Important FEMA Provisions

Investments by Non-Residents in Immovable Properties in India (accordion component for below data)

Provisions of FEMA

• Section 6(3)-rbi to frame reg.
• To prohibit, restrict, regulate acquisition or transfer of imm.property in India.
• Other than lease not exceeding 5 years.
• Notification no fema 21 dt 3 may 2000.

Investment in Immovable Property

• Except under the act/reg acquisition or transfer of imm.property in India by persons resident outside India (including Indian citizens resident outside India) requires prior approval of RBI.
• Imm.property in India by person’s resident outside India (including Indian citizens’ resident outside India) requires prior approval of RBI.

Investment in Immovable Property

• Indian citizen’s residents outside India.
• Persons of Indian origin (PIO).
• Foreign citizens of non-Indian origin.

Investment in Immovable Property

• Acquisition of prop other than agri/plantation/farmhouse by NRI/PIO by way of purchase, gift, inheritance, court-settlement, etc. (reg.3-fema21).
• Purchase from resident out of funds received through inward remittance or NR ACS, gift from NRI/PIO/resident or inheritance from a resident or bonafide NR holder [reg 4 (a) , (b) & (c).]
• Transfer of imm.property (other than agri/plantation/farm house) by NRI to another NRI or PIO.
• To a citizen of India residing in India.
• Transfer by PIO by way of sale to resident (other than agri/plantation/farmhouse).
• Transfer by PIO by gift or sale to resident who is citizen of India.
• Acquisition of imm.property (other than agri/plantation/farmhouse) by persons outside India who are permitted to carry on business activity in India by RBI (branch/office of foreign companies).
• To report to RBI in form IPI within 90 days of such acquisition.

Acquisition/transfer by foreign citizens of non-Indian origin by

• Foreign citizens of non-Indian origin who are treated as resident in India in t/o sec.2(v) of fema 1999 are permitted (other than agri/plant/farm house).
• However, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan whether residing in India or not are prohibited.
• All other purchase/ sale/ transfer of imm.property requires approval from RBI/Government of India in some cases.

Entry Strategies for Foreign Investors

As Foreign Company

• RBI's prior approval required for setting up liaison/branch office (fema notification no 22 dated 03/05/2000).
• Required to comply with Indian Companies Act, 1956.
• To register with registrar of companies within 30 days of setting up a place of business.

Liaison Office (LO)

• Cannot undertake any commercial/business activity.
• Not allowed to generate any income in India.
• Only liaison activities permitted.
• Communication channel between parent and clients in India.
• All expenses to be met out of inward remittances from ho abroad.
• To file annual activity certificate from a chartered accountant to RBI (RO).
• Application to RBI ECD central office.

Branch Offices (BO)

• Government allows foreign companies engaged in manufacturing and trading activities to set up branches.
• No direct manufacturing allowed.
• Activities defined clearly.
• Fema 22/reg 5/annexure.
• Prior approval from RBI required.
• RBI gives approval on a case by case basis.
• Financial soundness, trade links with India of the parent company and proposed activities of the BO considered.
• Treated as residents.
• Annual certificate on activities and accounts to be submitted from a chartered accountant.
• Remittance of annual profits allowed through authorised dealers subject to submission of certain documents.

Project Offices (PO)

• Foreign cos awarded projects by Indian corporates.
• Projects approved by appropriate authorities.
• Financed by Indian banks/financial institutions/multilateral/bilateral international financial institutions.
• Application to concerned regional office of RBI.
• Other connected permissions for opening of accounts, etc., given by RBI with the approval.
• Subject to conditions applicable as per contract/approval of the project.

Premises for LO/BO

• Liaison offices are not permitted to acquire any immovable properties for carrying on their activities.
• Can take on lease for periods not exceeding five years for office premises.
• Branch offices allowed to acquire property for their office purposes.
• Required to report such acquisition to RBI in form IPI within 90 days.
• Regulation 5 of fema 22 -general permission.
• All approvals for LO/BO/PO under fema and subject to necessary approvals being obtained from appropriate authorities under other applicable laws/acts.
• They should abide by the laws of the land.

As an Indian Company

• Through incorporation of a company under Indian Companies Act, 1956.
• Investment can be up to 100% depending on:
• Business plan of investor
• Investment policy of Government of India
• Receipt of requisite approvals
• To be registered with register of companies (roc) under Indian Companies Act, 1956.
• Once registered, Indian laws apply as other domestic companies.

Joint Ventures-Advantages

• Established distribution/marketing set up of the Indian partners.
• Available financial resource of the Indian partner.
• Established contacts of the Indian partner which help smoothen the process of setting up of operations.

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Foreign Technology Agreements

• Either through automatic route or under delegated powers exercised by RBI or by Government of India.
• Not available to foreign companies having/had technology arrangement/previous venture/tie up/trade mark agreement, etc. in the same or allied field.
• Not available for small scale industries (SSI) units/activities requiring industrial licensing.

Foreign Technical Collaboration

• For remittance of FX on account of ftc section 5 of fema applies.
• Treated as current account transactions.
• Certain limits restrictions apply.
• Government of India notification no.gsr.381(e) dt 3 may 2000.
• Authorised dealers may permit remittances of royalties/technical know-how fees on account of collaboration agreements.
• Subject to conditions and ceilings prescribed under the relevant schedule to section 5 of fema.
• Agreements required to be registered with concerned regional office of RBI.
• RBI registers the agreements and grants approval for necessary remittances.
• Tech collaboration agreements require RBI's approval under auto route.
• Applications to be submitted on plain paper (five copies) furnishing all required details to the concerned RO of RBI.
• Proposals not coming under auto route to be submitted to Government of India (SIA, DIPP, MOC&i and Udyog Bhavan, New Delhi).

Linkages/Contacts

• Policy-government of India (Government of India), ministry of commerce and industry (MOC&i), foreign investment promotion board (FIPB)/SIA.
• Reserve bank of India, exchange control department(ECD), foreign investment division, central office, regional offices of ECD.
• Manual on industrial policy and procedures available on Government web site:
  https://www.fastmarkets.com/industrial-minerals-is-part-of-fastmarkets
• RBI web site: https://rbi.org.in/scripts/Fema.aspx
• Fipb matters-contact director,fc/fdi/fipb.
• E-mail :srinivas@ub.nic.in