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Entrepreneurs and companies establish their business globally to get many benefits of the foreign market. Some of the advantages which they receive are access to international institutions, dealing in foreign currencies and new customers. However, there are particular challenges also faced while establishing a business in a foreign country. Entrepreneurs/Individuals and Companies have to be compliant with the relevant Foreign Exchange Laws of India before setting an international footprint.
Global Business establishment under FEMA has the following purposes:
Challenges under Global Business Establishment under FEMA
Under Global Business Establishment under FEMA, the RBI provides two routes for Foreign Direct Investment routes are:
There is no process for investing in a foreign country when it comes to the purview of the automatic route. No requirement of any approval under the Automatic Route from the Reserve Bank of India. Under the following routes, there is no requirement for any form of approval:
The main regulatory authority is the Reserve Bank of India (RBI). The Authorised Dealers (AD) which are banks will deal with the individual/companies to liaise with the RBI for requirements under the relevant schemes. The other concerned law is FEMA.
Under the Liberalised Scheme the eligibility criteria for Global Business Establishment under FEMA:
For Individuals and Entrepreneurs
Under the Automatic route for Companies:
For Entrepreneurs and Individuals (Liberalised Scheme LRS)
The Liberalised Scheme has improved and allowed individuals and companies to invest in many sectors. Up to $250000 is permitted under this scheme. This scheme is available for both capital account as well as current account transactions. It has to be noted that an Indian resident cannot provide a gift under this Liberalised Scheme.
Foreign Currency Accounts can be opened and maintained by an individual who is present in India under this scheme.
Capital Account Restrictions are not present for the countries categorised as high risk under the Financial Action Task Force. However, when it comes to revenue account three are no restrictions.
This scheme is not available for corporate, partnerships and Hindu Undivided Family (HUF).
Automatic Route (For Companies)
A company can invest up to 400% of its net worth as per the last audited balance sheet. This limit of net worth will not be applicable if the investment is made out of the Exchange Earner’s Foreign Currency Account of the Indian party or out of the funds that are raised through ADR/GDR (American Depository Receipts/ Global Depository Receipts)
The Indian Party must not be on the exporters’ caution list or any other applicable list. The value of investment shall not be more than 400%. The following contributions can be made in a joint venture or the wholly-owned subsidiary:
For Companies under the Automatic Route
Also, Read: Investment in Foreign Company by Indian Company.
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