Executive Summary:
This circular from the Reserve Bank of India replaces the 2000 regulations regarding the acquisition and transfer of immovable property outside India with new regulations issued in 2015. The new regulations, effective January 21, 2016, generally require prior approval from the Reserve Bank for such transactions, with certain exceptions. It outlines specific conditions and limits for property acquisition by Indian companies with overseas offices.
Key Points / Main Content:
* **Regulations Revision:** The Foreign Exchange Management Acquisition and Transfer of Immovable Property outside India Regulations, 2000, have been repealed and replaced by the 2015 regulations.
* **Prior Approval Requirement:** Acquisition or transfer of immovable property outside India by a resident Indian requires prior Reserve Bank approval, except in specific cases.
* **Exceptions to Prior Approval:**
* Property held outside India by a foreign citizen resident in India.
* Property acquired on or before July 8, 1947, with Reserve Bank permission.
* Property acquired via gift or inheritance from specific persons (as defined in the document).
* Property purchased from Resident Foreign Currency (RFC) account funds.
* Property acquired jointly with a relative residing outside India, without outflow of funds from India.
* Property acquired via gift or inheritance from a resident Indian who acquired it according to existing foreign exchange provisions at the time.
* **Indian Companies with Overseas Offices:**
* May acquire immovable property outside India for business and residential purposes.
* Total remittances for initial expenses cannot exceed the higher of 15% of the average annual sales income/turnover of the last two financial years or 25% of the net worth.
* Recurring expenses are capped at 10% of the average annual sales income/turnover of the last two financial years.
* **Definition of 'Relative':** For these regulations, 'relative' includes husband, wife, brother, sister, or any lineal ascendant or descendant.
* **Notification Details:** The new regulations were notified under Notification No. FEMA 7R/2015-RB, dated January 21, 2016, and G.S.R. No. 95(E), dated January 21, 2016.
Impact Analysis:
Authorised Dealer (AD) Category I Banks:
* Impact: Need to understand and implement the revised regulations concerning foreign exchange management related to property acquisition and transfer outside India.
* Action Required: Bring the contents of this circular to the attention of their concerned constituents.
Constituents of AD Category I Banks:
* Impact: Subject to revised regulations regarding acquisition and transfer of immovable property outside India.
* Action Required: Comply with the new regulations, including obtaining prior approval from the Reserve Bank of India where required, and understanding the conditions under which exceptions apply.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking sector and managing the country's monetary policy.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Acquisition and Transfer of Immovable Property outside India Regulations, 2015: Regulations governing the acquisition and transfer of immovable property outside India by individuals or entities resident in India.
Government of India: The Union Government established by the Constitution of India.
A.D.M.A. Series Circular No. 11: A circular issued by the Reserve Bank of India providing instructions and guidelines to Authorised Dealers (ADs) regarding various rules, regulations, notifications, and directions under the Foreign Exchange Management Act, 1999.
Resident Foreign Currency RFC account: A type of bank account that allows individuals resident in India to hold funds in foreign currency.
B. P. Kanungo: Principal Chief General Manager at Reserve Bank of India.
Mumbai, Maharashtra: The financial capital of India and the location of the Reserve Bank of India headquarters.
RESERVE BANK OF INDIA
Mumbai - 400 001
RBI/2015-16/308 February 04, 2016
A.P. (DIR Series) Circular No. 43/2015-16 [(1)/7(R)]
To
All Category - I Authorised Dealer and Authorised Banks
Madam/ Sir
Foreign Exchange Management (Acquisition and Transfer of Immovable
Property outside India) Regulations, 2015
Attention of Authorised Dealers (ADs) is invited to A.D.(M.A. Series) Circular
No. 11 dated May 16, 2000 in terms of which ADs were advised of various
Rules, Regulations, Notifications/ Directions issued under the Foreign
Exchange Management Act, 1999 (hereinafter referred to as the Act). On a
review it is felt necessary to revise the regulations issued under the Foreign
Exchange Management (Acquisition and Transfer of Immovable Property
outside India) Regulations, 2000, as amended from time to time. Accordingly,
in consultation with the Government of India, the said regulations have been
repealed and replaced by the Foreign Exchange Management (Acquisition
and Transfer of Immovable Property outside India) Regulations, 2015.
2. In terms of these Regulations, acquisition or transfer of any immovable
property outside India by a person resident in India would require prior
approval of Reserve Bank except in the following cases:
a) Property held outside India by a foreign citizen resident in India;
b) Property acquired by a person on or before 8th July, 1947 and held with
the permission of Reserve Bank;
c) Property acquired by way of gift or inheritance from:
i. persons referred to in (b) above;
ii. persons referred to in section 6(4) of the Act;
d) Property purchased out of funds held in Resident Foreign Currency
(RFC) account held in accordance with the Foreign Exchange
Management (Foreign Currency Accounts by a person resident in
India) Regulations, 2015;e) Property acquired jointly with a relative who is a person resident
outside India provided there is no outflow of funds from India;
f) Property acquired by way of inheritance or gift from a person resident
in India who acquired such property in accordance with the foreign
exchange provisions in force at the time of such acquisition
3. An Indian company having overseas offices may acquire immovable
property outside India for its business and residential purposes provided total
remittances do not exceed the following limits prescribed for initial and
recurring expenses, respectively:
a) 15 per cent of the average annual sales/ income or turnover of the
Indian entity during the last two financial years or up to 25 per cent of
the net worth, whichever is higher;
b) 10 per cent of the average annual sales/ income or turnover during
the last two financial years.
4. For the purpose of these regulations, 'relative' in relation to an individual
means husband, wife, brother or sister or any lineal ascendant or descendant
of that individual.
5. The new regulations have been notified vide Notification No. FEMA
7(R)/2015-RB dated January 21, 2016 c.f. G.S.R. No. 95(E) dated January
21, 2016 and shall come into force with effect from January 21, 2016. The
Master Direction No. 12 of 2015-16 (Acquisition and Transfer of Immovable
Property under Foreign Exchange Management Act, 1999) has been updated
accordingly to incorporate the above changes.
6. AD Category- I banks may bring the contents of the circular to the notice of
their constituents concerned.
7. The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999)
and are without prejudice to permissions/ approvals, if any, required under
any other law.
Yours faithfully
(B. P. Kanungo)
Principal Chief General Manager