LIBERALISATION OF FDI IN SINGLE-RETAIL , MULTI-BRAND RETAIL , CIVIL AVIATION, POWER EXCHANGES , BROADCASTINGS

UPTO 1OO% FDI IS ALLOWED UNDER SINGLE-BRAND RETAIL TRADING

UPTO 51% FDI IS ALLOWED UNDER MULTI-BRAND RETAIL TRADING

UPTO 49% FDI IS ALLOWED IN  CIVIL AVIAITION

UPTO 49% FDI IS ALLOWED   in Power Exchanges

UPTO 49% FDI IS ALLOWED IN  BROADCASTING CARRIAGE SERVICES UNDER AUTOMATIC ROUTE AND FROM 49% TO 74% UNDER GOVERNMENT APPROVAL ROUTE

Liberalisation under FEMA is now announced by the Govement

a) FDI up to 100 per cent is now permitted in Single–Brand Product Retail Trading by only one non-resident entity, whether owner of the brand or otherwise, under the Government route subject to the terms and conditions as stipulated in Press Note No. 4 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

b) FDI up to 51 per cent is now permitted in Multi-Brand Retail Trading under the Government route, subject to the terms and conditions as stipulated in Press Note No. 5 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

c) Foreign airlines are permitted FDI up to 49% in the capital of Indian companies in Civil Aviation Sector, operating scheduled and non-scheduled air transport, under the automatic/Government route subject to the terms and conditions as stipulated in Press Note No. 6 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

d) FDI limits in companies engaged in providing Broadcasting Carriage Services under the automatic/Government route have been reviewed and the same would be subject to the terms and conditions as stipulated in Press Note No. 7 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

e) FDI up to 49% is permitted in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010, under the Government route, subject to the terms and conditions as stipulated in Press Note No. 8 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

 

Ref: RBI/2012-13/217 -A. P. (DIR Series) Circular No. 32 dated September 21, 2012

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

NEW REPORTING FORMALITIES FOR Establishment of Liaison Offices (LO) /Branch Offices (BO) / Project Offices

Establishment of Liaison Offices (LO) /Branch Offices (BO) / Project Offices (PO) in India by Foreign Entities – Reporting requirement

 

 

All the new entities setting up LO/BO/PO shall henceforth file :

1. submit a report containing information as per Annex within five working days of the LO/BO/PO becoming functional to the DGP of the state concerned in which LO/BO/PO has established its office; if there are more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India;
2. a copy of the report as per Annex shall also be filed with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate/Annual report required to be submitted by LO/BO/PO concerned, as the case may be.
3. A copy of report thus filed as above shall also be filed with AD by LO/BO/PO concerned.

 The existing LO/BO/PO shall henceforth report the information as per Annex along with the copy of Annual Activity Certificate/Annual report to DGP of state concerned and also file a copy of the same with AD bank.

 

 

 

Ref _ RBI/2012-13/222-A. P. (DIR Series) Circular No. 35 dated September 25, 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

Indian Government has opened the gates for FDI in Multi-brand retail but state governments to decide whether to allow FDI or not in their State

Indian Government has opened the gates for FDI in Multi-brand retail but state governments to decide whether to allow FDI or not in their State

In a huge signal that it is shrugging off its policy paralysis, the government has pushed through the move to allow foreign direct investment in multi-brand retail.

Overriding huge opposition from allies like Mamata Banerjee and friendly parties like Mulayam Singh Yadav, the government, in a surprise move, has opened its retail sector to foreign supermarkets. This will allow global retail giants like WalMart to set up deep-discount stores in India. The decision is bound to create a much bigger political storm than what the hike in diesel prices has.

Importantly - and the government has underscored this provision - the policy allows state governments to decide whether to allow FDI in multi-brand retail or not. So, the government says, if opposition parties don't want the FDI, they can make that choice.

Multinational retailers like WalMart, Carrefour of France and Metro of Germany already have stores, but they are not allowed to sell to walk-in customers. They deal with smaller retailers, like the family-run shops in most localilities. The government had last year cleared 51 per cent FDI in multi-brand retailers for cities with populations of more than a million. But it had to rollback that decision after huge protests led by allies of the UPA government and the opposition, broke out across the country.

The decision set off fears that multinational giants will put small retailers and local shops that service households will be wiped out. Those in favour of FDI say that this unlikely since local mom-and-pop shops give personalised services like home delivery that these huge deep-discount stores won't. They also say that most of these stores, because of their size will be far fewer that local establishments.

FDI in multi-brand retail has many pre-conditions, though. The minimum FDI limit has been set at $100 million. Half of any investment has to made in infrastructure like cold-storage chains and warehouses. This is designed to help the agricultural sector and India has a severe shortage of these.
The most problematic condition, from the point of view of investors, wil be that at least 30 per cent of the good to be sold will have to sourced from local producers. Analysts say that MNCs might have a problem of quality control and supply.

FDI is single-brand retail is permitted, but that too with several conditions, including the 30 per cent local procurement. Household goods giant IKEA of Sweden wants to invest more than Rs. 10,000 crore to set up stores, but wants this rule to be relaxed. There is split within the government over this.

The government argues that FDI in multi-brand will give consumers the best deals possible on goods and also get it much-needed money.

It also says that farming sector will get a boost, since big retailers will not only source directly from them, cutting out middlemen, but also invest in cold-storages and other technology that India lacks. Those opposed to FDI in multi-brand retail say that it will be exactly the opposite: MNCs will control prices and squeeze the producers.

These MNCs are also expected to generate jobs in the areas where they set up stores as well as along the procurement chain. The government sees this as a big advantage

Courtesy : NDTV

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

 

Repayment of Rupee loans and/or fresh Rupee capital expenditure by Availing External Commercial Borrowings (ECB)

External Commercial Borrowings (ECB) Policy – Repayment of Rupee loans and/or fresh Rupee capital expenditure – USD 10 billion scheme

 

 

Earlier under A.P. (DIR Series) Circular No. 134 dated June 25, 2012, RBI

 allowed  Indian companies to avail of ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure, under the approval route, subject to them satisfying the following conditions:-

1. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;
2. Such companies shall be a consistent foreign exchange earner during the past three financial years;
3. Such companies are not in the default list/caution list of the Reserve Bank of India; and
4. Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for 'capital expenditure' incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure

Cap on ECB that can be availed of by an individual company under the scheme is limited to 50 per cent of the average annual export earnings realised during the past three financial years.

3. On a review, it has been decided:

(a) to enhance the maximum permissible limit of ECB that can be availed of to 75 per cent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher;

(b) in case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realized during the past financial year; and

(c) The maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion.

Ref- RBI circular -RBI/2012-13/200-A.P. (DIR Series) Circular No. 26
dated September 11, 201

Overseas Investment by Indian Parties in Pakistan under Approval Route

Attention of the Authorised Dealer (AD - Category I) banks is invited to the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time.

2. In terms of Regulation 6 (2) of the Notification ibid, “Notwithstanding anything contained in these Regulations, investment in Pakistan shall not be permitted.” It has now been decided that the overseas direct investment by Indian Parties in Pakistan shall henceforth be considered under the approval route under Regulation 9 of the Notification, ibid.

3. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security), Regulations, 2004 are being issued separately.

Ref- RBI/2012-13/198-A. P. (DIR Series) Circular No. 25 dated September 7, 2012

 

Foreign investment by Qualified Foreign Investors (QFIs) – Hedging facilities

Foreign investment by Qualified Foreign Investors (QFIs) – Hedging facilities

Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No. FEMA/25/RB-2000 dated May 3, 2000] and A.P. (DIR Series) Circular No.32 dated December 28, 2010, as amended from time to time.

2. In terms of A.P. (DIR Series) Circular No.8 dated August 9, 2011, A.P. (DIR Series) Circular No. 42 dated November 3, 2011, A.P. (DIR Series) Circular No. 66 dated January 13, 2012 and A.P. (DIR Series) Circular No. 89 dated March 1, 2012, Qualified Foreign Investors (QFI) are allowed to invest in rupee denominated units of domestic Mutual Funds and listed equity shares and allowing SEBI registered FIIs to invest in to be listed debt securities subject to the terms and conditions mentioned therein.

Further, in terms of A.P. (DIR Series) Circular No. 7 dated July 16, 2012, Qualified Foreign Investors (QFIs) have been permitted to purchase on repatriation basis debt securities subject to the various terms and conditions. As per para 2(x) of the circular, QFIs would be permitted to hedge their currency risk on account of their permissible investments (in equity and debt instruments) in terms of the guidelines issued by the Reserve Bank from time to time.

3. It has now been decided to allow QFIs to hedge their currency risk on account of their permissible investments (in equity and debt instruments), as per the details given in the Annex.

4. Necessary amendments to the Notification No. FEMA.25/RB-2000 dated May 3, 2000 [Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000] are being notified separately.

5. AD Category - I banks may bring the contents of this circular to the notice of their constituents .

Ref- RBI/2012-13/185-A. P. (DIR Series) Circular No. 21 dated 31st August 2012