Getting Global by Outbound Investments

Getting Global by Outbound Investments




An Indian Party can make overseas direct investment in any bonafide activity except those are specifically extremely such as real estate and banking. The exceptional success of Indian business entities has produced a need for them to invest oversea by setting up their overseas offices. Such offices can do trading activities or non-trading activities such as liaison work, marketing etc. Broadly speaking, Indian companies can set up there overseas presence by:

1. Branch Office:

Large Indian companies often need to set up overseas operations for marketing their products and sets and also for expansion of their business. Government approval is needed for such an overseas presence and it is generally a requirement that it corresponds with the chief activity of the parent company.

2. Representative office:

Indian business entities can set up trading in addition as non-trading overseas offices. Posting of representatives outside India is considered as setting up a non-trading overseas office for the purpose of save Bank procedures. The costs of setting up and running these offices may be remitted from India. Many Indian companies are opening their off-shore offices in places like Hong Kong, Dubai etc for trading and 3rd country exports, which allow them to have various, tax and other benefits.

3. Project Office:

Indian firms / companies executing contracts / projects oversea with the approval of the appropriate authority are permitted under a general permission granted by save Bank to set up site / project offices oversea provided that such offices are maintained out of project receipts and remittances from India are not required. These offices are required to be closed down and surplus foreign exchange earnings repatriated to India after completion of the project.

The general terms and conditions for opening the offices oversea typically are:

(a) The overseas office should not create any financial limitations contingent or otherwise for the head Office in India.

(b) Exchange released by the empowered dealer should be strictly utilized for the purpose(s) for which it is released. They unused exchange may be repatriated to India under advice to the empowered dealer.

(c) The details of bank account opened in the overseas countries should be promptly reported to empowered dealer.

(d) The approval granted for the purpose should be made valid for 6 months from the date thereof,

within which time the applicant should open its overseas office or post representative oversea. In case the overseas office is not opened or the representative is not posted oversea within this period,

intimation in writing to the effect should be sent to the empowered dealer closest after expiry of 6 months period. Fresh application for release of exchange should be submitted to the empowered dealer as and when the overseas office is desired to be opened.

(e) Profits, if any, earned by the overseas office/s should be repatriated to India.

(f) The following statements should be submitted by the applicant to the empowered dealer:

(a) A statement showing details of initial expenses incurred together with appropriate documentary evidence, wherever possible, within three months from the date of release of exchange for that purpose.

(b) Annual account of trading/non-trading office oversea duly certified by statutory Auditors/Chartered Accountants.

4. JV & WoS:

Indian Companies can set up overseas joint ventures or subsidiaries under an automatic scheme for investments up to a government determined amount in any financial year, provided the investment is in the chief activity of the Indian company. Further, the present investment limit is the 400% of the net worth of Company as per last Audited balance Sheet.

The contribution of the Indian business may be in cash or in the form of exports of equipment or goods to the foreign entity or by way of royalties and know-how payments due to the Indian business from the foreign entity. The annual limit includes capital contributions, loans and guarantees.

Investments not covered by the General Permission require prior approval from the save Bank, which takes into account the viability of the hypothesizedv overseas venture, the likely benefits to India from the investment, the track records of the Indian and foreign entities and the skill and experience of the Indian company in line of the hypothesizedv business. Overseas investment in finance sector activities is placed under a number of additional restrictions.

There are two routes to set up JV or WoS of Indian companies oversea –

A) Automatic route: Under the Automatic Route, an Indian Party does not require any prior approval from the save Bank of India for setting up a JV/WoS oversea but Investment should be in a lawful activity permitted by that great number country and comply certain criteria.

B) Normal route: Proposal, which is not covered by the conditions under the automatic route, requires the prior clearance of the save Bank; comes under normal route. A Request under the normal route are considered by taking into account inter-alia the prima facie viability of the proposal, business track record of the promoters, experience and skill of the promoters, benefits to the country etc for which a specific application in form ODI with the documents prescribed therein is required to be made to save Bank of India.

Restrictions:

1. Only (a) Public Ltd. Company (b) Private Limited Company is allowed to invest for JV and WoS. Individual, partnership firms etc. are not allowed to invest.

2. Investment in banking business and real estate business are not allowed.

3. Investment can be by way of equity, debentures, loans and guarantees.

4. Remittance can be by way of cash or export of goods and sets.

5. Dividends, royalties etc. due to Indian investor should be repatriated to India.

Exceptions:

(1) Real estate and Banking are the extremely sectors for overseas direct investment. However, Indian edges operating in India can set up JVs/WoS oversea provided they acquire clearance under the Banking Regulation Act 1949, from DBOD (dispensing Board of Directors).

(2) Only an Indian Company engaged in financial sector activities can make investment in the financial sets sector, provided it fulfills additional norms.




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