Foreign Direct Investment Compliances

What is Foreign Direct Investment?

Foreign Direct Investment (“FDI”) refers to an investment in which a company or an individual of one country invests in the business located in another country. FDI is an important parameter in the economic growth of any country. In the present scenario, one of the primary funding sources of the Companies in India is FDI. For a very long time, Government of India (“GOI”) is trying to ease the compliances under various laws to accelerate the flow of money in the form of FDI in India. Various state government offers monetary incentives in the form of subsidies, free electricity, lower stamp duty etc. so as to promote investment in their respective state.

Governing Body

The policy framework is developed by GOI and is embodied in the Circular on Consolidated FDI Policy which keeps on updating from time to time to incorporate latest developments. The Government of India, Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry issues policy announcements on FDI through circular/press notes/press releases which are regularised by Department of Economic Affairs (DEA) and Ministry of Finance. The flow of money in India is regulated as per the provisions of Foreign Exchange Management Act, 1999.

FDI Entry Routes in India

In India, investments are permitted through only two routes:

Automatic Route in FDI

Under Automatic route, an investment foreign company or non-resident can invest in India without seeking necessary approval and does not required approval of GOI.

Government Route in FDI

Under Government Route, the investor has to seek approval from respective Department of the GOI before making any investment in India.

Sectors

Presently, the sectors in India can be categorised under three heads:

Sectors list

Kindly note that the aforementioned information concerning the respective sectors is in line with consolidated FDI policy which tends to amend from time to time.

Prohibited Sectors

An investor can invest in India subject to the provisions of the FDI Policy. But there are certain sectors in which FDI is not permitted:

• Lottery Business including Government/private lottery, online lotteries, etc. Gambling and Betting including casinos#
• Chit Funds
• Nidhi Company
• Trading in Transferable Development Rights (TDR)
• Real Estate Business or Construction of farm houses##
• Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
• Sectors not open to private sector investment- atomic energy, railway operations (other than permitted activities mentioned under the Consolidated FDI policy)

Licensing for franchise, trademark, brand name, management contract or any time of foreign technology collaboration is also prohibited for Lottery Business and Gambling and Betting activities.

The activities such as development of town shops, construction of residential/ commercial premises, roads or bridges under real estate business shall not be included in Real estate business and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014.

Procedure for investment under Government Route

1. Preparation of application along with supporting documents
2. Filing of application for FDI Approval through National Single Window System
3. DPIIT will identify the concerned Ministry/Department and assign the proposal to it.
4. Once the proposal is completed in all respects, the final approval is rececived within 12 weeks

Documents for FDI Approval

• Letter of authorization by the Applicant in favor of the person(s) filing the Application
• Summary of FDI Proposal
• Shareholding pattern of Investee
• Diagramatic representation
• Details of Beneficial Ownership of investor company
• Certificate of incorporation of investee company
• MOA/AOA of investee company
• Audited financial statement of the investee company
• Certificate of incorporation of investor company
• MOA/AOA of investor company
• Audited financial statement of the investor company
• Copy of past approvals
• Signed Agreement Copy
• Share Valuation Certificate
• Various declarations and affidavits
  

How SKMC can help you?

At SKMC Global, our goal is to make FDI compliance simple so as to promote economic growth. Our FEMA Consultant expert’s team offer continuous support to keep your investment goals in align with the rules and regulations of FEMA. We ensure that proper documentation is prepared and submitted before the deadline. FEMA rules can be tough to manage, but SKMC Global is here to help with a full range of services for getting hassle free compliances:

• Regulatory Guidance- We provide knowledge on the rules and laws pertaining to foreign direct investment in a number of different countries. This entails being aware of and able to navigate regulatory clearances, compliance standards, and legislation pertaining to foreign investments.

• Documentation and Reporting- We support you in creating and submitting the records and reports that regulatory bodies demand. Investment proposals, compliance reports, and other filings may be included here, our expert team also carries out thorough checks to ensure the FDI follows all local rules and regulations. This includes examining potential risks, the investment structure’s legitimacy, and the backgrounds of foreign investors, we also help identify & reduce operational, financial, and legal risks tied to international ventures. This ensures the investment meets global standards & provides advice on ways to lower risks.

• Compliance Monitoring: To make sure the investment stays in conformity with regulatory standards, we frequently provide continuing monitoring and compliance services. This entails keeping tabs on modifications to rules and regulations and offering advice when appropriate.

• Taxation and Financial Planning: We offer advice on FDI-related tax consequences and financial planning. This entails making sure local tax regulations are followed and structuring investments in a tax-efficient way.

• Legal Support: When there are disagreements or problems pertaining to FDI compliance, our staff is available to provide legal support, this involves defending the investor in court or before regulators.

• Cultural and Market Insights: Our goal is to give international investors valuable insights into local business practices, cultural nuances, and market conditions—all key to creating a solid investment plan & ensuring compliance. By leveraging SKMC Global's expertise, businesses can navigate the complexities of FDI rules more easily and ensure their investments meet all legal requirements & standards.