FDI IN OIL & NATURAL GAS PROJECT WILL BE UNDER AUTOMATIC ROUTE

Foreign Investment in Oil And Natural Gas Projects

As per extant Foreign Direct Investment (FDI) policy, FDI, up to 100%, is permitted, under the automatic route, for exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product pipelines, natural gas/pipelines, LNG regasification infrastructure, market study and formulation and petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies. Extant FDI policy, therefore, does not envisage Government approval for bringing FDI into companies carrying on these activities.

Relaxation in Capitalization norms for subsidiaries of Foreign owned NBFCs

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).

Chapter 6 of Consolidated FDI Policy of the Government of India (effective from 10.04.2012) provides about the Sector Specific Conditions on FDI. Para. 6.1 enumerates the prohibited sectors for FDI and 6.2 states the permitted sectors for FDI. In terms of Para. 6.2.24 of the Government Policy, NBFCs are permitted to have 100% FDI under the Automatic Route subject to minimum capitalization norms.

Uptil now, 100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million could set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. In such cases the minimum capitalization condition did not apply.

The Department of Industrial Policy and Promotion has now reviewed their policy in this regard and have decided to permit NBFCs (i) having foreign investment above 75% and below 100% and (ii) with a minimum capitalisation of US$ 50 million, to set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital.

This means that the Indian investing company registered as NBFC and having minimum 75% and up to 100% FDI can now set up any number of step down subsidiaries with minimum capitalization of US$ 50 million.     Ref: Press Note No.9 (2012 Series) dated 03.10.2012 of DIPP

Now , Shares of an Indian company can be issued to subscribers to MOA (NRI ,PIO ,Foreign citizen) at Par -

Allotment of Shares to person resident outside India under Memorandum of Association (MoA) of an Indian company - Pricing guidelines- can be issued at Par value-

Attention of Authorised Dealers Category-I (AD Category - I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 (hereinafter referred to as Notification No. FEMA 20), as amended from time to time.

2. In terms of sub-regulation (1) of Regulation 5 of the Notification ibid, a person resident outside India or an entity incorporated outside India may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to compliance with the issue price specified in para 5 of Schedule 1 of the Notification ibid.

3. It has been decided that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.

Ref:

RBI/2012-13/223-A.P. (DIR Series) Circular No. 36 dated September 26, 2012

Establishment of Liaison , branch ,Project offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments under Government Approval Route henceforth

Establishment of Liaison , branch ,Project offices, in India by foreign Non-Government Organisations/Non-ProfitOrganisations/Foreign Government Bodies/Departments under Government Approval Route henceforth

 

In terms of Notification No FEMA 95/2000-RB dated July 02, 2003 general permission is granted to a foreign company to open project office in India provided it has secured from an Indian company, a contract to execute a project in India, and subject to satisfying certain other criteria.

It is clarified that permission to establish offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments, by whatever name called, are under the Government Route as specified in A. P. (DIR Series) Circular No. 23 dated December 30, 2009. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise.

Ref-

RBI/2012-13/211- A. P. (DIR Series) Circular No. 31 dated September 17, 2012

 

If the activities of the LO not restricted to purchase of goods in India for the purpose of export, then, the Liaison Office (LO) of non-resident taxpayer would qualify as business connection PE in India for tax purpose.

If the activities of the LO not restricted to purchase of goods in India for the purpose of export, then, the Liaison Office (LO) of non-resident taxpayer would qualify as business connection PE in India for tax purpose.

The Case law - Columbia Sportswear Company Vs. DIT (International Taxation), Bangalore – (Advance Ruling Authority) –

The Liaison Office of appellant was carrying out various activities such as ensuring the choice of quality material, occasional quality testing, conveying of requisite design, picking out competitive sellers, etc, in addition to the activities relating to the purchase of goods. . Moreover, the Liaison Office assisted the business of the applicant in Bangladesh and Egypt from India. It will be unrealistic that all the activities other than the actual sale of the goods are not integral part of the business of the applicant and have no role in the profit being made by the applicant on the sale of its branded products. Further, all its profits cannot be said to have accrued outside India since the sales are made outside India. Considering the nature of the activities carried by the Liaison Office in India, and that the activities supported the business in Egypt and Bangladesh, the operations of the applicant in India cannot be said to be confined to the purchase of goods only in India for the purpose of export. Hence the purchase/ sourcing exemption under the Income-Tax Act is not available to the applicant.

The Liaison Office constitutes a fixed place PE of the applicant in India under Article 5(1) of the DTAA, since the applicant was carrying at least a part of its business through such office (except the selling activity). With respect to the PE exclusion clause under Article 5(3)(d) of the DTAA, it was held that this exclusion is not applicable since the activities of the Liaison Office are not limited only to purchase of goods or merchandise or for collection of information for the enterprise. Further, as the Liaison Office is engaged in conducting a substantial part of the business of the applicant, its activities cannot be classified as preparatory or auxiliary as understood under the exclusionary clause 3(e) of Article 5 of the DTAA.

Accordingly, the applicant shall be taxable in India but only in respect of the income which can be attributed to the operations carried out by the Liaison Office in India

Repayment period for Trade Credits for Import into India now extended up to 5 years

 As per A.P. (DIR Series) Circular No. 87 dated April 17, 2004 and A.P. (DIR Series) Circular No. 24 dated November 01, 2004. , for import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction.

3. On a review, it has been decided to allow companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB) to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions: -

(i) the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and

(ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.

4. The all-in-cost ceilings of trade credit will be as under:

Maturity period	All-in-cost ceilings over 6 months LIBOR*
Up to one year	350 basis points
More than one year and up to three years
More than three years and up to five years
* for the respective currency of credit or applicable benchmark

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

Ref-RBI/2012-13/202-A.P. (DIR Series) Circular No. 28 dated September 11, 2012

 

External Commercial Borrowings through Bridge Finance for Infrastructure companies henceforth will be under Automatic Route

Indian companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB), have been allowed to import capital goods by availing of short term credit (including buyers’ / suppliers’ credit) in the nature of 'bridge finance', under the approval route, subject to the following conditions:-
(i) the bridge finance shall be replaced with a long term ECB;

(ii) the long term ECB shall comply with all the extant ECB norms; and

(iii) prior approval shall be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.

3. On a review, it has been decided to allow refinancing of such bridge finance (if in the nature of buyers’/suppliers’ credit) availed of, with an ECB under the automatic route subject to the following conditions:-

(i) the buyers’/suppliers’ credit is refinanced through an ECB before the maximum permissible period of trade credit;

(ii) the AD evidences the import of capital goods by verifying the Bill of Entry;

(iii) the buyers’/suppliers’ credit availed of is compliant with the extant guidelines on trade credit and the goods imported conform to the DGFT policy on imports; and

(iv) the proposed ECB is compliant with all the other extant guidelines relating to availment of ECB.

4. The borrowers will, therefore, approach the Reserve Bank under the approval route only at the time of availing of bridge finance which will be examined subject to conditions mentioned in para 2(i) and (ii).

Ref:-RBI/2012-13/201-A.P. (DIR Series) Circular No. 27 dated September 11, 2012

 

VARIOUS MASTER CIRCULARS ISSUED BY RBI UNDER FEMA - AN UPDATE

Dear Professional Colleagues,

RBI , today , updated various master circulars and the details of the same are given below . Please click the respective link to have more idea on the subject .

1. Master Circular on Direct Investment by Residents in Joint Venture (JV) /

Wholly Owned Subsidiary (WOS) Abroad

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MC1072011.pdf
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2. Master Circular on Export of Goods and Services

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/14ME010212FS.pdf

3.Master Circular on External Commercial Borrowings and Trade Credits

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/12EC010712EF.pdf

4.Master Circular on Direct Investment by Residents in Joint Venture (JV)/ Wholly Owned Subsidiary (WOS) Abroad

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/11MD010712IFL.pdf

5.Master Circular on Miscellaneous Remittances from India – Facilities for Residents

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/06MR010712F.pdf

6.Master Circular on Import of Goods and Services

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/13IGSM020712.pdf

7.Master Circular on Compounding of Contraventions under FEMA, 1999

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/09MC062812FC.pdf

8.Master Circular on Remittance Facilities for Non-Resident Indians /
Persons of Indian Origin / Foreign Nationals

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/08MCEF02072012.pdf

9.Master Circular on Establishment of Liaison / Branch / Project Offices in India by Foreign Entities

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/07MCEL02072012.pdf

10.Master Circular on Acquisition and Transfer of Immovable Property in India by NRIs/PIOs/Foreign Nationals of Non-Indian Origin

http://rbidocs.rbi.org.in/rdocs/notification/PDFs/MC04AT28062012.pdf

Foreign Investment in India - Recent Amendments under Sector Specific conditions under FEMA

Dear All,

Foreign Investment in India -Recent Amendments to
Sector Specific conditions under FEMA

RBI has recently made some amendments in sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please visit the following link to know more about the sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please click the following link for more details:

http://rbidocs.rbi.org.in/rdocs/content/pdfs/CAPFISS280612_1.pdf

“Set-off” of export receivables against import payables-

“Set-off” of export receivables against import payables-
Liberalization of Procedure- now under automatic route

Attention of Authorized Dealer Category – I (AD Category – I) banks is invited to the fact that the requests received from the exporters through their AD branches for set-off of export receivables against import payables are considered by the Reserve Bank of India. As a measure of further liberalization, it has been decided to delegate power to AD Category – I banks to deal with the cases of “set-off” of export receivables against import payables, subject to following terms and conditions:
a) The import is as per the Foreign Trade Policy in force.

b) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

c) Payment for the import is still outstanding in the books of the importer.

d) Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.

e) The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.

f) The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.

g) The export / import transactions with ACU countries should be kept outside the arrangement.
h) All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

Ref - A.P. (DIR Series) Circular No. 47 dated November 17, 2011

For more clarification and details  , please contact rvsekar2007@gmail.com or 09848915177