Executive Summary:
This notification, titled the Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Eleventh Amendment Regulations, 2016, amends the 2000 regulations regarding foreign investment in India. It introduces a new provision allowing wholly-owned subsidiaries to issue shares to their nonresident parent entities against pre-incorporation expenses. The regulations are effective from the date of their publication in the Official Gazette.
Key Points / Main Content:
Amendment to Schedule 1:
* A new subparagraph 5 is inserted into paragraph 2 of Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.
Equity Issuance for Pre-operative Expenses:
* A wholly-owned subsidiary in India of a nonresident entity can issue equity shares, preference shares, convertible debentures, or warrants to the nonresident entity.
* This issuance is against pre-incorporation/pre-operative expenses incurred by the nonresident entity.
* The limit for such issuance is the lower of 5% of its capital or USD 500,000.
* This applies to sectors allowing 100% foreign investment under the automatic route without FDI-linked conditionalities.
Reporting Requirements:
* The Indian company must report the transaction in Form FCGPR to the Reserve Bank within 30 days of issuance but no later than one year from incorporation (or as permitted by RBI/GOI).
Valuation and Certification:
* The valuation of shares/debentures/warrants is subject to Paragraph 5 of Schedule 1 of the Regulations.
* A statutory auditor's certificate confirming the utilization of the funds for the intended purpose must be submitted with Form FCGPR.
Definition of Pre-operative Expenses:
* Includes amounts remitted to the Investee Company's account, investor's account in India (if it exists), or to consultants/service providers for incorporation or commencement of operations.
Impact Analysis:
Non-Resident Entities Investing in India:
*Impact: Allows recovery of pre-incorporation/pre-operative expenses through equity issuance, up to specified limits.
*Action Required: Ensure compliance with reporting requirements (Form FCGPR) and valuation norms.
Wholly-Owned Subsidiaries in India:
*Impact: Can issue equity shares/debentures/warrants to parent company against pre-incorporation expenses.
*Action Required: Report the transaction via Form FCGPR within the stipulated timeframe and obtain auditor's certificate for expense utilization.
Statutory Auditors of Indian Companies:
*Impact: Required to certify the proper utilization of pre-incorporation/pre-operative expenses.
*Action Required: Issue a certificate confirming that the amount against which equity shares or preference shares or convertible debentures or warrants have been issued has been utilized for the purpose for which it was received.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the foreign exchange market.
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 Transfer or Issue of Security by a Person Resident outside India Regulations, 2000: Regulations pertaining to the transfer or issue of security by a person resident outside India.
Mumbai, Maharashtra: The city in India where the central office of the Reserve Bank of India is located.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Eleventh Amendment Regulations, 2016: Amendment regulations to the Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2000.
Form FCGPR: Form for reporting transactions related to the issue of equity shares or preference shares or convertible debentures or warrants to the Reserve Bank of India.
Government of India: The Union Government of India.
Official Gazette: A publication of the Government of India, used for publishing official notifications and regulations.
Reserve Bank of India
Foreign Exchange Department
Central Office
Mumbai – 400 001
Notification No.FEMA.373/2016-RB October 24, 2016
Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Eleventh Amendment) Regulations, 2016
In exercise of the powers conferred by clause (b) of sub-section (3) of Section 6 and Section 47 of the Foreign
Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby makes the following amendments in
the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000
(Notification No.FEMA.20/2000-RB dated 3rd May 2000) namely:-
1. Short Title & Commencement:-
(i) These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) (Eleventh Amendment) Regulations, 2016.
(ii) They shall come into force from the date of their publication in the Official Gazette.
2. Amendment of Schedule 1
In the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000, (Notification No. FEMA 20/2000-RB dated 3rd May 2000), in Schedule 1, in paragraph 2, after the existing sub-
paragraph (4), a new sub-paragraph, by name ‘(5)’ shall be inserted, namely:
“(5). A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector where 100 percent
foreign investment is allowed in the automatic route and there are no FDI linked conditionalities, may issue equity
shares or preference shares or convertible debentures or warrants to the said non-resident entity against pre-
incorporation/ pre-operative expenses incurred by the said non-resident entity up to a limit of five percent of its capital
or USD 500,000 whichever is less, subject to the conditions laid down below.
a. Within thirty days from the date of issue of equity shares or preference shares or convertible debentures or
warrants but not later than one year from the date of incorporation or such time as Reserve Bank of India or
Government of India permits, the Indian company shall report the transaction in the Form FC-GPR to the
Reserve Bank.
b. The valuation of the equity shares or preference shares or convertible debentures or warrants shall be subject to
the provisions of Paragraph 5 of Schedule 1 of these Regulations.
c. A certificate issued by the statutory auditor of the Indian company that the amount of pre-incorporation/pre-
operative expenses against which equity shares or preference shares or convertible debentures or warrants have
been issued has been utilized for the purpose for which it was received should be submitted with the FC-GPR
form.
Explanation: Pre-incorporation/pre-operative expenses shall include amounts remitted to Investee Company’s account,
to the investor’s account in India if it exists, to any consultant, attorney or to any other material/service provider for
expenditure relating to incorporation or necessary for commencement of operations.
(Shekhar Bhatnagar)
Chief General Manager-In ChargeFoot Note:-
The Principal Regulations were published in the Official Gazette vide G.S.R. No.406 (E) dated May 8, 2000 in Part II,
Section 3, sub-Section (i) and subsequently amended as under:-
G.S.R.No. 158(E) dated 02.03.2001
G.S.R.No. 175(E) dated 13.03.2001
G.S.R.No. 182(E) dated 14.03.2001
G.S.R.No. 4(E) dated 02.01.2002
G.S.R.No. 574(E) dated 19.08.2002
G.S.R.No. 223(E) dated 18.03.2003
G.S.R.No. 225(E) dated 18.03.2003
G.S.R.No. 558(E) dated 22.07.2003
G.S.R.No. 835(E) dated 23.10.2003
G.S.R.No. 899(E) dated 22.11.2003
G.S.R.No. 12(E) dated 07.01.2004
G.S.R.No. 278(E) dated 23.04.2004
G.S.R.No. 454(E) dated 16.07.2004
G.S.R.No. 625(E) dated 21.09.2004
G.S.R.No. 799(E) dated 08.12.2004
G.S.R.No. 201(E) dated 01.04.2005
G.S.R.No. 202(E) dated 01.04.2005
G.S.R.No. 504(E) dated 25.07.2005
G.S.R.No. 505(E) dated 25.07.2005
G.S.R.No. 513(E) dated 29.07.2005
G.S.R.No. 738(E) dated 22.12.2005
G.S.R.No. 29(E) dated 19.01.2006
G.S.R.No. 413(E) dated 11.07.2006
G.S.R.No. 712(E) dated 14.11.2007
G.S.R.No. 713(E) dated 14.11.2007
G.S.R.No. 737(E) dated 29.11.2007
G.S.R.No. 575(E) dated 05.08.2008
G.S.R.No. 896(E) dated 30.12.2008
G.S.R.No. 851(E) dated 01.12.2009
G.S.R.No. 341 (E) dated 21.04.2010
G.S.R.No. 821 (E) dated 10.11.2012
G.S.R.No. 606(E) dated 03.08.2012
G.S.R.No. 795(E) dated 30.10.2012
G.S.R.No. 796(E) dated 30.10.2012
G.S.R. No. 797(E) dated 30.10.2012
G.S.R.No. 945 (E) dated 31.12.2012
G.S.R. No.946(E) dated 31.12.2012
G.S.R. No.38(E) dated 22.01.2013
G.S.R.No.515(E) dated 30.07.2013G.S.R.No.532(E) dated 05.08.2013
G.S.R. No.341(E) dated 28.05.2013
G.S.R.No.344(E) dated 29.05.2013
G.S.R. No.195(E) dated 01.04.2013
G.S.R.No.393(E) dated 21.06.2013
G.S.R.No.591(E) dated 04.09.2013
G.S.R.No.596(E) dated 06.09.2013
G.S.R.No.597(E) dated 06.09.2013
G.S.R.No.681(E) dated 11.10.2013
G.S.R.No.682(E) dated 11.10.2013
G.S.R. No.818(E) dated 31.12.2013
G.S.R. No.805(E) dated 30.12.2013
G.S.R.No.683(E) dated 11.10.2013
G.S.R.No.189(E) dated 19.03.2014
G.S.R.No.190(E) dated 19.03.2014
G.S.R.No.270(E) dated 07.04.2014
G.S.R.No. 361 (E) dated 27.05.2014
G.S.R.No.370(E) dated 30.05.2014
G.S.R.No.371(E) dated 30.05.2014
G.S.R.No. 435 (E) dated 08.07.2014
G.S.R.No. 400 (E) dated 12.06.2014
G.S.R.No. 436 (E) dated 08.07.2014
G.S.R.No. 487 (E) dated 11.07.2014
G.S.R.No. 632 (E) dated 02.09.2014
G.S.R.No. 798 (E) dated 13.11.2014
G.S.R.No. 799 (E) dated 13.11.2014
G.S.R.No. 800 (E) dated 13.11.2014
G.S.R.No. 829 (E) dated 21.11.2014
G.S.R.No. 906(E) dated 22.12.2014
G.S.R.No. 914 (E) dated 24.12.2014
G.S.R.No. 30 (E) dated 14.01.2015
G.S.R.No. 183 (E) dated 12.03.2015
G.S.R.No. 284 (E) dated 13.04.2015
G.S.R.No. 484 (E) dated 11.06.2015
G.S.R.No. 745 (E) dated 30.09.2015
G.S.R.No. 759 (E) dated 06.10.2015
G.S.R.No. 823 (E) dated 30.10.2015
G.S.R.No. 858 (E) dated 16.11.2015
G.S.R.No. 983 (E) dated 17.12.2015
G.S.R.No. 165 (E) dated 15.02.2016
G.S.R.No. 166 (E) dated 15.02.2016
G.S.R.No. 369 (E) dated 30.03.2016
G.S.R.No. 537 (E) dated 20.05.2016Published in the Official Gazette of Government of
India – Extraordinary – Part-II, Section 3,
Sub-Section (i) dated 24.10.2016- G.S.R.No.1002 (E)