FEMA requires observation of its provisions in letter and spirit and if any contravention may land in penalties on the erring company and individuals. There are various conditions and stipulations in case of FDI , ODI , investment by individuals in foreign shares , purchase of assets in foreign countries , extending guarantees , availing ECBs , supplier's credit . In this column , I will discuss all intricacies and complications involving the interpretation of FEMA Act provisions in detail.
Tuesday, March 22, 2011
ADVANCING LOAN BY INDIAN PARENT COMPANY TO ITS FOREIGN WOS/ OVERSEAS JV
As per recent RBI master circular , an Indian company can make loan to foreign company Loan and guarantee can be extended to an overseas entity only if there is already existing equity participation by way of direct investment, within the overall ceiling of 100% of the Indian party's net worth as on the date of the last audited balance sheet.
The loan will fall under the term Financial commitment means the amount of direct investment outside India by way of contribution to equity, loans and 100% of the amount of guarantee issued by an Indian Party to or on behalf of its overseas JV/WOS ( the amount and period of the guarantee should be specified upfront).
The above ceiling 100% will include contribution to the capital of the overseas JV / WOS, loan granted to the JV / WOS and 100 per cent of guarantees issued to or on behalf of the JV/WOS.
The Indian party / entity may extend loan / guarantee only to an overseas concern in which it has equity participation.
AD Category – I banks should allow remittance towards loan to the JV / WOS and / or issue guarantee to / on behalf of the JV / WOS abroad only after ensuring that the Indian party has an equity stake in the JV / WOS.
You have to report by way of ODI form through online to RBI . The physical copy has to be given to your authorised dealer and he will file it the same through online.