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Since then, the Government has been steadily liberalizing various aspects
of the policy to attract increased foreign investment.
Following other factors are also driving investments into India: European countries debt problems Political unrest in Middle East and North Africa Nuclear disaster in Japan Downgrading of US economy
*OECD International direct investment database, Eurostat, IMF.
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
BRIC countries expected to be bigger than the US by 2018. FDI into India went up from USD 4,029 million in 2000-2001 to USD
27,024 million in 2010-2011 and is USD 3,121 million for the month of April 2011.**
Percentage share of top three investing countries (for Equity inflow only)
in India.** Country Mauritius Singapore USA
*OECD International direct investment database, Eurostat, IMF. ** Department of Industrial Policy & Promotion, Ministry of Commerce and Industry (India FDI Fact Sheet , April 2011)
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
Percentage 42 10 7
Pre 1991
1991
1997
2000
Post 2000
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2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
DIPP earlier regulated FDI through Press Notes Consolidated FDI policy a recent publication Consolidation
clarifications of all press notes/ press releases/
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
Prior Approval Generally, applicable in following cases: - Certain cases where FDI is regulated - E.g. Single Brand Retailing Sector with FDI permissible upto 51%, Defence sector with FDI permissible upto 26% subject to licensing etc. Applications processed by FIPB
Negative List FDI not allowed in certain sensitive sectors e.g.: Retail trading (except Single Brand Product retailing) Atomic energy Lottery business Gambling and betting sector
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
Liaison office Prior Approval of RBI required. No commercial or business activities permitted. Only liaison, representation, communication role is permitted.
Branch office Prior Approval of RBI required. Activities listed/ permitted by RBI can only be undertaken.
Project Office Prior Approval of RBI not required if certain conditions are fulfilled. Permitted if a foreign company has a secured contract from an Indian company to execute a project in India.
Company Automatic Approval in certain sectors/ activities. Approval required from Government/ FIPB for other sectors. All activities mentioned in Memorandum of Association permitted subject to FDI guidelines.
Limited Liability Partnership FDI in Limited Liability Partnership permitted by amendment in FDI Policy on 20 May 2011 Prior approval of FIPB required.
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
Remittance
Approving authority
RBI
Illustrations
Investment in regulated sectors Investment into a partnership firm, proprietorship concern or trust Investment in immovable property Remittance outside India of capital assets in India Taking overseas loans/ overdrafts Issuing guarantees Maintaining deposits/ foreign currency account
Dividend payments Payments of royalty & technical collaboration fee Payment of management fee/ technical services fee/ consultancy services upto prescribed limits Payment of pre-incorporation expenses subject to prescribed limits Remittance towards purchase of trademark/ franchise Reimbursement of expenses/ head office allocations
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Foreign Investor
Abroad Abroad
Foreign Investor
India
Mauritius
India
Indian Company
Indian Company
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IHC
Mauritius/ Singapore
Capital Gains
Sale Consideration Less: Cost of acquisition Capital Gains Less: Income Tax Gains after tax Tax Outflow
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
Particulars`
Singapore
Mauritius
Not regarded as a tax haven Benefits under the treaty are available subject to satisfaction of certain conditions which include - carrying of business operations; and total annual expenditure to be SGD 200,000 (in a period of 24 months preceding the date of sale of shares) Taxable only in Singapore provided substance requirements are met (available only till capital gains exemption benefit is available under India-Mauritius Tax treaty). No withholding tax on dividends and capital gains. Withholding tax on interest @ 15%
Recent denial of India-Mauritius treaty benefits over lacking substance despite residency certificate India-Mauritius Treaty under scrutiny Possibility of re-negotiation for preventing tax evasion
No withholding tax on dividends and capital gains. Withholding tax on interest @ 21.01% (for foreign currency denominated debt) / 42.02% (for non-foreign currency debt, Indian rupee)
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2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
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Funding Options
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
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Regulatory approvals
Automatic route available subject to guidelines prescribed for ECB Eligible borrowers Corporates; SEZ Units; etc. Recognized lenders International Capital Markets; certain FIs; Export credit agencies; Suppliers of equipment; Foreign collaborators; Foreign equity holders etc (Foreign equity holder can provide ECB if minimum paid up equity of 25% is held directly in the Indian company) End use restrictions are there. Permitted:- Investment in real sectors - Industrial sector, Infrastructure sector and specified service sectors namely, hotels, hospitals and software. Not permitted:- Real Estate sector; working capital; general corporate purpose; repayment of existing loans, etc.
No cap
USD 500 million in a financial year under the automatic route. Additional ECB upto 250 million under approval route N.A
Fair valuation by SEBI registered Category-I Merchant Banker or Chartered Accountant as per Discounted Cash Flow (DCF) method. No deduction of dividend for tax purposes
Expense Deduction
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Repatriation options
Repatriation options
Alternative options for repatriation of profits/ capital include: Dividend; Buy back of shares; Royalty; and Consulting fee, etc.
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
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Amount payable to shareholders restricted to 25% of (paid-up share capital + free reserves) 25% of equity share capital permitted to be repurchased in a financial year Buyback- Only possible from free reserves, share premium and funds received from fresh issue of shares Post repurchase, debt equity ratio not to exceed 2:1 Lock in period of 6 months for fresh issue of same class of shares Transfer from Resident to Non-Resident subject to RBI pricing guidelines like in case of Non-listed shares, transfer shall be at a price not less than the fair value arrived as per DCF Method (valuation to be carried our by Category I Merchant Banker or a Chartered Accountant)
Transfer from Non-Resident to Resident also subject to RBI pricing guidelines wherein transfer shall be at a price not more than the fair value arrived as per DCF Method (valuation to be carried our by Category I Merchant Banker or a Chartered Accountant)
2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
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No prescribed fixed rate of dividends on equity shares - Flexibility to issue equity shares with differential dividends and voting rights, in case of a private limited company
Dividend income is exempt in the hands of shareholders - Company is required to pay DDT @ 16.2225% Dividend on shares not deductible as business expenditure for tax purposes. Only post tax profit can be repatriated by way of dividends. Mandatory transfer of profits to Reserves in case of dividends on equity shares (not required in case of dividend on preference shares)
Royalty
Royalty payments were earlier subject to certain regulatory restrictions. Liberalized policy now permits all payments for royalty, lump-sum fee for transfer of technology and payments for use of trademark/brand name under the automatic route without any regulatory restrictions
Consulting Fee
Transactions should conform with arms length principle from a Transfer Pricing perspective Payments shall be subject to tax in India at prescribed tax rate. Consulting fee is subject to an upper limit of USD 1 million per project. Accordingly, repatriation, subject to a limit of USD 1 million per project, can be made.
Transactions should conform with arms length principle from a Transfer Pricing perspective Payments shall be subject to tax in India at prescribed tax rate.
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2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved
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