, 1936

India is a signatory to the agreement concluding the Uruguay Round of GATT negotiations and establishing the World Trade Organisation (WTO) and its laws today are WTO compliant. The important regulations dealing with Intellectual Property Rights are:

• The Patents Act

• The Trademarks Act

• The Geographical Indicators of Goods Act

• The Designs Act

Automatic Route allows Indian companies engaged in all industries except for certain select industries/sectors to issue shares to foreign investors up to 100% of their paid up capital in Indian companies.

Foreign investors have to, however, keep in mind that they may invest freely under the Automatic Route described above but where such investment does not conform to policies of Government of India, a specific approval from Government must be sought. For example, there are Government guidelines on location of industrial units, or there are certain items like explosives or liquor that need an industrial licence. If the Indian company does not conform to the locational guidelines or needs an Industrial licence then it cannot issue shares under the Automatic Route.

Automatic Route is also not available to those foreign investors who already have a financial or technical collaboration in the same or allied field or where more than 24% foreign investment is made in a company which is engaged in manufacture of an item reserved for small scale industry. Finally, Sri Lankan nationals and investors from Pakistan & Bangladesh need to apply to Government of India for investing in Indian companies.

If for any of the reasons mentioned above, the Indian company cannot issue shares to foreign investors under the Automatic Route, an application may be made to Secretariat for Industrial Assistance (SIA), Ministry of Commerce & Industry, Government of India, New Delhi.

It is important to note that the Automatic Route is only for issue of fresh shares by the Indian company. Transfer of existing shares from residents to non-residents needs approval from Government of India followed by an approval from Reserve Bank of India.

Non residents can sell shares on Stock Exchange without prior approval of RBI. They can approach a bank for repatriation of the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/Tax Clearance Certificate issued by Income Tax authorities.

A Foreign Venture Capital Investor registered with SEBI may make investment in a Venture Capital Fund for an Indian Venture Capital Undertaking, in the manner and subject to the terms and conditions specified in Schedule 6 of RBI Notification No.FEMA 20/2000-RB dated 3-5-2000.

• Foreign Venture Capital Investor is an investor incorporated and established outside India which proposes to make investment in Venture Capital Fund(s) or Venture Capital Undertaking(s) in India and is registered with SEBI under SEBI (Foreign Venture Capital Investors) Regulations, 2000.

• Indian Venture Capital Undertaking is a company incorporated in India whose shares are not listed on a recognized stock exchange in India and which is not engaged in an activity under the negative list specified by SEBI.

• Venture Capital Fund is a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capital raised in a manner specified under the said Regulations and which invests in Venture Capital Undertakings in accordance with the said Regulations.

• SEBI registered Venture Capital Investors are allowed to invest or disinvest at a price that is mutually acceptable to the buyer and the seller/issuer.