Tuesday, 1 December 2015

NRI – FDI IN REAL ESTATE INDUSTRY IN INDIA


What are the forms in Which Business can be Conducted by a Foreign Company in India?
Foreign companies can make investments or operate their business in a number of ways such as Liaison/Representative office, Branch Office,?Project Office, 100% Wholly owned Subsidiary?, and? Joint Venture company. The requisite approval can be granted by Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB). Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies, Ministry of Company Affairs and all Indian operations would be conducted through this company.

What is the Foreign Direct Invest policy of India for investment in Real Estate Sector?
Development criteria
·         Minimum 10 hectares/ 25 acres area to be developed for serviced housing plots
·         For construction-development projects, minimum built-up area of 50,000 sq mts prescribed
·         In case of a combination project, any one of above two conditions would suffice

Investment conditions
·         Minimum capitalization of US$ 10 million for wholly owned subsidiaries & US$ 5 million for joint ventures with Indian partners
·         Funds to be brought in within 6 months of commencement of business
·         Original investment cannot be repatriated before a period of 3 years from completion of minimum capitalization. Investor may be permitted to exit earlier with prior Government approval

Other conditions
·  At least 50% of project must be developed within of 5 years from date of obtaining all statutory clearances
·  Investor not permitted to sell undeveloped plots
·  Project to conform to norms & standards laid down by respective State authorities
· Investor responsible for obtaining all necessary approvals as prescribed under applicable rules/bye-laws/regulations of the State
·  Concerned Authority to monitor compliance of prescribed conditions by developer
“Undeveloped” plot means where roads, water supply, street lighting, drainage, sewerage & other conveniences have not been made available. It will be necessary that investor provides this infrastructure & obtains a completion certificate prior to sale of serviced housing plot.

What is the Taxation Policy in India?
Foreign nationals working in India are generally taxed only on their Indian income. Income received from sources outside India is not taxable unless it is received in India. The Indian tax laws provide for exemption of tax on certain kinds of income earned for services rendered in India. Further, foreign nationals have the option of being taxed under the tax treaties that India may have signed with their country of residence. Remuneration for work done in India is taxable irrespective of the place of receipt. Remuneration includes salaries and wages, pensions, fees, commissions, profits in lieu of or in addition to salary, advance salary and perquisites. Taxable payments include all allowances and tax equalisation payments unless specifically excluded. The stock options granted by the employer are taxable as capital gains at the time of sale of shares acquired due to exercise of options.

What is Automatic Route for Foreign Direct Investment in India?
Automatic Route allows Indian companies engaged in all industries except for certain select industries/sectors to issue shares to foreign investors up to 100% of their paid up capital in Indian companies.

What are the circumstances when the Automatic Route is not available?
Foreign investors have to, however, keep in mind that they may invest freely under the Automatic Route described above but where such investment does not conform to policies of Government of India, a specific approval from Government must be sought. For example, there are Government guidelines on location of industrial units, or there are certain items like explosives or liquor that need an industrial licence. If the Indian company does not conform to the locational guidelines or needs an Industrial licence then it cannot issue shares under the Automatic Route.

Automatic Route is also not available to those foreign investors who already have a financial or technical collaboration in the same or allied field or where more than 24% foreign investment is made in a company which is engaged in manufacture of an item reserved for small scale industry. Finally, Sri Lankan nationals and investors from Pakistan & Bangladesh need to apply to Government of India for investing in Indian companies.

What is the alternative if the Automatic Route is not available?
If for any of the reasons mentioned above, the Indian company cannot issue shares to foreign investors under the Automatic Route, an application may be made to Secretariat for Industrial Assistance (SIA), Ministry of Commerce & Industry, Government of India, New Delhi.

Can the surplus funds/refund of remittance received from a person resident outside India for purchase of shares under the Automatic route or with specific Government approval or purchase of shares offered on right basis be repatriated?
YES, the surplus funds/refund of remittance received from a person resident outside India for purchase of shares under the Automatic route or with specific Government approval or purchase of shares offered on right basis can be repatriated through authorized dealers who have been delegated powers by way of (A.P.DIR Series) circular No.45 dated November 12, 2002.

Are all foreign investments repatriable? Whether the dividend thereon be freely repatriated?
Yes. All foreign investments are on repatriation basis except for the cases where NRIs/OCBs choose to invest specifically under non-repatriable schemes. Dividends declared on foreign investments can be remitted freely through an Authorised Dealer (AD).

Is RBI permission necessary for foreigner/NRI/OCB to subscribe to Memorandum and Articles of Association?
Indian companies are permitted to issue shares to non-resident investors in terms of the Automatic Route as indicated in the Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) Regulations 2000. It is clarified that non-resident investors can subscribe to the Memorandum & Articles of Association of those companies which are eligible to issue shares under the Automatic Route in terms of the Regulations mentioned above.In respect of companies not covered by the Automatic Route, foreign investors can subscribe to the Memorandum & Articles of Association after necessary approval for investment is obtained from SIA/FIPB.

What is the procedure for disinvestment of capital invested?
Non residents can sell shares on Stock Exchange without prior approval of RBI. They can approach a bank for repatriation of the sale proceeds if they hold the shares on repatriation basis and if they have necessary NOC/Tax Clearance Certificate issued by Income Tax authorities.

Under what regulations can NRIs/OCBs make investments in shares and Convertible Debentures of Indian company on non-repatriation basis?
NRIs/OCBs can make investments up to 100% of paid up capital of the companies in all sectors on non-repatriation basis except Agriculture/Plantation, Real Estate Business, Chit Funds & Nidhi companies and companies engaged in Print Media sector.

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