VALUATION UNDER FEMA October 20, 2023 Presented by CA. Niki Darshak Shah Registered Valuer Mobile No.-9930547923
TABLE OF CONTENTS Index
Page No.
FEMA BACKGROUND
03
FOREIGN DIRECT INVESTMENTS
04
DOWNSTREAM INVESTMENT
09
OVERSEAS DIRECT INVESTMENTS
11
APPLICABILITY
15
TABLE OF CONTENT
02
OVERVIEW
FEMA 1. Consolidate and amend the law relating to foreign exchange. 2. Facilitating external trade and payments
3. Promoting the orderly development and maintenance of foreign exchange market in India 4. 49 sections under FEMAAct 5. FEM (Non-debt Instruments) Rules, 2019
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03
FOREIGN DIRECT INVESTMENT WHEN DOES TRANSACTION AFFECTS
VALUATION CERTIFICATE
Inflow of money by
To be taken from
investment by a Non-
Chartered Accountant
Resident on a repatriable
METHODOLOGY
PRICING GUIDELINES
Issue of Shares by Indian
or SEBI registered
For Listed Cos. Price worked out in accordance with the
basis in capital instruments
Merchant Banker or
relevant SEBI guidelines
of an Indian company
Practicing Cost
For Unlisted Cos.
OR
Accountant.
Internationally accepted
By Issue of Shares.
Cos- Price should not be less than Fair Value
pricing methodology
• Special Comments The valuation certificate should not be more than 90 days old as on the date of allotment/transfer of shares.
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04
TRANSFER OF SHARES Transfer of shares must be reported in Form FC-TRS to RBI
When The Transfer Of Shares Is Made By Way Of Sale Between A Person Resident In India To NonResident.
Transfer Of Shares By Indian Cos- Price Should Not Be Less Than Fair Value
To Be Taken From Chartered Accountant Or Sebi Registered Merchant Banker Or Practicing Cost Accountant.
- For Listed Cos. Price Worked Out In Accordance With The Relevant Sebi Guidelines -For Unlisted Cos. Internationally Accepted Pricing Methodology
FC-TRS should be filed within 60 days of receipt/remittance of sale consideration TABLE OF CONTENT
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TRANSFER OF SHARES FROM NON-RESIDENT TO RESIDENT If shares are transferred by Non-resident to person Resident in India must be reported in Form FC-TRS to RBI When does transaction affects -Shares are transferred between a person Resident outside India to Resident in India.
Valuation Certificate
01
03
-To be taken from Chartered Accountant or SEBI registered Merchant Banker. Methodology
Pricing Guidelines -Transfer of Shares from a nonresident to resident -Price should not be more than Fair Value
02
04
• For Listed Cos. - price worked out in accordance with the SEBI guidelines • For Unlisted Cos. -Internationally accepted pricing methodology TABLE OF CONTENT
06
FC-TRS IS NOT REQUIRED In Case of-
In Case of• Transfer of shares from Non-Resident holding shares on non-repatriable basis to a • Resident Transfer and of shares from Non-Resident holding shares on nonvice versa repatriable basis to a Resident and vice versa • Transfer of Shares from a person Resident outside India holding on a repatriable basis • to Transfer ofresident Shares from a person a person outside India Resident outside India holding on a repatriable basis to a person resident outside India • A transfer of shares by way of Gift • A transfer of shares by way of Gift
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BIRD’S EYE VIEW Valuation norms for Issuance/transfer of shares in an Indian Company Nature
Listed Company
Unlisted Company
Issue by an Indian Company
Price should not be < the price as per SEBI guidelines
Price should not be < the Fair Value worked out by a CA
Transfer from R-NR
Price should not be < the price as per SEBI guidelines
Price should not be < the Fair Value worked out by a CA
Transfer from NR-R
Price should not be > the price as per SEBI guidelines
Price should not be > the Fair Value worked out by a CA
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DOWNSTREAM INVESTMENTS • Indirect foreign investment is often referred to as “Downstream Investment (DI) under FEMA •If an Indian company receiving any FDI and that FDI is used for the purpose of
investing in the capital instrument in any other Indian company. • Investor company has to make reporting in FORM DI for such Downstream Investment. • Reporting- First level Indian company making DI has to do reporting. •If the investee company makes any DI and so forth, the onus of making reporting for DI shall also remain on first level Indian company Ex- Walmart-> (77%) Flipkart-> Supermart (Grocery delivery startup) •Issue/transfer/pricing/valuation of shares shall be in accordance with SEBI/RBI
guidelines
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DOWNSTREAM INVESTMENTS • Equity = 50% or more OR • Controlled by foreign Investor
Foreign Investor
• Direct Foreign Investment
Outside India India
Indian company (IC) - First level • Indirect Foreign Investment
Downstream Investment - Secondlevel
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10
OVERSEAS DIRECT INVESTMENT ODI stands for Investment by way of-
1. Contribution to the capital or subscription to the memorandum of a foreign entity Or 2. by way of purchase of existing shares of a foreign entity Either in Joint Venture or Wholly Owned Subsidiary by market purchase or private placement. 3.ODI can be by way of funds, capitalisation of receivable within realisable time period, swap of securities due to merger, demerger, amalgamation, liquidation. 4. ODI upto 400% of net worth of Indian entity is permitted
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OUTBOUND INVESTMENTS Routes for Overseas Investments
Overseas Direct Investment by Indian Party
Investment in overseas JV/WOS
Overseas Investment by Individual in India
Investment in foreign securities other than by way of foreign Investment
Liberalized Remittance Scheme (LRS)
Acquisition of qualification/right shares
ODI by proprietorship concern
Shares under ESOP Scheme
Indian Depository Receipt
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OVERSEAS DIRECT INVESTMENT
When does transaction affects -When an Resident forms JV or WOS outside India OR Acquires or transfer stake in a foreign entity
Valuation Certificate
-No Valuation is required for newly set-up company outside India -Existing Venture from SEBI registered Merchant Banker or a Chartered Accountant.
Methodology Internationally accepted pricing methodology
Pricing Guidelines Share price should not be more than the Fair Value
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DISINVESTMENT IN JV/WOS • Transfer by way of sale of Shares of a JV/WOS outside India
If Listed SharesTransfer should be through Stock Exchange If Unlisted SharesPrice should not be less than the Fair Value
Valuation Certificate
Outstanding Dues
From Chartered Accountant OR Certified Public Accountant
By way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and/or export proceeds from the JV/WOS
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APPLICABILITY AT A GLANCE Particulars
Registered Valuer
Merchant Banker (SEBI Registered)
Chartered Accountant
Cost Accountant
(DCF)
(NAV)
Issue of Shares Companies Act 2013
Income tax Act 1961 FEMA,1999
SEBI laws
Companies Act 2013
Income tax Act 1961
SEBI laws
FEMA,1999
Transfer of Shares
SEBI laws includes many rules and regulations which prescribes merchant banker to carry out valuation, however recently those are amended to recognize registered valuer (as per Companies Act,2013) TABLE OF CONTENT
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JOIN TAX AN D F E MA W HAT SAP P G R O U P For r e c e n t u p d a t e s
Niki Darshak Shah Partner | SN & Co F.C.A, Registered Valuer (IBBI), FEMA Advisory Mobile No.: 9930547923 Email: niki@snco.in
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