Non-resident Investing in an Indian Company-FCGPR Compliance’s

Introduction:-

For a country where the capital is not readily available, Foreign Direct Investment is a very important source of funding for companies. Under FDI, overseas money is invested by the individuals and entities, is invested in an Indian company. According to the Organization for Economic Cooperation and development, an investment of 10% or more in an Indian company from overseas shall be considered as Foreign Direct Investment. In the case of a listed company, where 10%  or more of the paid-up equity capital on a  fully diluted basis is held by a person resident outside India, it will be regarded as FDI. It is a capital account transaction and the violation of any regulation shall attract the penal provisions of FEMA. In India, foreign direct investment is regulated under the Foreign Management Act,1999 which is governed by the Reserve Bank of India. So, the investment by the non- resident shall be considered as FDI.

Non-resident Investing in an Indian Company-FCGPR

FDI entry routes:-

A foreign investor can invest through two routes which are as follows:-

1.Automatic Route

2.Approval Route or government route

Under the automatic route, the investor is not required to take the permission of the government to invest while in case of approval or government route it has to take permission from the concerned Ministry our departments via a single-window Foreign Investment Facilitation Portal administered by Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India.

Benefits of investments by the non- resident:-

  • Improving the reputation of the company in other countries.
  • Increasing profits.
  • Economies of scale.
  • Widespread network of companies.
  • Improving the economy.
  • Great profits lead to collaboration with foreign companies.

Category of Investors:-

There are many types of foreign investors such as foreign portfolio investors, foreign institutional investors, foreign venture capital investors, non-resident Indians can hold the stake in Indian companies, LLPs, partnership firms, sole proprietorship subject to the conditions, and sectoral cap on ownership.

Every non- resident entity is allowed to invest in India either through the Automatic or Approval route, except in prohibited sectors. However, the investors of Pakistan and Bangladesh can invest through only the approval route.

FIIs/FPIs are allowed to invest and trade in equity securities, with a maximum total investment of 24% of the issued and paid-up share capital of a company. However, this limit can be raised up to the prescribed sectoral cap of that particular industry by passing a special resolution to the effect.

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Instruments for investment:-

  • A non-resident can invest in Indian companies through the following instruments:-
  • Equity shares 
  • Compulsorily convertible debentures
  • Compulsorily convertible preference shares
  • Share warrants
  • Convertible notes by start-up

Procedures for Investment under Government Route

Step 1:Application Proposal for foreign investment, along with supporting documents must be filed online, on the Foreign Investment Facilitation Portal which is www.fifp.gov.in

Step 2: Internal procedure for Approvals

  • DPIIT will identify the concerned Ministry/ Department and circulate the proposal within 2 days. Once the proposal is received, the same would also be circulated online to the RBI within 2 days for comments complied with FEMA regulations.
  • Investments from Pakistan and Bangladesh would also require a permit from the Ministry of Home Affairs.
  • DPIIT would be required to provide its comments within 4 weeks from receipt of an online application.
  • In addition to the above, additional information/ clarifications may be asked from the applicant which is to be provided within 1 week.
  • Proposals involving FDI exceeding INR 50 bn shall be placed before the Cabinet Committee of Economic Affairs.

Step 3:- Once the proposal is accepted in all respects then it shall be approved within 8-10 weeks.

Mode of payment for share subscription:-

  1. Inward remittance through normal banking channels.
  2. Debit to NRE/FCNR account of a person concerned maintained with Authorised Dealer.
  3. Conversion of royalty/ lump sum/ technical know-how due for payment, import of capital goods by units of SEZ shall be treated as consideration for the issue of shares.
  4. Conversion of import payables/pre-incorporation expenses/share swap shall also treat as consideration for the issue of shares.
  5. Debit to non-interest bearing Escrow account in Indian Rupees which is opened with the approval from AD Category – I bank and is maintained with the AD  bank on behalf of residents and non-residents towards payment of share purchase consideration. 

What is FC-GPR?

FORM FC-GPR is issued in allotment of capital instruments by an Indian company to a resident outside India. It is a form issued by the Reserve Bank of India under the Foreign Exchange Management Act,1999. When the company receives foreign investment and against such investment, it issues the allotment letter of securities to such foreign investor so, it is the duty of the company to file the details of the investment with the RBI within 30 days and to give the details he has to file FORM FC-GPR ( Foreign Currency- Gross provisional Return). It is to be filed in a single master.

Before reporting the transactions the applicant needs to file the following documents to avoid any difficulty faced by it:-

  1. Unique identification number from RBI by reporting of advance foreign remittance.
  2. Disclaimer certificate.
  3. Statutory auditor certificate.
  4. Board resolution.
  5. Loan registration number (LRS) allotted.
  6. Copy of FIPB approval (if required).
  7. Details of transfer of shares if any.
  8. No objection certificate.
  9. Letter from foreign investors giving reasons for the subscription of shares.
  10. Copy of agreement or board resolution.
  11. Reason for delay in submission (if required).

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Steps for filing of FORM FC-GPR:-

 Form FC-GPR can be filed using the following steps:

  • Step 1: Registration for Business User.
  • Step 2: Logging in to firms.
  • Step 3: Logging in to SMF and reach out to your workspace.
  • Step 4: Select the Return type.
  • Step 5: Common Investment details.
  • Step 6: Issue Details.
  • Step 7: Foreign Investment Details.
  • Step 8: Amount of the concerned Issue.
  • Step 9: Particulars of Issue.
  • Step 10: Shareholding Pattern.
  • Step 11: Submitting the Form.

Conclusion:-

In the era of globalization, investments from other countries is a very common thing. Individuals and corporates from other countries invest in the securities of the home country. When the investors invest in the home country and it is giving them the profit then it increases the value of the company that is net worth by the market shall be in boom position. Combining the favorable results improves the economy substantially.

When the price of the securities increases then the companies from the other countries invest in the home country by providing technologies or managerial skills or huge funds, as decided in the agreement of the concerned companies. In today’s time there are numerous partnerships, joint ventures, a strategic alliance between two or more countries which is beneficial for both countries that are optimum utilization of resources in the best manner emerging of new technologies that can be used by all over the world and by this there is harmony between the countries and also provide employment to the employed people like laborers and improving the standard of the people but it should be noted that we should not be completely dependent upon the other countries.

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