New Regulations for investment by Persons Resident outside India

The Reserve Bank of India (“RBI”) vide notification dated November 07, 2017 has introduced the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 (“Regulation”). The same have been released in suppression of notification no. FEMA 20/2000-RB and notification no. FEMA 24/2000-RB dated May 03, 2000.

The aforesaid Regulation contains various provisions, inter alia, pertaining to investments by persons resident outside India, such as restrictions on receiving investment; permission for making investment(s); acquisition of shares; issue of shares or convertible notes; pricing guidelines; taxes and remittance of sale proceeds; reporting requirements and prohibited activities.

A few salient features include:

  • Permission for making investment by a person resident outside India:
    Any such investment shall be subject to entry routes, sectoral caps, or investment limits. Investment by a Foreign Portfolio Investor, an Overseas Citizen, a Foreign Venture Capital Investor, a citizen of Bangladesh or Pakistan, an entity incorporated in Bangladesh or Pakistan, etc., is permitted subject to certain restrictions and compliances.
  • Reporting Requirements:
    Reporting of investment in India by a person resident outside India shall be made in forms such as ARF, FC-GPR, FLA, FC-TRS, ESOP, DRR, CN, etc.
  • Prohibited Activities:
    Investment by a person resident outside India is prohibited in:
    • Lottery business including Government/ private lottery, online lotteries;
    • Gambling and betting including casinos;
    • Chit funds;
    • Nidhi Company;
    • Trading in Transferable Development Rights;
    • Real estate business or construction of farm houses;
    • Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes;
    • Activities/ sectors not open to private sector investment, e.g. (a) Atomic energy and (b) Railway operations; and
    • Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract for lottery business and gambling and betting activities.
  • Taxes and Remittance of Sale Proceeds:
    All transactions shall be undertaken through banking channels in India and subject to payment of applicable taxes and other duties/ levies in India. Further, any remittance of sale proceeds of an Indian security held by a person resident outside India shall only be made in accordance with the Regulation and conditions specified in respect thereto.