the overview of fema presentation by ca. anil sharma
TRANSCRIPT
THE OVERVIEW OF FEMA
Presentation by
CA. Anil Sharma
FEMA
1. Foreign Exchange Management Act, 1999
2. Rules and Guidelines by MOF.
3. FDI Policy and Press Notes by MOC&I.
4. Regulations by RBI
5. Notifications by RBI
6. Circular and Clarifications by RBI
7. Master Circulars by RBI
8. Instructions and FAQs by RBI
FEW IMPORTANT TERMS
1. Person
2. Person resident in India
3. Person resident outside India
Dealings in foreign Exchange
• Current Account Transactions
• Capital Account Transactions
Dealings in foreign Exchange
• Current Account Transactions– Section 5 read with Section 2(j) of FEMA.– FEM( Current Account Transactions) Rules, 2000.
• Capital Account Transactions– Section 6 read with Section 2(e) of FEMA.– FEM (Permissible Capital Account Transactions)
Regulations, 2000
Current Account Transactions• Definition:
– Section 2(j) of FEMA– Any transaction which is not a capital account
transaction and includes:• Payment due in connection with current business, trade,
services, short term borrowings & credit facilities in normal course of business.
• Payment of interest on loans.• Income on investment.• Remittance of living expenses to
parents/spouse/children• Expenses in connection with foreign travel, education,
medical etc.
Current account transactions (Section 5)
• Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction.
• Provided that the central Govt. may, in public interest and in consultation with RBI, impose such reasonable restrictions for current account transactions, as may be prescribed.
FEM( Current Account Transactions) Rules, 2000
• Transactions for which foreign exchange withdrawal is prohibited (schedule I).
• Transactions require approval of the Central Government ( Schedule II).
• Transactions require approval of Reserve Bank of India (Schedule III).
Current Account Transactions- Regulations and circulars by RBI
• FEM (Export of Goods and Services) Regulations, 2000
• Master Circulars–Import of Goods and services–Export of goods and services
Capital Account Transactions• Definition:
– Section 2(e) of FEMA– Any transaction
• which alters the assets or liabilities outside India of persons resident in India or
• Which alters assets or liabilities in India of persons resident outside India
• Including transactions referred to in section 6(3) of FEMA
Capital account transactionsSection 6(3) – RBI may by regulations, prohibit, restrict or regulate:
– Transfer or issue of any • foreign security by a person resident in India.• security by a person resident outside India• security or foreign security by any branch, office or agency in India of a
person resident outside India– Any borrowing or lending in foreign exchange– Any borrowing or lending in rupees between a person resident in India and a
person resident outside India– Deposits between person resident in Indian and person resident outside India– Export, import or holding of currency or currency notes– Acquisition and transfer of immovable property other than a lease not
exceeding five years,• outside India by a person resident in India • in India by a person resident outside India
– Giving a guarantee or surety in respect of any debt, obligation or other liability incurred
• by a person resident in India and owed to a person resident outside India • by a person resident outside India
Capital Account Transactions
• Section 6(2) – RBI may in consultation with the Central Government specify:
– Any class or classes of capital account transactions which are permissible.
– The limits up to which foreign exchange shall be admissible for such transactions.
FEM (Permissible Capital Account Transactions) Regulations, 2000
Permissible (Para 3 of the Regulations)
• Transactions by persons “Resident in India” given in Schedule I.
• Transactions by persons “Residents outside India” given in Schedule II.
Prohibited:
• Para 4 of the Regulations.
Capital Account Transactions-Transactions by “Resident in India”
• Transactions which alters the assets or liabilities outside India of persons resident in India:– Transfer or issue of any foreign security.– Transfer of immovable property outside India.– Borrowing & lending in foreign currency.– Giving of a guarantee or surety in respect of
any debt, obligation or other liability incurred owed to a person resident outside India.
Capital Account Transactions-Transactions by “Persons resident outside India”
• Transactions which alters assets or liabilities in India of persons resident outside India:
– Establishment in India of a branch, office or other place of business
– Transfer or issue of security – Acquisition and transfer of immovable property in
India– Borrowing & lending in Rupees– Deposits – Guarantees
Capital Account Transactions• Prohibited transactions:• For person resident outside India investment in India, in
any form ,in any company, firm or proprietory concern or any other entity which is or proposed to be engaged in :
– Chit fund– Nidhi co.– Agricultural and plantation activities– Real estate business or construction of farm houses– Trading in TDRs.
• For person resident in India investment outside India in the business of:
– Banking– Real estate
Transfer or issue of any foreign security by a person resident in India.
• FEM (Transfer or Issue of any Foreign Security) Regulations, 2004.
• Overseas investment in JV/WOS– By way of contribution to MOA of foreign
entity,– By purchase of existing shares,
• Portfolio Investment
• Investment by Indian Residents.
JV/WOS Abroad• Master Circular dated 1.7.2010
• Indian Party may make direct investment in JV/WOS
– Automatic Route– Approval Route
• Indian Party
– Company incorporated in India– Registered partnership firm– Registered trust or society which has set up hospital in India for hospital– Any other entity as notified by RBI– More than one of the above shall together constitute the Indian Party
Portfolio Investment
• By listed Indian companies in equity, rated bonds/fixed income securities of companies listed in foreign stock exchanges (not exceeding 50% of its net worth of last audited Balance sheet).
• By Indian parties in equity or rated bonds of companies having at least 10% shares in any listed company in India.
Acquisition of foreign security by a person resident in India
• General Permission
• Approval Route
• Liberalised Remittance Scheme
Acquisition or Transfer of Immovable Property outside India
• FEM (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2000
• A person resident in India may acquire immovable property outside India by way of– Gift or inheritance– Purchase out of RFC account
• Acquisition of immovable property by branch/ trading offices for business and also for staff residence purposes
• Indian entity can maintain office abroad and send funds for its maintenance and acquiring and holding immovable property with RBI approval.
• Acquisition of immovable property under Liberalised Remittance Scheme by resident Indians.
Borrowing or lending in Foreign exchange
• FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000– Permitted from an authorised dealer in India– External commercial borrowings.– General permission in case of project export– In case of individual – can borrow upto USD
2,50,000 from his close relatives– In all other cases only with the approval of
RBI.
Foreign exchange dealings by residents
• FEM (Realisation , repatriation and surrender of foreign exchange) Regulations, 2000
• FEM )Foreign currency accounts by a person resident in India) Regulations, 2000
• FEM (Possession and retention of foreign currency) Regulation ,2000
• FEM (Insurance) Regulations, 2000
Establishing an office in India
• FEM (Establishment in India of Branch or Office or Other Place of Business) Regulations, 2000
• A branch,
• A liaison office,
• A Project Office.
Legal Requirements – for setting up
an office in India To establish a branch or liaison office in India :• prior approval of RBI/Govt. is required,• Now only eligible entity can set up BO/LO,• Application to be forwarded through a
designated AD Cat. I bank• AD to exercise due diligence, KYC and then
recommend,• UID would be allotted,• BO/LO to obtain PAN and inform to RBI/Govt.
No approval for setting up project office.
Issue of Security by Branch, office or Agency of a person resident outside India
• FEM (Issue of Security in India by a branch, office or a person resident outside India) Regulations, 2000
• Shall not transfer or issue any security or foreign security in India without prior approval of RBI.
Consolidated FDI Policy
• Effective 1.4.2011.• Circular no 1 of 2011 dated 31.3.2011.• Issued by Ministry of Commerce and Industry,
Department of Industrial Policy and Promotion.• Consolidates into one all the prior
policies/regulations on FDI issued by RBI and DIPP.
• Changes notified by RBI from time to time would have to be complied with, in case of interpretation, the relevant FEMA notification shall prevail.
• Issued with sunset clause of six months.
Press Notes by MOC&I
• Pricing norms for issue of shares to person resident outside India.
• Pricing guidelines for transfer of shares
• Calculation of total foreign investment
• Downstream investment by Indian co. owned and controlled by non-residents
FDI Policy coverage
• Portfolio Investment by NRIs and PIOs.• Portfolio Investment by FIIs.• Operating through an Indian company.• Investment in capital of partnership or
proprietary concerns in India.• Acquisition of immovable property in India.• Sectors prohibited for FDI.• Sector specific policy for FDI
– FDI cap– Entry Route
• Guidelines through Press notes.
Prohibition on investment in India
• Retail trading (except single brand product retailing)
• Atomic energy• Lottery (all types), gambling, betting• Business of Chit fund and Nidhi company• Real estate business or construction of farm
houses• Sectors not opened for private sector
investment.• Trading in Transferable Development Rights.
Sectoral caps• Agriculture
– Agriculture and animal husbandry, -Tea plantation
• Industry– Mining, -Coal and lignite
• Manufacturing– Items reserved for MSEs, -Alcohol distillation and brewing– Cigars and cigarette -Coffee and rubber processing– Defence industry, -Drug and pharmaceutical– Industrial explosives, -Power
• Service Sector– Advertising and films, -Civil aviation– Banking, -Broadcasting– Commodity exchange, - Insurance– NBFCs, - Petroleum and natural gas– Print media, - Telecommunication
Govt. route
• Application to FIPB is to be filed online.• Status of the file can also be found online.• Companies may not require fresh prior approval
of the Govt. for bringing in additional foreign investment into the same entity in cases where approvals were obtained and subsequently sector/activities have been placed under automatic route or where sectoral caps have been increased. (Press Note 1(2010 Series) dated 25.3.2010.
Portfolio Investment by FIIs
• A SEBI registered FII• Through authorised dealer bank• Special Non-resident Rupee Account• Sub-account holding not to exceed 10% of the
total paid up capital• Total holding of all FIIs put together not to
exceed 24%( can be increased by Co. subject to sectoral limits)
• Allocation of investment in equity and debt in the ratio of 70:30
• Shall not engage in short selling.
Portfolio Investment by NRIs
• On repatriation basis– Payment for purchases to be made through normal
banking channel– Remittance from abroad/ NRE/FCNR accounts– Through broker only
• On non-repatriation basis– Payment for purchases through normal banking
channel– Remittance from abroad/ NRE/FCNR/NRO accounts– Through broker` only
OPERATING THROUGH AN INDIAN COMPANY
Mode of operations• Joint venture with local partner• Wholly owned subsidiary company
Acquisition or Transfer of Immovable Property in India
• FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
• Indian citizen/ PIO resident outside India may acquire any immovable property other than agricultural/plantation/farm house even after taking loan in India. (PIO to to bring in funds from outside India).
• Citizens of Bangladesh, Sri Lanka, Afghanistan, China, Nepal, Iran and Bhutan can not acquire without prior approval of RBI. Foreign national can acquire property by way of inheritance from resident Indian.
• Branch of foreign company can acquire for business purposes only.
• A declaration in Form IPI to be filed with RBI within 90 days.
Investment in Firm and proprietory concern in India
• FEM (Investment in Firm or Proprietory Concern in India) Regulations, 2000
• No investment or repatriation basis without approval from RBI by non-residents (other than NRI/PIO)
• NRI/PIO investment on repatriation basis with prior approval of RBI.
Borrowing or Lending in Rupee
• FEM (Borrowing and Lending in Rupees) Regulations, 2000.
• A resident in India may borrow in Rupee on non-repatriation basis from a NRI/PIO subject to certain conditions.
• A company may borrow in Rupee on repatriation or non-repatriation basis from a NRI/PIO by way of NCDs subject to certain conditions.
• Restriction on use of borrowed funds for agricultural/ plantation/ real estate business.
GUARANTEES
• FEM (Guarantees) Regulations, 2000.
• Guarantees which may be given by an authorised dealer.
• Guarantees which may be given by persons other than an authorised dealer.
Forex derivative contracts
• FEM ( Foreign Exchange Derivative Contracts) Regulations, 2000.
• Permission to a person resident in India to enter into a forex derivative contract-Schedule I.
• Permission to a person resident outside India to enter into a forex derivative contracts- Schedule II.
• Permission to a person resident in India to enter into a currency futures
• Commodity hedge.
Foreign currency and foreign currency accounts
• FEM (Deposit) Regulations, 2000• Accounts in India in Rupees as well as foreign
currency by persons resident outside India– NRE Account – NRO Account
• Foreign national resident in India can open a normal resident account in Rupee
• Account by branch/project office of person resident outside India with RBI permission.
Remittance Facilities to Non-Residents
• Remittance of current income
• Repatriation of sale proceeds of residential property purchased by NRI/PIO out of foreign exchange
Master Circulars by RBI
• Direct Investment by Residents in JV/WOS abroad
• Foreign Investment in India
• NRO Account
• Remittance facilities for Non-resident Indians/ Person of Indian Origin/Foreign nationals
• Miscellaneous remittances from India- facilities for residents
• ECB and Trade Credits
Compounding of offences under FEMA
• FEM ( Adjudication proceedings and appeals) Rules, 2000
• Quantum of penalties. (section 13 of FEMA)
• FEM( Compounding proceedings) Rules, 2000
