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Setting Up of Business Entity in India

1.How can a foreign investor set up business operations in India through a company?
A foreign investor can set up business operations in India by incorporating a company under the Companies Act, 2013 and operate through various forms such as Joint Venture/Wholly Owned Subsidiary/Holding Company in compliance of the entry route/sectoral cap and other conditions under the FDI Policy and Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.

  • Minimum Requirement for incorporation of Private Company:
  • Minimum two Directors (Atleast one Director shall be a Resident Indian)
  • Minimum two Members i.e., shareholders.

 

2. Are there any restrictions/provisions related to FDI from land bordering countries?
A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.

Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

3. Authorities dealing in FDI

  • Foreign Investment Facilitation Portal (FIFP)
  • Department for Promotion of Industry & Internal Trade (DPIIT)
  • Reserve Bank of India (RBI)
  • Ministry of External Affairs (MEA)
  • Ministry of Home Affairs (MHA)
  • Concerned Administrative Ministry/Department
  • FDI Policy, Press Notes, FEMA/RBI Notifications/Guidelines
  • Cabinet Committee on Economic Affairs (CCEA)

4. Route of Investments in India

  • Filing of Application – Proposal for foreign investment, along with suppoorting documents to be filed online, on the Foreign Investment Facilitation Portal at the following URL:www.fifp.gov.in/ (Note- Where the online application is digitally signed by an authorised signatory, there is no requirement for physical submission of application. However, for applications without digital signature, once the e-filing of the application is complete, the applicant is required to file one signed copy of the printed application, along with duly authenticated copies of the documents attached with the application, with the nodal officers of concerned Ministry/Department).
  • Internal Procedure for Approval – DIPP will identify the concerned Ministry/ Department and thereafter, circulate the proposal within 2 days. In addition, once the proposal is received, the same would also be circulated online to the RBI within 2 days for comments from FEMA perspective.
    Proposed investments from Pakistan and Bangladesh would also require clearance from the Ministry of Home Affairs.
    DIPP would be required to provide its comments within 4 weeks from receipt of an online application, & Ministry of Home Affairs (if applicable) to provide comments within 6 weeks.
    Pursuant to the above, additional information/ clarifications may be asked from the applicant which is be provided within 1 week.
    Proposals involving FDI exceeding INR 50bn (approx. US$ 775m) shall be placed before the Cabinet Committee of Economic Affairs.
  • Final Approval – Once the proposal is complete in all respects, the same gets approved within 8-10 weeks

5. Approvals from required from authority:

  • Proposals need to be filed online through the Foreign Investment Facilitation Portal (FIFP)
  • After a proposal is filed online, Department for Promotion of Industry & Internal Trade (DPIIT) will identify the concerned Administrative Ministry/Department and e-transfer the proposal within two (02) days to the concerned Administrative Ministry/Department (Competent Authority) for processing and disposal of the case.
  • Once a proposal is received, same shall be circulated online within two (02) days by DPIIT to Reserve Bank of India (RBI) for comments from the perspective of Foreign Exchange Management Act, 1999 (42 of 1999) and rules/regulations thereunder (FEMA).
  • Further, all proposals would be forwarded to Ministry of External Affairs (MEA) for information. MEA may give their comments within the stipulated time period, wherever necessary. All comments will be given directly to the concerned Administrative Ministry/Department.
  • Following proposals will require security clearance from Ministry of Home Affairs (MHA):

investments from an entity of a country which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country.

  • Specific issues of proposals requiring clarification from the point of view of FDI Policy may be referred to DPIIT for clarification with the approval of Secretary of the concerned Administrative Ministry/Department.
  • Consultation with any other Ministry/Department will require full justification and approval of Secretary of the concerned Administrative Ministry/ Department.
  • Ministries/ Departments consulted on the proposal shall upload their comments on the portal within four (04) weeks from the online receipt of the proposal.
  • While examining the proposals, adequate care has to be exercised keeping in view the FDI Policy, Press Notes, FEMA/RBI Notifications/Guidelines issued from time to time. The Competent Authority should take into consideration the sectoral requirements and the sectoral policies vis-à-vis the proposals.
  • In case of proposals involving total foreign equity inflow of more than Rs 5,000 crore, Competent Authority shall place the same for consideration of Cabinet Committee on Economic Affairs (CCEA) within the above timelines.
  • Secretary, DPIIT is the competent authority for decision on cases referred by other Administrative Ministries/ Departments, seeking concurrence of DPIIT for rejection of the proposal/ stipulation of additional conditions in approval letter.
  • Compounding of Contraventions: FDI is a capital account transaction and thus any violation of FDI regulations is covered by the penal provisions of FEMA. Provisions of Section 15 of Foreign Exchange Management Act, 1999 permit compounding of contraventions, and Foreign Exchange (Compounding Proceedings) Rules, 2000, as amended from time to time, lays down the basic framework for the compounding process. Administrative Ministries/ Departments are advised to refer to the Master Direction- Compounding of Contraventions under FEMA, 1999 FED Master Direction No.4/2015-16 issued by the RBI, as amended from time to time.

 

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