FAQ's

What are the statutory basis for foreign investment in India?
The foreign investment in India is governed by the provisions of Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulation, 2000. Reserve Bank of India has issued Notification No. FEMA.20/2000-RB dated 3rd May 2000 as amended from time to time.

What are the classes of Investors who come to India for the purpose of investment?
Generally following four categories of investors come to India for the purpose of Investments

What is Automatic Route of foreign investment in India?
Foreign Direct Investment (FDI) up to 100% ( See Table 30 where sectoral caps are indicated against each industry) is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government :

FDI in sectors/activities to the extent permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue-or shares to foreign investors.

Whether any reporting system is to be observed after investments?
Yes: A two-stage reporting procedure has been introduced for this purpose. On receipt of money for investment: Within 30 days of receipt of money from the foreign investor, the Indian company will report to the Regional Office of RBI under whose jurisdiction its Registered Office is located, a report containing details such as: Name and address of the foreign investors Date of receipt of funds and their rupee equivalent Name and address of the authorised dealer through whom the funds have been received, and Details of the Government approval, if any; On issue of shares to foreign investor: Within 30 days from the date of issue of shares, a report in Form FC-GPR together with the following documents should be filed with the Regional Office of RBI: Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that All the requirements of the Companies Act, 1956 have been complied with; Terms and conditions of the Government approval, if any, have been complied with; The company is eligible to issue shares under these Regulations; and The company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration; Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.

What are the guidelines for transfer of existing shares from residents to non-residents or non-residents to residents?
Reserve Bank has given general permission to transfer the shares [Please refer details of the scheme in A.P.(DIR Series) Circular No.16 dated 4th October, 2004].

Can a foreign investor puts his money in an unlisted shares issued by a company in India?
As per the regulations/guidelines issued by RBI/Government of India, investment can be made in unlisted shares of Indian companies.

Can a foreigner set up a partnership/proprietorship concern in India?
No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concern in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.

What should be done, if Automatic Route of RBI for technology transfer is not available?
Proposals which do not satisfy the parameters prescribed for automatic route of RBI, require clearance from Ministry of Commerce, Department of Industrial Policy and Promotion, Government of India.

What is the procedure for setting up Branch office?
Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the following purposes:

A branch office is not allowed to carry out manufacturing, processing activities directly/indirectly. A Branch Office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate from a Chartered Accountant on an annual basis to the Central Office of FED. For annual remittance of profit Branch Office may submit required documents to an authorised dealer.

What is the procedure for opening the Branch/Liaison office in India by a foreign company?
Foreign company has to obtain the prior permission of Reserve Bank. For this purpose a foreign company should apply in Form FNC.l to the Central Office of Reserve Bank of India located in Mumbai.

Whether permission is also required to open a project office in India.
No. Reserve Bank has given general permission provided-

However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank of India at Mumbai for approval.

What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office/Representative Office?
A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such offices is, therefore, limited to collecting information about possible market opportunities and providing information about the company and its products to the prospective Indian customers.
The companies desirous of opening a liaison office in India may make an application in form FNC-l along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.
Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up. Liaison/representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the-concerned Regional Office of the RBI, stating that the Liaison Office has undertaken only those activities permitted by RBI.