Thursday, June 30, 2011

ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST IMPORT OF capital goods/ machinery / equipments (including second-hand machineries),

 ISSUE OF EQUITY / PREFERENCE SHARES UNDER GOVERNMENT ROUTE OF FDI AGAINST IMPORT OF  capital goods/ machinery / equipments (including second-hand machineries),


1.As per Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time and in  terms of the Schedule 1 of the Notification, ibid, an Indian company may, under the automatic route, issue equity shares/ preference shares to a person resident outside India, being a provider of technology / technical know-how and against royalty / lumpsum fees due for payment subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

2. The extant guidelines for issue of equity shares/ preference shares under the Government route have been reviewed in consultation with the Government of India and, accordingly, it has been decided to permit issue of equity shares / preference shares under the Government route of the FDI scheme for the following categories of transactions:

(I) Import of capital goods/ machinery / equipments (including second-hand machineries), subject to compliance with the following conditions:
  1. The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export / Import Policy issued by the Government of India as notified by the Directorate General of Foreign Trade (DGFT) and the regulations issued under the Foreign Exchange Management Act (FEMA), 1999 relating to imports issued by the Reserve Bank;

  2. There is an independent valuation of the capital goods / machineries / equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents /certificates issued by the customs authorities towards assessment of the fair-value of such imports;

  3. The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity; and

  4. All such conversions of import payable for capital goods into FDI should be completed within 180 days from the date of shipment of goods.
Ref - 
A. P. (DIR Series) Circular No.74 dated 30 June 2011

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