NRIs can now bring in FDI through companies, trusts and LLPs
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Giving more flexibility to NRIs to decide the structure of their investments in the country, the government said investment by companies, trusts, partnerships owned and controlled by NRIs on non-repatriation basis will now be treated as domestic investment.
NRIs are allowed 100 per cent FDI in the civil aviation sector while in the construction sector, they are exempt from complying with minimum area requirement, exit norms and minimum FDI limit of $5 million.
With the revised norms, NRIs don't have to comply with construction sector norms of a lock-in period nor take government approval for transfer of stake from one non-resident to another without repatriation of investment. Since, NRIs have special dispensation for investment in construction development and civil aviation sectors, "in order to attract larger investments, which are possible through incorporated entities only, the special dispensation of NRIs has now been also extended to companies, trusts and partnership firms, which are incorporated outside India and are owned and controlled by NRIs," a government statement said. "Now it is not mandatory that 100% control has to be with an NRI when investing here.
The NRI can have majority ownership in a firm and raise money to invest here. Thus, it is easier for them to invest here," said Akash Gupt, partner, regulatory, at advisory firm PwC. This relaxation follows the Union Cabinet's approval of an amendment to Schedule 4 of the Foreign Exchange Management Act (FEMA) Regulations in May this year that NRI investments would be deemed to be domestic investment made by residents.
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Under the liberalised FDI policy, investments in LLPs will not require government approval in sectors fully opened to investments. As much as 100% FDI is now permitted under the automatic route in LLPs operating in sectors where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.
"The FDI policy has been harmonised for LLPs. This will promote FDI as LLP as an entity is easier to operate. This is a big milestone as LLPs will now be treated on par with companies. If companies don't need government approval, why should LLPs," Gupt said.
Further, the terms 'ownership and 'control' with reference to LLPs have also been defined. It has been decided that in line with companies, an LLP having foreign investment will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDIlinked performance conditions. This is a change from the earlier stance of LLPs with FDI when they were not eligible to make any downstream investments.
Further, for the purposes of FDI policy, the term 'internal accruals' has also been defined even though they haven't been made public. "Some of these measures are lowhanging fruit and, therefore, bringing them on is a welcome measure," said Somasekhar Sundaresan, partner at J Sagar Associates.
Bringing LLPs on a par with companies has also been long overdue, he said, adding that the form of the Indian entity should not matter so long as the principles underlying ownership and control are similar to companies.(Economic Times)
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