March 29, 2024

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FEMA 120: Clarity missing on gifting of shares, claims specialist

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In recent periods, there have also been some discussions about the Overseas Immediate Investment-Foreign Direct Investment decision framework exactly where an overseas entity which has received expense into it from Indian buyers sets up a subsidiary or enters into a JV in India – and the permissibility/regulatory facets all over the exact.

Having said that, there are ambiguities that will need to be cleared, according to Abin Daya, Principal – Regulatory Compliance, Aquinas Consulting LLP, and who advises corporates on Overseas Trade Administration Act, 1999.

RBI placement on ODI-FDI

The recent provisions of FEMA 120 prohibit ODI-FDI structures, notes Daya.

A person circumstance which hasn’t probably bought the consideration it deserved is the acquisition of shares by a Resident Unique by way of present from an abroad celebration. Whilst it was not very common earlier, curiosity is finding up on the exact now. A resident particular person is permitted to obtain shares in an abroad corporation, by way of present, less than Regulation 22, sub-regulation 1(i) of FEMA 120. Such acquisition of shares by way of present does not demand any reporting to be carried out to RBI.

Consequently, there is report at the regulator’s end of these types of an entity, but any exercise performed by the overseas entity, which include investing back into India, does not get tracked by RBI. “This is a person loophole that could get exploited by buyers searching to get about the existing limitations,” states Daya.

“I do not consider the regulators are unaware of the difficulty but shockingly, there is not considerably clarity on this element. Even even though I known as it a loophole, I am not even certain it is just one, simply because if the transaction is not to be reported then are other restrictions relevant to these kinds of an abroad entity?”

Not much clarity

If a Resident Particular person is not anticipated to report acquisition of shares of an abroad entity by way of reward, then are the limits outlined in para 6 of Program V of FEMA 120 applicable to these types of an entity, wonders Daya. If the entity sets up a subsidiary in India, will that be a non-permissible transaction less than the computerized route?

Much more importantly, is not it time the regulator recognised realities of performing organization and eased compliance close to it, at the very least by allowing abroad businesses in which Indian traders have a minority fascination to set up subsidiaries or enter into JVs in India, Daya claimed.

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