Consolidated FDI Policy for Ventures planning to raise foreign funds in 2018
Attracting large-scale Foreign Direct Investment (FDI) and improving India’s world ranking for ‘Ease of Doing Business’ were the driving force behind continual amendments to FDI policy of India. Precisely speaking, DIPP has liberalized the rules such as – startups have been highlighted with specific policies. To know how these amendments could favor your business, stay tuned!
FDI in E-commerce SectorsMarketplace model of e-commerce can accept 100% FDI, whereas inventory-based model of e-commerce businesses are not allowed.
Restriction of auditingForeign investors wanting to get auditing of the Indian investee company by a particular audit firm cannot proceed to do so unless and until a joint audit is conducted wherein one of the auditors is not from that particular audit firm.
FDI in NBFCForeign investment in investing companies registered as Non-Banking Financial Companies with the RBI, if overall regulated, then 100% FDI through automatic route is allowed.
FDI on Core Investment Companies (CICs)Investing companies engaged in the activity of investing in the capital of other Indian companies or LLPs, is permitted to receive FDI under Government approval route, under RBI’s regulatory framework.
FDI in Real Estate Broking ServicesReal estate broking service does not come under real estate business, and these service businesses are eligible for 100% FDI via automatic route.
FDI in Single Brand Product Retail Trading100% FDI is allowed via automatic route. Subject to the following conditions:
- Products to be sold should be of a ‘Single Brand’ only.
- Products should be sold under the same brand internationally
- A nonresident entity is allowed to undertake ‘Single Brand’ product retail trading. The owner can either trade by himself or mandatorily enter a legal tenable agreement executed between the Indian entity undertaking trading of the brand.
- FDI beyond 51%, and sourcing 30% of the value of good purchased will be frequently checked by statutory auditors from the duly certified accounts which the company will be required to maintain. The relevant entity would be an Indian company.
- A Single Brand Trading entity operating through Brick and Mortar stores is permitted to undertake retail trading through e-commerce
- Indian brands should be owned and controlled by resident Indian citizens
FDI on medical devicesThe definition of medical devices has been changed, which has brought implications on the type of companies or LLPs that can accept FDI. There are accounting procedures that have been listed out, like – pre-operative/pre-incorporation expenses, Pricing guidelines, issuance of equity shares, import-export etc.,
FDI in Multi Brand Retail TradingIs permitted if the products are fresh agriculture produce, fishery and meat products, may be unbranded too. A minimum FDI of US $ 100M is a threshold to be met by foreign investors. Out of the investment, at least 50% of total FDI should be invested in back-end infrastructure within 3 years. At least 30% of the value of procurement purchased should be sourced from Indian MSME industries.
FDI in Duty-Free Shops100% FDI is permitted via automatic route is the shop complies with conditions stipulated under the Customs Act, 1962
FDI in LLPs
- FDI is permitted via the automatic route in LLPs operating in sectors where 100% FDI is allowed.
- LLP having foreign investment is permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed
- Companies or LLPs with foreign investment can convert to an LLP or Companies provided they fall in sectors in which 100% FDI is allowed.
- FDI in LLP is subject to the compliance of the conditions of LLP Act, 2008.
FDI in StartupsA startup company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956
- Startups can issue equity or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA regulations.
- Foreigners other than citizens of Pakistan and Bangladesh can purchase convertible notes issued by an Indian Startup Company for an amount of INR 20L or more in a single tranche.
- Startup company engaged in a sector where acceptance of FDI requires Government approval has to get approval from Government to issue convertible notes to a non-resident.
- Startup Company issuing convertible notes outside India should receive remittance through banking channels or by debit to the NRE/FCNR/Escrow account.
- Transfer of convertible notes should comply with the pricing guidelines as prescribed by RBI
- The Startup Company issuing convertible notes should furnish reports as prescribed by RBI