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Important FEMA Provisions

Investments by Non-Residents in Immovable Properties in India

Provisions of FEMA
  • Section 6(3)-rbi to frame reg
  • To prohibit,restrict,regulate acquisition or transfer of imm.propy in india
  • Other than lease not exceeding 5 years.
  • Notification no fema 21 dt 3 may 2000.
Investment in Immovable Property
  • Except under the act/reg acquisition or transfer of imm.prop in india by persons resident outside india (including indian citizens resident outside india) requires prior approval of rbi.
  • Imm.prop in india by persons resident outside india (including indian citizens resident outside india) requires prior approval of rbi.
Investment in Immovable Property
  • Indian citizens residents outside india.
  • Persons of indian origin(pio).
  • Residents outside india carrying on permitted activity in indiA.
  • Foreign citizens of non-indian origin.
Investment in Immovable Property
  • Acquisition of prop other than agri/plantation/farmhouse by nri/pio by way of purchase, gift, inheritancecourtsettlement etc (reg.3-fema21).
  • Purchase from resd out of funds recd thro inward remtt or nr acs,gift from nri/pio/resd or inheritance from a resd or bonafide nr holder (reg 4(a),(b)& c).
  • Transfer of imm.Prop (other than agri/plant/farm house) by nri to another nri or pio.
  • To a citizen of india residing in India.
  • Transfer by pio by way of sale to resident(other than agri/plant/farmhouse).
  • Transfer by pio by gift or sale to resd who is citizen of India.
  • Acquisition of imm.Prop(other than agri/plant/farmhouse) by persons outside india who are permitted to carry on business activity in india by rbi (branch /office of foreign companies).
  • To report to rbi in form ipi within 90 days of such acqisition.
Acquisition /transfer by foreign citizens of non-indian origin by
  • Foreign citizens of non-indian originwho are treated as resident in india in t/o sec.2(v) of fema 1999 are permitted (other than agri/plant/farm house).
  • However citizens of pakistan, bangladesh, srilanka, afghanistan, china, iran, nepal or bhutan whether resd in india or not are prohibited.
  • All other purchase /sale /transfer of imm.prop requires approval from rbi/goi in some cases.

Entry Strategies for Foreign Investors

As Foreign Company
  • Rbi 's prior approval required for setting up liaison/branch office (fema notification no 22 dt 3.5.2000)
  • Required to comply with indian companies act,1956
  • To register with registrar of companies with in 30 days of setting up a place of business.
Liaison Office (LO)
  • Can not undertake any commercial/business activity
  • Not allowed to generate any income in india
  • Only liaison activities permitted
  • Communication channel between parent and clients in india
  • All expenses to be met out of inward remittences from ho abroad
  • To file annual activity certificate from a chartered accountant to rbi (ro)
  • Application to rbi ecd central office
Branch Offices (BO)
  • Govt allows foreign companies engaged in maufacturing and trading activities to set up branches.
  • No direct manufacturing allowed.
  • Activities defined clearly.
  • Fema 22/reg 5/annexure.
  • Prior approval from rbi required.
  • Rbi gives approval on a case by case basis.
  • Financial soundness,trade links with india of the parent company and proposed activities of the bo considered.
  • Treated as residents.
  • Annual certificate on activities and accounts to be submitted from a chartered accountant.
  • Remittence of annual profits allowed through authorised dealers subject to submission of certain documents.
Project Offices (PO)
  • Foreign cos awarded projects by indian corporates.
  • Projects approved by appropriate authorities.
  • Financed by indian banks/financial institutions/ multilateral/ bilateral international financial institutions.
  • Application to concerned regional office of rbi.
  • Other connected permissions for opening of accounts etc given by rbi with the approval.
  • Subject to conditions applicable as per contract/approval of the project.
Premises for LO/BO
  • FLiaison offices are not permitted to acquire any immovable properties for carrying on their activities.
  • Can take on lease for periods not exceeding five years for office premises.
  • Branch offices allowed to acquire property for their office purposes.
  • Required to report such acquisition to rbi in form ipi within 90 days.
  • Regulation 5 of fema 22 -general permission.
  • All approvals for lo/bo/po under fema and subject to necessary approvals being obtained from appropriate authorities under other applicable laws/acts.
  • They should abide by the laws of the land.
As an Indian Company
  • Through incorporation of a company under indian companies act,1956.
  • Investment can be upto 100% depending on:
    • Business plan of investor
    • Investment policy of goi
    • Receipt of requisite approvals
  • To be registered with registor of companies(roc) under indian companies act, 1956.
  • Once registered,indian laws apply as other domestic companies.
Joint Ventures-Advantages
  • Established distribution/ marketing set up of the indian partners.
  • Available financial resource of the indian partner.
  • Established contacts of the indian partner which help smoothen the process of setting up of operations.
Foreign Technology Agreements
  • Either through automatic route or.
  • Under delegated powers exercised by rbi or
  • By GOI.
  • Not available to fgn companies having /had technology arrangement/previous venture/tie up/trade mark agreement etc in the same or allied field.
  • Not available for small scale industries (ssi) units/ activities requiring industrial licensing.
Foreign Technical Collaboration
  • For remittence of fx on account of ftc section 5 of fema applies.
  • Treated as current account transactions.
  • Certain limits restrictions apply.
  • Goi notification no.gsr.381(e) dt 3 may 2000.
  • Authorised dealers may permit remittences of royalties/technical know-how fees on account of colloaboration agreements.
  • Subject to conditions and ceilings prescribed under the relevant schedule to section 5 of fema.
  • Agreements required to be registered with concerned regional office of rbi.
  • Rbi registers the agreements and grants approval for necessary remittences.
  • Tech colloaboration agreements require rbi's approval under auto route.
  • Applications to be submitted on plain paper (five copies) furnishing all required details to the concerned ro of rbi.
  • Proposals not coming under auto route to be submitted to goi ( sia,dipp,moc & i,udyog bhavan,new delhi).
Linkages/Contacts
  • Policy-government of inida (goi), ministry of commerce & industry (moc&i), foreign investment promotion board (fipb)/ sia.
  • Reserve bank of india,exchange control department(ecd), foreign investment division, central office, regional offices of ecd.
  • Manual on industrial policy and procedures available on govt web site : www.indmin.nic.in
  • Rbi web site: www.fema.rbi.org.in
  • Fipb matters-contact director,fc/fdi/fipb.
  • E-mail : srinivas@ub.nic.in

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