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RBI REGULATION

(Querist) 21 March 2008 This query is : Resolved 
HI ALL

I NEED AN ADVISE

WE ARE A SMALL LOGISTICS FIRM INVOLVE IN FREIGHT BOOKING THRU SEA PORT
WE INTEND OPENING OFFICE IN SINAGAPORE HONGKONG
CAN WE OPEN A PVT LTD FIRM WITH INDIAN DIRECTOR/S
DO WE NEED TO FOLLOW ANY RBI GUIDELINES
OR WILL WE COMMIT ANY OFFENCE IF WE OPEN A FIRM ABROAD WITHOUT ANY RBI PROCEDUREBEING FOLLOWE
I ASK U ALL THIS QUESTION COZ IN HAVE NO IDEA ABT IT
PL ENLIGHTEN ME

REGARDS
Manish Singh (Expert) 21 March 2008
This is for your reference:

Under the exchange control regulations, Indian corporates are permitted to invest in entities outside India. The investments could be made either under the automatic approval route or the specific prior approval route. Where the proposed investment does not satisfy the conditions of the automatic approval route, the same would require prior approval of RBI.

Some of the key conditions to be satisfied so as to qualify for the automatic approval route are a follows:

Terms and conditions for outbound investment under the automatic route

Investment is made in an overseas Joint venture ("JV") or Wholly owned subsidiary ("WOS") engaged in a bona fide business activity.
Total financial commitment of Indian entity does not exceed 200 percent of net worth of the Indian entity as on the date of last audited balance sheet.
Indian entity is not on RBI's caution list or under investigation by Enforcement Directorate.
Indian entity has to comply with certain filing requirements with RBI.
Indian entity routes all transactions relating to such investments through only one branch of an Authorised Dealer designated by it.
Modes of funding the above investment

The investment outside India may be funded out of the following sources:

Balance held in EEFC account of Indian entity maintained with an Authorized Dealer.
Withdrawal of foreign exchange from an Indian banker upto 200 percent of net worth of Indian investor as on the date of last audited balance sheet.
Utilization of proceeds of ADR/ GDR issues raised by Indian entity.
Acquisition of shares of a foreign company engaged in similar core activity in exchange of ADR/ GDRs issued to the latter, subject to certain terms and conditions.
Capitalization of receivables in respect of export of plant, machinery, equipment and other goods/ software to the foreign entity or fees, royalties, commissions or other entitlements for supply of technical know-how, consultancy, managerial or other services. Prior approval of RBI would be required where receivables are more than six months old.
Export of goods/ software/ plant and machinery from India towards equity contribution in a JV/ WOS outside India subject to certain compliances

Investments by Proprietary concerns:

A proprietary concern may accept shares of a company outside India, with prior approval of RBI, in lieu of professional services rendered to such company subject

to following conditions:

Value of shares does not exceed 50 percent of fees receivable; and
The concern's shareholding in one company by virtue of acquisition as above does not exceed 10 percent of paid up capital of such company


With a view to further liberalising overseas direct investment by Indian parties,
the Reserve Bank has vide its Notification No.FEMA 40/2001-RB dated March 2, 2001
(copy enclosed) amended the said Regulations. The salient features of the amendments
are given in the following paragraphs
a) Investments by Corporates – Joint Ventures (JV)/
Wholly Owned Subsidiaries (WOS) -Limits and Eligibility
i) Under the Automatic Route as per Regulation 6 of the Notification dated
3rd May, 2000, Indian parties may now invest in Joint Ventures
(JV)/Wholly Owned Subsidiaries (WOS) outside India, an amount not
exceeding US $ 50 mn. or its equivalent in a financial year, (additional
amount of US $ 25 mn. for investments in Myanmar and SAARC
countries, other than Nepal, Bhutan and Pakistan) as against existing limit
of US $ 50 mn. in a block of three years.
ii) The profitability condition prescribed vide clause (iv) of Regulation 6 (2)
under the Notification dated 3rd May 2000 has been dispensed with.
iii) In respect of direct investment in Nepal and Bhutan in Indian Rupees, the
total financial commitment by Indian parties can now be upto Rs.350
crores in a financial year as against the existing limit of Rs.120 crores in
a block of three financial years.
b) ADR/GDR Issues-Uti


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