Who is a Non-Resident Indian?
A Non-Resident Indian (“NRI”) is a person who is resident outside India but is a citizen of India.
Can NRI invest in Indian companies? Can a foreign national invest in Indian companies?
NRIs and foreign nationals are permitted to invest in an Indian Company in accordance with the existing Foreign Direct Investment Policy of India.
As an NRI, what is the best way to transfer money to India?
As an NRI the investment amount can be remitted by the NRI from the bank account maintained in the country of residence or the NRO/NRE/FCNR accounts maintained in India.
The investments can be made in the following manner:
- On repatriation basis – The investments made on a repatriation basis can be made from the bank account maintained in the country of residence or the NRE/FCNR accounts. This investment is required to be reported to RBI as an investment made under the FDI route by way of filing a Form FC-GPR. The proceeds from the investments made under this route are freely repatriable.
- On non-repatriation basis - The investments made on a non- repatriation basis can be made from the NRO/NRE/FCNR accounts. This investment is not required to be reported to RBI as the same does not fall within the FDI route. The proceeds received from this investment is not freely repatriable.
It is recommended that the investments be made on a repatriation basis.
If the Startup is registered in US with engineering offices in India, will this be different?
In the event the investment is proposed to be made in a company registered in the USA by NRIs or Foreign Nationals, the investments will have to be made in accordance with the laws of USA. The laws of India will have no bearing on such investments.
What are the bank account facilities that are available to NRIs in India?
- Foreign Currency (Non-Resident) Account (Banks) Scheme - FCNR(B) Account
- Non-Resident (External) Rupee Account Scheme - NRE Account
- Non-Resident Ordinary Rupee Account Scheme - NRO Account
Which sectors can an NRI invest in?
As per the extant Consolidated FDI Policy, which is amended by the Government from time to time, FDI is prohibited in (“Prohibited Sectors”):
- Lottery Business including Government /private lottery, online lotteries, etc.
- Gambling and Betting including casinos etc.
- Chit funds
- Nidhi company
- Trading in Transferable Development Rights (TDRs)
- Real Estate Business or Construction of Farm Houses
- Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
- Activities / sectors not open to private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems)
Apart from the Prohibited Sectors, NRIs can invest in sectors that are identified and regulated in the Consolidated FDI Policy, subject to the restrictions stated therein (“Regulated Sectors”).
FDI is permitted upto 100% under the automatic route in sectors which are not Prohibited Sectors or Regulated Sectors. See the existing FDI Policy document
for your reference. Please refer pages 39 onwards for sectors regulated under the FDI Policy. Do note that the FDI Policy is amended from time to time and the attached document cannot be relied on a continuous basis.
Can NRIs invest in India under the Foreign Direct Investment Scheme?
An NRI can invest in a number of entities in India under the extant Foreign Direct Investment Scheme (FDI Scheme). The list of entities would include, listed and unlisted companies, Venture Capital Fund (VCF), a Partnership/Proprietary Firm and in a Limited Liability Partnership (LLP).
What entry routes can an NRI take for investment under the FDI Scheme?
An NRI can invest under the FDI Scheme through the following routes:
- Automatic Route: In all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time
- Government Route: In all activities not covered under the automatic route requires prior approval.
Under the Automatic Route, the NRI or the entity taking FDI does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route are considered by the Foreign Investment Protection Board (FIPB).
Can an NRI invest in a domestic VCF under the FDI Scheme?
Yes. An NRI can invest on a domestic VCF under the FDI Scheme, subject to the following:
- If a domestic VCF is set up as a trust, an NRI can invest in such domestic VCF subject to approval of the FIPB
- If a domestic VCF is set-up as an incorporated company under the Companies Act, then an NRI can invest in such domestic VCF under the automatic route of FDI Scheme.
Can an NRI invest in a Partnership Firm/Proprietary Concern under the FDI Scheme?
Yes. An NRI can invest in the capital of a firm or a proprietary concern in India under the FDI Scheme, subject to the following:
- The amount is invested through inward remittance or out of NRE/FCNR(B)/NRO Account
- The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business or print media sector.
- Amount invested shall not be eligible for repatriation outside India, except with the prior approval of RBI.
Can an NRI invest in a Trust?
No. An NRI cannot invest in a Trust. The only exception is if a VCF is set up as a Trust, then the NRI can invest in the VCF subject to the approval of FIPB.
Can an NRI invest in an LLP?
Yes. An NRI can invest in an LLP subject to the following:
- An NRI can invest in LLP’s operating in sectors where 100% FDI is allowed through the automatic route and there are no FDI linked performance conditions, subject to the approval of the FIPB
- Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or through NRE/FCNR Accounts.
Can an NRI invest in an Indian company under the FDI Scheme?
Yes. An NRI can invest in shares/convertible debentures of an Indian company through:
- A remittance from its bank account outside India (“Foreign Bank Account”)
- A remittance from its NRE/FCNR(B) Accounts
What instruments can be issued by an Indian company to NRIs under the FDI Scheme?
Investment into an Indian company from a person resident outside India (including NRIs) will only be considered as FDI, if the investment is made into the following instruments (collectively FDI Instruments):
- Equity shares
- Fully and mandatorily convertible preference shares
- Fully and mandatorily convertible debentures
At what price can the FDI Instruments be issued to NRIs?
The price at which the FDI Instruments can be issued to NRIs shall not be less than the following (Pricing Guidelines):
- The price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India
- The fair valuation of shares done by a SEBI registered Category - I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method (DCF Valuation), where the shares of the company is not listed on any recognised stock exchange in India.
- The price as applicable to transfer of shares from resident to non-resident as per the pricing guidelines laid down by RBI from time to time, where the issue of shares is on preferential allotment.
However, when NRIs subscribe to the Memorandum of Association of an Indian company as its initial subscriber, then such investments may be made at face value.
Are there any restrictions with respect to the convertible instruments that are issued to NRIs under the FDI Scheme?
Yes. The FDI policy provides that the price/ conversion formula of FDI Instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations i.e. the Discounted Cash Flow Method (DCF) of valuation for the unlisted companies and valuation in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, for listed companies.
What are the filings that need to be undertaken by a Company if it issues FDI Instruments to an NRI ?
The filings that need to be undertaken would depend upon whether an NRI invests in FDI Instruments either through the FDI Scheme or the Non-Repatriation Scheme.
- Non-Repatriation Scheme: If an NRI invests in FDI Instruments through a Non-Repatriation Scheme using its NRO/NRE/FCNR(B) Accounts, then the investment would be treated as a domestic transaction and no reporting will have to be made by the investee company to RBI.
- FDI Scheme: If an NRI purchases FDI Instruments in an Indian company through funds that are available in its NRE/FCNR(B) Account or its Foreign Bank Account under the FDI Scheme, then the purchase would be treated as FDI and the be subject to the following:
- The FDI Instruments will have to be issued within 180 days from the date of the receipt of the investment amount by the Company.
- The Indian company receiving investments from an NRI, will through its Authorised Dealer, have to report the amount of investment that it has received within 30 days of the receipt of the investment amount with the Regional Office of RBI.
- The Company will need to file the Form FC-GPR with RBI within 30 days of the allotment of the FDI Instruments to the NRI.
Can an NRI freely transfer the FDI Instruments that it had purchased under the FDI Scheme?
- Transfer of FDI Instruments by NRI to Non-Residents: An NRI can transfer the FDI Instruments to Non-Residents. A transfer of FDI Instruments by an NRI to Non-Residents will require the prior approval of RBI.
- Transfer of FDI Instruments by NRIs to NRIs: An NRI can transfer the FDI Instruments to other NRI’s. A transfer of FDI Instruments by an NRI to NRI will not require the prior approval of RBI.
- Transfer of FDI Instruments by NRIs to Residents: An NRI can transfer the FDI Instruments to Residents without the prior approval of RBI, subject to the sale of the FDI Instruments being in consonance with pricing guidelines as stated in point 11 above.
Post the sale of its FDI Instruments, can an NRI repatriate the sale proceeds outside of India?
- Purchase of FDI Instruments through Non-Repatriation Scheme: If the NRI has purchased the FDI Instruments through the Non-Repatriation Scheme, then the sale proceeds cannot be repatriated outside of India.
- Purchase of shares through Foreign Bank Account or NRE/FCNR(B) Account under FDI Scheme and filing of Form FC-GPR: If the NRI has purchased the FDI Instruments through its NRE/FCNR(B) Account or through its Foreign Bank Account and the investment in the FDI Instruments has been reported through the filing of Form FC-GPR, then the sale proceeds can be repatriated outside of India.