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How Bad is a Qualified Report? Understanding SOC Report Opinions

How bad is a qualified report? This question comes up almost every time a qualified auditor report is issued to a service organization. The person(s) asking this question is usually comparing a qualified service auditor’s report (SOC 1 or SOC 2) to a going concern opinion on a financial statement audit. Both are concerning but how do they differ? What is the difference between a qualified SOC report and an unqualified SOC report? What are the types of opinions a SOC report can receive? In this post, we will cover these questions in order for users to better understand SOC report opinions.

What Type of Audit Reports Have These Opinions?

The types of audit reports and the associated opinions we will be discussing in this post are SOC 1 (formerly SSAE 16) and SOC 2 Reports.

  • A SOC 1 report (f. SSAE 16) is an opinion issued on the service organization’s internal controls over financial reporting.
  • A SOC 2 report is based on the AICPA’s Trust Services Principles.
  • A Type I SOC report is issued stating that a service organization’s controls are designed effectively at a point in time.
  • A Type II SOC report is issued stating that a service organization’s controls are designed AND operating effectively for a specified period of time.

For further information regarding SOC Report Types refer to our article, SOC Report Types: Type I vs Type II.

What are the Four Types of Audit Opinions?

The four types of opinions SOC reports can be issued with are; unqualified, qualified, disclaimer, and adverse opinions.

A disclaimer opinion typically means that the service auditor was unable to issue an opinion as they were limited by the service organization in the information they requested or procedures performed.

An adverse opinion is the worst opinion that can be issued. An adverse opinion indicates that the users of the SOC report can not place any reliance on the service organization’s system.

In both cases, the user may want to communicate with their service provider to better understand the circumstances that drove the service auditor to issue these opinions and possibly switch service providers. Continue reading for information on what an unqualified report opinion and a qualified report opinion means.

What is an Unqualified Report?

What does it mean when your SOC report has an unqualified opinion?

An unqualified opinion indicates that the controls tested as part of the report appear to be designed (Type I or II) and operating (Type II) effectively. An unqualified opinion doesn’t mean there were no issues/exceptions identified by the service auditor.

An unqualified report can have issues identified by the service auditor in the testing they performed. If issues were identified but the report was unqualified, then the service organization and their auditors were able to mitigate and/or remediate the risks presented by the issues and the control was deemed effective despite these issues.

By issuing an unqualified report with issues, the service auditor did not believe that the issues identified resulted in a material weakness in the control environment. The user of the report will still want to understand the issues identified, but with an unqualified report opinion, the service auditor’s opinion is that the user of the report can place reliance on the service organization’s system.

What is Meant by a Qualified Audit Report Opinion?

If a SOC report is issued with a qualified opinion, it indicates that a control or controls were not designed (Type I or II) and/or operating effectively (Type II).

A qualified report indicates that issues identified in the report were significant enough to deem one or more controls ineffective. Qualified report opinions are actually quite common and they are not considered as severe as an adverse or disclaimer opinion.
What does it mean for the user obtaining a qualified SOC report from their service provider? A qualified SOC report does not mean that you can not rely on the report at all. The control objectives in the report that are designed and/or operating effectively can still be relied upon in most cases. It is the control(s) with deficiencies that will need further work on the part of the user.
For financial statement purposes, a client’s external auditor may be able to perform additional testing on secondary controls at the user level to mitigate the risk presented by the ineffective control(s) in the SOC report. It will depend on the user of the report to examine the services rendered by the organization and the controls they have in place at their organization to determine how much, if any, reliance will be placed on a qualified report.
For further information regarding qualified audit opinions and how they affect organizations, refer to our article, SOC Qualified Opinions & What they Mean for Your Organization

How is a Going Concern Opinion Different From a Qualified Report?

A going concern opinion often means the organization is in financial peril and may meet its demise very soon.
However, a qualified opinion on a service auditor’s report is more akin to a material internal control weakness disclosure for SEC registrants who have to issue such disclosures for Sarbanes-Oxley Act purposes. A qualified opinion in a service auditor’s report could be described as similar to a significant deficiency or material weakness in internal control disclosure.
All should be avoided by management. Though the going concern opinion is the worst of the opinions just described.

Summary There are four different opinions that can be issued with a SOC report; unqualified, qualified, disclaimer and adverse. Though a qualified report opinion is not ideal, many service organizations issue a qualified report at some point in time, especially in their first year of issuing a SOC report.
A qualified report is not the worst case scenario when issuing a SOC report, but a service organization should strive to obtain an unqualified opinion. An unqualified report does not indicate that no issues were identified, but rather that the service organization’s controls are designed (Type I or II) and operating (Type II) effectively.
Regardless of the opinion issued with the report, it is up to the user of the report to determine how the results of the report affect the services being provided to them

2020-05-05 01:18:13

Do You Need a SOC Audit? Three Tips for Determining Your Reporting Needs

Do You Need a SOC Audit? Three Tips for Determining Your Reporting Needs


In recent years regulators have transitioned toward control reporting standards that are more specific to the service offering provided by the service organization. Enter SOC 1 (formerly SSAE 16). SOC, or Service Organization Control audits, serves as a way to create more value, transparency and awareness within service organization reporting.
Within the framework, there are three types of SOC audits to choose from, the right one for you depends on the nature of your industry. The main difference is that SOC 1 reports on the controls of the service organization that are related to its client’s financial reporting, while the SOC 2 and 3 report on the effectiveness of controls related to compliance or operations. So how do you determine which (if any) report is right for you? Here are a few questions you can ask yourself to determine your reporting needs.

1. Does Your Company Provide a Service That Affects the Financial Statements of Another Company?

The main question to ask yourself in order to determine whether or not your company will need an SOC 1 audit is, Do we provide a service that affects the financial statements of another company? If the answer is yes, then the SOC 1 report is probably necessary for your company. Collections agencies, payroll administrators and fulfillment companies are a few specific examples of the types of businesses that may require an SOC 1 report.

2. Does Your Company Provide a Service That Affects Compliance and Operational Controls?

With technology advancing at the speed of light, there are more and more technology-based organizations popping up all the time. If your organization works with clients in any of the following categories, chances are you will need the SOC 2 report:

  • Security - The system is protected against unauthorized access
  • Availability - The system is available for operation and use as committed or agreed upon
  • Processing Integrity - System processing is complete, accurate, timely and authorized
  • Confidentiality - Information designated as confidential is protected as committed or agreed upon
  • Privacy - Personal information is collected, used, retained, disclosed and/or destroyed in accordance with established standards
    The SOC 2 report offers service organizations a way to create a separate report specific to systems not related to financial reporting. Data centers, I.T. managed services, software as a service vendors and other cloud-computing based businesses are a few examples of organizations that typically require the SOC 2 report.

Does Your Service Organization Wish to Keep the Details of Your Controls Confidential?

If you’ve determined that your organization requires the SOC 2 report, there’s a chance you could take advantage of the SOC 3 report instead. The SOC 3 report serves the same purpose as the SOC 2 report, however it doesn’t require a detailed description of the operations- or compliance-related controls, and the distribution of the report is not restricted. A company’s SOC 3 can be reviewed by anyone who would like confidence in the controls of your organization.

Each report serves a unique, specific purpose, and can be very valuable to a service organization. In today’s business world, relationships are built based on trust. Establish this critical foundation early with the appropriate reporting system in place right from the start.

2020-05-05 01:14:45

Entry India - Pricing Guidelines of Foreign Direct Investments (FDI) in India under different statues - Part 2

 

Pricing guidelines

 

Price of shares issued to persons resident outside India by company under the FDI Policy, shall not be less than:

(a)      the price worked out in accordance with the SEBI guidelines, as applicable, where the shares of the company are listed on any recognised stock exchange(RSE) in India;

(b)      the fair valuation of shares done by a SEBI registered Merchant Banker or a Chartered Accountant as per any internationally accepted pricing methodology on arm’s length basis, where the shares of the company are not listed on any recognised stock exchange in India;

 

EQUITY instruments issued on or after December 30, 2013 can contain an optionality clause subject to a minimum lock-in period of one year or as prescribed for the specific sector, whichever is higher, but without any option or right to exit at an assured price.

 

Transfer by a person resident outside India of capital instruments containing an optionality clause:

A person resident outside India holding capital instruments of an Indian company containing an optionality clause in accordance with FEMA 20(R) and exercising the option/ right, can exit without any assured return, subject to the pricing guidelines prescribed under FEMA 20(R) and a minimum lock-in period of one year or minimum lock-in period under FEMA 20(R), whichever is higher.

Capital instruments transferred by a person resident outside India to a person resident in India:

The guiding principle would be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment/ agreement and shall exit at the price prevailing at the time of exit.

 

Fresh issue of shares: Price of fresh shares issued to persons resident outside India under the FDI Scheme, shall be :

 

  • on the basis of SEBI guidelines in case of listed companies.
  • not less than fair value of shares determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow Method (DCF) in case of unlisted companies.

The above pricing guidelines are also applicable for issue of shares against payment of lump sum technical know how fee / royalty or conversion of ECB into equity or capitalization of pre incorporation expenses/import payables (with prior approval of Government).

Preferential allotment: In case of issue of shares on preferential allotment, the issue price shall not be less that the price as applicable to transfer of shares from resident to non-resident.

Issue of shares by SEZs against import of capital goods:
In this case, the share valuation has to be done by a Committee consisting of Development Commissioner and the appropriate Customs officials.



Right Shares: The price of shares offered on rights basis by the Indian company to non-resident shareholders shall be;


i.    In the case of shares of a company listed on a recognised stock exchange in India , at a price as determined by the company.

D
ii.    In the case of shares of a company not listed on a recognised stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to the resident shareholders.

Acquisition/ transfer of existing shares (private arrangement).


The acquisition of existing shares from Resident to Non-resident (i.e. to incorporated non-resident entity other than erstwhile OCB, foreign national, NRI, FII) would be at a;

(a) negotiated price for shares of companies listed on a recognized stock exchange in India which shall not be less than the price at which the preferential allotment of shares can be made under the SEBI guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the relevant date, which shall be the date of purchase or sale of shares. The price per share arrived at should be certified by a SEBI registered Merchant Banker or a Chartered Accountant.
(b) negotiated price for shares of companies which are not listed on a recognized stock exchange in India which shall not be less than the fair value to be determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow(DCF) method.
Further, transfer of existing shares by Non-resident (i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI, FII) to Resident shall not be more than the minimum price at which the transfer of shares can be made from a resident to a non-resident as given above.

The pricing of shares / convertible debentures / preference shares should be decided / determined upfront at the time of issue of the instruments. The price for the convertible instruments can also be a determined based on the conversion formula which has to be determined / fixed upfront, however the price at the time of conversion should not be less than the fair value worked out, at the time of issuance of these instruments, in accordance with the extant FEMA regulations.



Price of shares transferred by a person resident in India to a person resident outside India or Vice versa should not be less than: (Refer to Rule 21)

(a)      the price worked out in accordance with the relevant SEBI guidelines in case of a listed Indian company; or

(b)      the price at which a preferential allotment of shares can be made under the SEBI Guidelines, as applicable

(c)      the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company

[1][Explanation: In case of convertible equity instruments, the price or conversion formula of the instrument should be determined upfront at the time of issue of the instrument. 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 these rules.]

(3)      The guiding principle would be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment/ agreement and shall exit at the price prevailing at the time of exit.

(4)      In case of swap of capital instruments, irrespective of the amount, valuation will have to be made by a Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country.

(5)      In case of share warrants, their pricing and the price/ conversion formula shall be determined upfront.

(6)      In case of subscription to Memorandum of Association, such investments shall be made at face value subject to entry route and sectoral caps

(7)      The pricing of the partly paid equity shares shall be determined upfront.

(8)      The pricing guidelines will not apply for investment in capital instruments by a person resident outside India on non-repatriation basis.

(9)      The pricing guidelines will not be applicable for any transfer by way of sale done in accordance with SEBI regulations where the pricing is prescribed by SEBI. A Chartered Accountant’s Certificate to the effect that relevant SEBI regulations/ guidelines have been complied with has to be attached to the form FC-TRS filed with the AD bank.

(10)    If a Company going through delisting process the pricing of shares should be as per SEBI (Delisting of Equity Shares) Regulations, 2009.

(11)    In case of Transfer of shares from Resident to Non-Resident Price of shares shall not be less than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis

(12)    In case of Transfer of shares from Non-Resident to Resident Price of shares shall not be more than the fair value worked out as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis

(13)    Pricing not applicable for transfers between two Non-Residents

RBI vide circular 4 dated 15 July 2014, has replaced the DCF valuation norms with Internationally Accepted Pricing Methodology on an arm’s length basis (e.g. unlike section 56(2)(vii) under Income-tax Act, Wealth Tax, Transfer Pricing, CCI, SEBI for Preferential allotment, Stamp Duty). In spite of DCF being made non-mandatory, DCF method will continue to remain the mainstay in all valuations

 

 

[1]          Ins. w.r.e.f 17-10-2019, by the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2019, vide S.O. 4355(E), dt. 5-12-2019.

2020-04-15 11:34:26

Exit options for foreign investors

Foreign investors, at the time of entry, must be very clear about their exit options. In fact, knowledge of exit options is a necessary at the time of entry. Profits accruing to foreign investors hinges on their terms of exit and therefore the investors want to be prepared right at the outset. These options include transfer of shares, buy-back of shares, contractual option include Drag along and Tag along Rights, put option. This article discusses all these options widely as mention below:

 

  1. TRANSFER OF SHARES:

 

Normally there is no restriction on transfer of shares, but in case of private company transfer is governed by Articles of association. Further, in case of transfer of shares of an Indian company from resident to non- resident and vice versa, provisions of the Companies Act, 2013 and Foreign Exchange Management Act, 1999 shall be applicable.

 

 

PROCEDURE FOR TRANSFER OF SHARES

 

  1. Transferor has to give a notice in writing to convey his intention to transfer his share to Company.
  2. On receipt of such notice, the company has to notify the other members regarding the availability of such shares, Fair price and time limit within which they should communicate their options to purchase such shares.
  3. If none of the members show interest in purchasing the shares, such shares can be transferred to an outsider.
  4. As per section 56 of Companies Act, 2013 , person deliver the following instrument to Company such as:

1. Transfer deed i.e SH-7

2. Share Certificate.

 

Note: Transfer deed must be duly stamped, dated and executed by or on behalf of the transferor and the transferee.  Such Instrument delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution.

 

  1. Conduct board meeting for taken a note of transfer of shares.

 

CONDITIONS FOR TRANSFER OF SHARES

 

  1. Transfer of shares subject to Articles of Association of Company

 

Note: Restriction on transfer is not applicable in the following cases:

 

1. Where the member transfers the shares to his/her representative(s).

2. Where the shares have been devolved to the heirs in the event of death of a shareholder.

3. Where shares are proposed to be allotted on a rights basis.

 

  1. According to Indian Stamp Act, the transfer deed should need to have stamp. Rate of  stamp duty for transfer of share as : 0. 25 paise for every one hundred rupees of the value of the shares or part thereof

 

  1. BUY-BACK OF SHARES:

 

Foreign investors can exit from Indian market via a buy-back of shares at a mutually agreed internal rate of return. Buy-back governed as per the guidelines laid down in the Companies Act, 1956 read with the Private Limited Company and Unlisted Public Limited Company (Buy-Back of Securities) Rules, 1999, in case of private companies and unlisted public companies and the SEBI (Buy-Back of Securities) Regulations, 1999, in case of public listed companies.

 

PROCEDURE FOR BUYBACK OF SHARES AS PER COMPANIES ACT, 2013

 

  1. Convene a Board Meeting after giving notice to all the directors and pass the necessary resolution in respect of
  1. Buyback of shares
  2. Approve the notice of general meeting of the Company with explanatory statement, the details as per Rule 17(1) is required to be mentioned.

 

Note : If the buyback is less than 10% of paid up equity share capital & free reserve, then Board resolution will sufficient, therefore is the Board resolution passed for the same purpose  or

 

But if the buyback is more than 10% but less than 25% of paid up capital and free reserve then Special resolution is required, is it passed? (Maximum permissible in a year is 25% of paid up capital + free reserves)

 

  1. Whether Form MGT-14 is filed with the registrar along with the fees within 30 days from passing special resolution.

 

  1. File a letter of offer in Form SH-8 with ROC . Such letter of offer shall be dated and signed on behalf of the Board of directors of the company by not less than two directors of the company, one of whom shall be the managing director, where there is one.

 

  1. File a Declaration of solvency in Form No. SH.9 with the Registrar of Companies  and verified by affidavit which is to be signed by at least two directors of the company, one of whom shall be the managing director, if any, and verified by an affidavit as specified in the said Form.

 

  1. Dispatch the Letter of offer to the shareholders/security holders not later than 20 days after filling of Form SH-8 with ROC.

 

  1. Verifications of the offers received, in case there is no communication of rejection of offer within 21 days from the date of closure of offer, it is deemed to be accepted within 15 days from the date of closure of offer.

 

  1. Opening of the separate bank account & deposit therein, the amount of buyback of shares tendered for Buyback immediately after the date of closure of the offer.

 

  1. Making payment in cash to those shareholders whose offer has been accepted & return the Certificates to the Shareholders whose securities are not accepted or the balance of securities in case of part acceptance within 7 days from completion of Verification.

 

  1. Extinguish and destroy the security certificate so bought back within 7 days from the last date of completion of Buyback.

 

  1. File with the Registrar a return in Form No. SH-11 along with annexure to the return, a certificate in Form No. SH-15 signed by at least two directors of the company  one of whom shall be the managing director, if any, to the effect that the Buy-back has been made in compliance with the provisions of the Act & rules within 30 days of completion of buyback.

 

  1. Company shall maintain a register in Form No. SH.10 of the shares or securities so bought, the consideration paid for the shares or securities bought back, the date of cancellation of shares or securities, the date of extinguishing and physically destroying the shares, which shall be authenticated by CS or any other person authorized by Board.

 

CONDITIONS FOR BUYBACK OF SHARES

  1. Buy- back must be authorised by Article of Association of Company
  2. A company may purchase its own shares or other specified securities (hereinafter referred to as buy-back) out of—

(a) Its free reserves;

(b) The securities premium account; or

(c) The proceeds of the issue of any shares or other specified securities

 

  1. All the shares or other specified securities for buy-back are fully paid-up
  2. Debt (both secured & unsecured) equity ratio should be less than 2:1 Provided CG may notify higher ratio 
  3. NO offer for buyback shall be made within a period of 1 year from the date of closure of preceding buyback offer
  4. The audited accounts on the basis of which calculation with reference to buy back is done is not more than six months old from the date of offer document;.

 

However, where the audited accounts are more than six months old, the calculations with reference to buy back shall be on the basis of un-audited accounts not older than six months from the date of offer document which are subjected to limited review by the auditors of the company.

 

  1. Where a company completes a buy-back of its shares or other specified securities under this section, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares under clause (a) of sub-section (1) of section 62 or other specified securities within a period of six months except by way of a bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares.

 

  1. CONTRACTUAL EXIT

 

  1. Drag along and Tag along Rights:

 

It is contractual exit option given to foreign shareholder where drag along clause in shareholders’ agreement which is stipulates that if a third party offers to purchase all the shares of the company and if it is acceptable to the majority shareholder, all the remaining shareholders will be bound to sell their shares to such third party on same terms.

 

  1. Put Option:

 

‘Put Option’ is another exit route given to foreign shareholder which enables it to sell its shares at fair value. A put option is a right but not an obligation to sell shares upon the occurrence of a specified event at a specified price. Thus, on happening of such event, if the minority shareholder wishes to exit from the company, it may give notice to the dominant shareholder to purchase its shares as per the terms and conditions of agreement and Foreign Exchange Management (Transfer or Issue of Security by Persons Resident outside India) Regulations, 2000,

 

 

FEMA GUIDELINES FOR TRANSFER OF SHARES

 

  1.   Transfer of shares by a Person resident outside India in following cases:

                       

1

Non Resident to Non-Resident 

A person resident outside India (other than NRI and OCB) may transfer by way of sale or gift shares to any person resident outside India excluding oversea corporate body.

 

Provided that prior Government approval shall be obtained for any transfer where the person resident outside India is an FPI (Foreign Portfolio Investor) and the acquisition of capital instruments made under Schedule 2 of these regulations has resulted in a breach of the applicable aggregate FPI limits or Sectoral limits.

 

2

NRI or OCI to NRI

NRI and OCB may transfer by way of sale or gift shares to any person resident outside.

 

Provided that where the acquisition of capital instruments by an NRI or an OCI under the provisions of Schedule 3 of these regulations has resulted in a breach of the applicable limit or sectoral limits, the NRI or the OCI shall sell such capital instruments to a person resident in India eligible to hold such instruments within the time stipulated by Reserve Bank in consultation with the Central Government

 

3

NRI to NRI

NRIs may transfer by way of sale or gift the shares held by them to another NRI.

 

4

Non Resident to Resident(Sale / Gift)

(i) Gift: A person resident outside India can transfer any security to a person resident in India by way of gift.

(ii) Sale under private arrangement: General permission is also available for transfer of shares by way of sale under private arrangement by a person resident outside India to a person resident in India where the FEMA pricing guidelines are met.

 

 

  1. PRICING GUIDELINES:

 

The transferred by a person resident outside India to a person resident in India shall not exceed:

 

  1. The price worked out in accordance with the relevant Securities and Exchange Board of India guidelines in case of a listed Indian company.

 

  1. Price at which a preferential allotment of shares can be made under the Securities and Exchange Board of India Guidelines, as applicable, in case of a listed Indian company or in case of a company going through a delisting process as per the Securities and Exchange Board of India (Delisting of Equity Shares) regulations, 2009;

 

  1. The valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a Securities and Exchange Board of India registered Merchant Banker or a practicing Cost Accountant, in case of an unlisted Indian Company.

 

 

 

  1. Taxes and other duties

 

All transaction under these regulations shall be undertaken through banking channels in India and subject to 3ayment of applicable taxes and other duties/ levies in India.

 

  1. Reporting in Foreign Currency-Transfer of Shares form

 

Foreign Currency-Transfer of Shares (FC-TRS): Reporting for transfer of capital instrument shall be made in FC-TRS form when capital instrument hold on repatriable Basis through authorized dealer.

 

Such FC-TRS form shall be filed with the Authorized Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

 

  1. Delays in reporting

 

The person/ entity responsible for filing the reports shall be liable for payment of late submission fee, as may be decided by the Reserve Bank, in consultation with the Central Government, for any delays in reporting.

 

2020-04-15 09:48:49

Entry India - Pricing Guidelines of Foreign Direct Investments (FDI) in India under different statues

Entry India - Pricing Guidelines of Foreign Direct Investments (FDI) in India under different statues

Foreign Exchange Management Act (FEMA)

Foreign Investment in India is regulated in terms of clause (b) sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017.

Capital Instruments such as equity shares, debentures, preference shares and share warrants are permitted for receiving foreign investment in an Indian company.

The pricing guidelines in respect of transfer/issue of Capital Instruments and also, for exit from investment in Capital Instruments have since been reviewed so as to provide greater freedom and flexibility to the parties concerned under the FDI framework. The new pricing guidelines shall be as under:

  1. Issue of Capital Instruments by an Indian Company    
  1. Pricing of equity shares, debentures and preference shares (referred to as “Capital Instruments”) issued by an Unlisted Indian Company to a person resident outside India should not be less than the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments issued by a Listed Indian Company to a person resident outside India should not be less than the price worked out in accordance with the relevant SEBI Guidelines.

 

  1. Transfer of Capital Instruments by an Indian Resident
  1. Pricing of Capital Instruments of an Unlisted Indian Company which is transferred by an Indian Resident to a person resident outside India should not be less than the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments of a Listed Indian Company which is transferred by an Indian Resident to a person resident outside India should not be less than the price worked out in accordance with the relevant SEBI Guidelines.

 

  1. Transfer of Capital Instruments to an Indian Resident
  1. Pricing of Capital Instruments of an Unlisted Indian Company which is transferred to an Indian Resident by a person resident outside India should not exceed the fair valuation of Capital Instruments, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a Practicing Cost Accountant.
  2. Pricing of Capital Instruments of a Listed Indian Company which is transferred to an Indian Resident by a person resident outside India should not exceed the price worked out in accordance with the relevant SEBI Guidelines.

 

The guiding principle would be that the person resident outside India is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at the price prevailing at the time of exit.

2020-04-07 07:15:40

Entry India - Joint Venture by Foreign Company

Entry India - Joint Venture by Foreign Company

ESTABLISHMENT OF JOINT VENTURE

                        In making a decision to enter India, to benefit from the inherent advantages offered by an existing Indian partner in terms of market access, local knowledge or quick ramp-up, foreign investors can create a Joint Ventures with Indian businesses (hereinafter referred to as “JVs”)

 

MEANING OF JOINT VENTURE

According to the Notification No. FEMA 120/ RB-2004 issued on dated: July 7, 2004, Joint Venture (JVs) means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country in which the Indian party makes a direct investment;

As per literal terminology, Joint venture may be defined as any arrangement whereby two or more parties co-operate in order to run a business or to achieve a commercial objective for the purpose of earning profit. It may be on a long-term basis involving the running of a business in perpetuity or on a limited basis.

 

BENEFITS OF JOINT VENTURE

  1. Reduce the burden of investment:

 

Each party in the venture contributes a certain amount of initial capital to the project, depending upon the terms of the partnership arrangement, thus alleviating some of the financial burden placed on each company.

 

  1. Sharing Liabilities:

 

A JV also offers parties an opportunity to jointly manage the risks associated with new ventures. Through a JV they can limit their individual exposure by sharing the liabilities. When the liabilities and risks are shared the pressure on each individual partner is correspondingly reduced. It reduces the risks in a number of ways as the business activities of the JV can be expanded with smaller investment outlays than if financed independently.

 

  1. Technical expertise and know-how

 

Parties in a JV having a complementary skills or capabilities to contribute to the JV as they have experience in different industries which it is hoped will produce synergistic benefits. The basic reason of JV is the sharing of capabilities and expertise of both the partners on mutually agreed terms. Such sharing grants a competitive advantage to the JV partners over other players in the market.

 

 

 

 

 

 

 

  1. New market penetration:

 

A joint venture may enable foreign player to access the Indian market easily by enter a JV with Indian entity, as all relevant regulations and logistics are taken care of by the local player so With the formation of the joint venture, the companies are able to expand their product portfolio and market size at international level.

 

  1. Barriers to competition

 

It is another factor due to which foreign party prefer JV rather than carry business independently In order to avoid competition and pricing pressure. Through collaboration with Indian companies, businesses can sometimes effectively erect barriers for competitors that make it difficult for them to penetrate the marketplace.

 

 

STRUCTURE OF JOINT VENTURE

There are four common structure that usually adopted such as:

Incorporated form

  1. Body Corporate
  2. Limited liability partnership

 

Unincorporated form

  1. Partnership
  2. Cooperation/Agreement/strategic Alliances

 

  1. BODY CORPORATE

The parties to the JV would create a joint venture company under the Companies Act, 2013 and would hold the shares of such company in an agreed proportion. This arrangement can also be termed as Equity/Corporate JV. It is a recognized medium which gives a status of independent legal identity to the JV and it will carry the business irrespective the change in its ownership. Basic documents need to be executed such as:

  1. JVA / shareholders’ agreement.
  2. Other agreements such as trade mark, licenses etc.
  3. Memorandum of association and Article of Association.

Note: Additional procedure for incorporation of Company need to be follow as per Companies Act, 2013

 

 

 

 

 

 

STEPS FOR INCORPORATION OF COMPANY

  1. Acquire DSC for Directors and Subscribers of Company
  2. Obtain Director Identification Number (DIN) for Directors.
  3. Reserve the name of the Proposed Company. Applicant files through RUN to ascertain the availability and register the name of the Company (two names are allowed to file in order preference)

     Note: Reserves name is valid for a period of 20 days and after that it will be available for others.

Note: There must be at least one resident director in company. Resident director means a director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year.”

  1. Application for Certificate of Incorporation with following attachments as:
  • Memorandum of Association
  • Article of Association
  • Consent of Directors
  • Declaration of Directors/ Subscribers.
  • Resident and Identity proof Directors/ Subscribers.

 

                  FOREIGN DIRECT INVESTMENT COMPLIANCES

  1. All foreign investments are freely reparable except for the cases where NRIs choose to invest specifically under non-repatriable schemes.
  2.  Fresh issue of shares: Price of fresh shares issued to persons resident outside India under the FDI Scheme, shall be :
  • On the basis of SEBI guidelines in case of listed companies.
  • Not less than fair value of shares determined by a SEBI registered Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow Method (DCF) in case of unlisted companies.
  1.  However, where non-residents (including NRIs) are making investments in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to its Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.
  2. Mode of Payment: An Indian company issuing shares to a person resident outside India shall receive the amount of consideration required to be paid for such shares by:
  • Inward remittance through normal banking channels.
  •  Debit to NRE / FCNR account of a person concerned maintained with an AD category I bank.
  • conversion of royalty / lump sum / technical knowhow fee due for payment /import of capital goods by units in SEZ or company, shall be treated as consideration for issue of shares.
  • Conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of govt.
  • debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.

Note: If the shares are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow account the amount of consideration shall be refunded. However on an application to RBI, it can grant a further time after expiry of 180 days from the date of receipt.

  1. The capital instrument has to be issued by the Indian company within sixty days from the date of receipt of the consideration

 

  1.  Transfer of shares by a Person resident outside India

                       

1

Non Resident to Non-Resident 

A person resident outside India (other than NRI and OCB) may transfer by way of sale or gift shares to any person resident outside India excluding oversea corporate body.

 

Transfer of shares to oversee corporate body would require prior approval of the Reserve Bank of India

2

NRI to NRI

NRIs may transfer by way of sale or gift the shares held by them to another NRI.

 

3

Non Resident to Resident(Sale / Gift)

(i) Gift: A person resident outside India can transfer any security to a person resident in India by way of gift.

(ii) Sale under private arrangement: General permission is also available for transfer of shares by way of sale under private arrangement by a person resident outside India to a person resident in India where the FEMA pricing guidelines are met.

 

  1. Bank can allow the remittance of sale proceeds of a security to the seller of shares resident outside India.

 

Provided that security has been held on repatriation basis, the sale of security has been made in accordance with the prescribed guidelines and NOC / tax clearance certificate from the Income Tax Department has been produced.

 

  1. AD banks have been given general permission to open and maintain non-interest bearing Escrow account in Indian Rupees in India on behalf of residents and non-residents, towards payment of share purchase consideration to facilitate FDI transactions relating to transfer of shares.

 

  1. LIMITED LIABILITY PARTNERSHIP

It is another way of investment in JV by creating Limited Liability partnership registered under the Limited Liability Partnership Act, 2008 (“LLP Act”) LLP is a beneficial business vehicle as it provides the benefits of limited liability to its partners and allows its members the flexibility of organizing their internal structure as a partnership based on an agreement and simultaneously it has basic features of a corporation including separate legal identity. Basic documents need to be executed such as:

  1. Limited Liability Partnership Agreement
  2. Other agreements such as trade mark, licenses etc.

 

          STEPS FOR THE INCORPORATION OF LLP

  1. Acquire DSC for Designated Partners.
  2. Obtain Designated Partner Identification Number (DPIN) of Designated Partners.
  3. Reserve the name of the LLP. Applicant files through RUN to ascertain the availability and register the name of the LLP. Once the Ministry approves the name,

     Note: Reserves name is valid for a period of 90 days and after that it will be available for others.

  1. Incorporation of a new LLP. Applicant files LLP E-form- Fillip which contains the details of the proposed LLP along with details of the partners and designated partners.

             Note: There must be at least two designated partners.

  1. Consent of the partners and designated partners to act in the said role.
  2. File the LLP Agreement with the Registrar within 30 days of incorporation of the LLP. Applicant files e-Form 3.

 

On obtaining approval of the LLP Agreement, the process of Incorporation of LLP is complete.

              FOREIGN DIRECT INVESTMENT NORMS

  1. A person resident outside India or an entity incorporated outside India (other than a citizen of Pakistan or Bangladesh) not being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), is permitted to contribute to the capital of an LLP operating in activities where foreign investment up to 100 percent is permitted under automatic route and there are no FDI linked performance conditions.
  2. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm in India on non-repatriation basis.
  3. Investments with repatriation option: For availing repatriation option, NRIs/PIO may seek prior permission of Reserve Bank for investment in partnership firms. The application will be decided in consultation with the Government of India
  4. Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.
  5. Investment in an LLP is subject to the conditions prescribed in the Limited Liability Partnership Act, 2008.
  6. A company having foreign investment, engaged in a sector where foreign investment up to 100 percent is permitted under the automatic route and there are no FDI linked performance conditions, can be converted into an LLP under the automatic route.
  7. Mode of payment:-  Payment by an investor towards capital contribution of an LLP should be made by way of an inward remittance through banking channels or out of funds held in NRE or FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
  8. Remittance of disinvestment proceeds:- The disinvestment proceeds can be remitted outside India or may be credited to NRE or FCNR(B) account of the person concerned.
  9. Requirement of resident director need to fulfill as per Section 7(1) of the LLP Act, 2008.

 

Note: Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India:

 

Provided that in case of a limited liability partnership in which all the partners are bodies corporate at least two individuals who are partners of such limited liability partnership shall act as designated partners.

 

"Resident in India" means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.

 

  1. PARTNERSHIP FIRM

It is other form to access the Indian market by making a partnership firm created under the Partnership Act, 1932, it is define as partnership represents a relationship between persons who have agreed to share the profits of business carried on by all or any of them acting for all. Here the registration under the partnership act is purely voluntary but in order to avoid future disputes it is suggested to register it. Moreover the establishment of partnership firm is easier as to simply execute a partnership deed among the parties under JV. However the JV has inherent disadvantages including unlimited liability, limited capital, no separate identity etc. Basic documents need to be executed such as:

  1. Partnership Agreement
  2. Other agreements such as trade mark, licenses etc.

          COMPLIANCES UNDER FOREIGN DIRECT INVESTMENT

  1. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm in India on non-repatriation basis
  2. Investments with repatriation option: For availing repatriation option, NRIs/PIO may seek prior permission of Reserve Bank for investment in partnership firms. The application will be decided in consultation with the Government of India          
  3. Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO account maintained with Authorized Dealers / Authorized banks.
  4.  Amount invested shall not be eligible for repatriation outside India.
  5. Investment by non-residents other than NRIs/PIO: A person resident outside India other than NRIs/PIO may make an application and seek prior approval of Reserve Bank for making investment in the capital of a firm. The application will be decided in consultation with the Government of India.

 

  1. CO-OPERATION AGREEMENTS/STRATEGIC ALLIANCES

The most basic form of association is to conclude a purely contractual arrangement like a cooperation agreement or a strategic alliance wherein the parties agree to collaborate as independent contractors rather than shareholders in a company or partners in a legal partnership. This type of agreement is ideal where the parties intend not to be bound by the formality and permanence of a corporate vehicle. Such alliances are highly functional constructs that allow companies to acquire products, technology & working capital to increase production capacity and improve productivity and improve productivity. All rights and liability are manage according the cooperation agreement. Basic documents need to be executed such as:

  1. Cooperation Agreement.
  2. Other agreements such as trade mark, licenses etc.

 

 

 

FOREIGN DIRECT INVESTMENT NORMS

  1. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest in the capital of a firm in India on non-repatriation basis
  2. Investments with repatriation option: For availing repatriation option, NRIs/PIO may seek prior permission of Reserve Bank for investment in partnership firms. The application will be decided in consultation with the Government of India.
  3. Other Requirements as per agreement and FEMA guidelines in respect of specific sector.

 

ADDITIONAL NORMS UNDER FOREIGN DIRECT INVESTMENT

In addition to basic requirement, parties must follow foreign direct Investment norms in which foreign entities can make an investment subject to approval or non-approval norms

  1. Automatic Route/ Approval mode: Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or

 

Note: Here the investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances.

 

  1. Government Route/ Non-Approval mode: Under the Government Route, the foreign investor or the Indian company should obtain prior approval of Reserve bank of India.

 

List of activities or items containing under Government Route/ Non-Approval mode:

  • Banking
  • NBFC's Activities in Financial Services Sector
  • Civil Aviation
  • Petroleum Including Exploration/Refinery/Marketing
  • Venture Capital Fund and Venture Capital Company
  • Investing Companies in Infrastructure & Service Sector
  • Print Media
  • Broadcasting
  • Postal Services

 

 

 

 

 

 

 

 

 

 

  PROHIBITED ACTIVITIES

  Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not which is engaged or proposes to engage in the following activities4:

  1. Business of chit fund
  2. Nidhi company
  3. Agricultural or plantation activities
  4. Real estate business, or construction of farm houses
  5. Trading in Transferable Development Rights (TDRs).
  6. Lottery Business including Government/ private lottery, online lotteries, etc
  7. Gambling and Betting including casinos etc.
  8. Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
  9.  (I) Atomic energy and (II) Railway operations

 

 

 

                

 

2020-04-07 07:13:09

Implications on Indian company paying the dividend to a foreign company/ individual

Implications on Indian company paying the dividend to a foreign company/ individual-

Indian company is required to deduct tds u/s 195 read with section 115A which prescribes rate of 20% (plus applicable surcharge and cess).

However, in case the non-resident or foreign company avails the benefit of DTAA, applicable tds rate would be the rate specified in the DTAA.

Rate of tax specified in DTAA of India and USA are:-

? 15% incase foreign company or non-resident individual holds 10% or more voting share in the Indian company paying the dividend.

? 20% in all other cases.

Sec 206AA which states that incase the deductee fails to furnish his pan, withholding tax rate applicable would be higher of the following :-

(i) The rate specified in the relevant provision of this Act; or

(ii) The rate or rates in force (i.e., the rate prescribed in the Finance Act); or

(iii) The rate of twenty per cent

Case-1 When PAN is submitted by the non-resident or foreign company:-

? Rate of tax applicable would be 15% or 20% i.e., the beneficial rate as per DTAA.

Case-2 When PAN is not submitted by the non-resident or foreign company:-

Rule 37BC:- Relaxation from deduction of tax at higher rate under section 206AA

This relaxation is applicable only to non-resident and not to the foreign company, moreover nature of payments prescribed under this rule are of interest, royalty, fees for technical services and payments on transfer of any capital asset, dividend payments have not been specified in this rule. Therefore tds would be required to be deducted at higher of the rates prescribed under section 206AA.

? Rate of tax applicable would be 20% (plus applicable surcharge and cess).

 

Implications on non-resident and foreign company receiving the dividend:-

Foreign company or non-resident is liable to tax on the dividend income earned from Indian domestic company.

? Tax rate on foreign company is 40% plus applicable surcharge and cess.

? Non-resident individuals are taxable at slab rates.

? Special rate of tax specified for dividend income u/s 115A is 20%.

However, foreign company and non-resident can avail the benefit of DTAA which states that Dividend income will be taxable @ 15% or 20%.

? 15% incase foreign company or non-resident individual holds 10% or more voting share in the Indian company paying the dividend.

? 20% in all other cases.

Conclusion-

? More favorable rate of tax for foreign company would be as per DTAA i.e., 15%

? For non-resident it will depend on the total income. That is it could either be slab rate or 15% as specified in DTAA.

2020-04-04 00:58:52

MODES IN WHICH FDI IN EQUITY CAN BE MADE GIVEN BELOW

THERE ARE VARIOUS MODES IN WHICH FDI IN EQUITY CAN BE MADE GIVEN BELOW

(a)      Issuance of fresh shares by the company

(b)     Acquisition by way of transfer of existing shares by person resident in or outside India:

?    Sale or Gift of Shares/ Convertible debentures by person resident in or outside India

?    Sale of Shares/ Convertible debentures on the Stock Exchange by person resident outside India

?    Transfer of shares/convertible debentures from Resident to Person Resident outside India

?    Acquisition of shares under the FDI scheme by a non-resident on a recognized Stock Exchange

(c)      Issue of Rights/Bonus shares

(d)     Issue of shares under Employees Stock Option Scheme (ESOPs)

(e)      Conversion of ECB/Lump-sum Fee/Royalty/Import of capital goods by units in SEZs in to Equity/ Import payables/Pre incorporation expenses

(f)      Issue of shares by Indian Companies under ADR/GDR

(g)     Through issue/transfer of ‘participating interest/right’ in oil fields to a non resident

(h)     Acquisition of shares under Scheme of Merger/Amalgamation

Explanation:

(i)      An Indian company may issue fresh shares /convertible debentures under the FDI Scheme to a person resident outside India (who is eligible for investment in India) subject to compliance with the extant FDI policy and the FEMA Regulation.

(ii)     Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India, subject to the conditions that :

(i)      the percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap, and

(ii)     the transferor company or the transferee or the new company is not engaged in activities which are prohibited under the FDI policy

(iii)    FEMA provisions allow Indian companies to freely issue Rights/Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. Such issue of bonus/rights shares has to be in accordance with other laws/statutes like the Companies Act, as applicable, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (in case of listed companies), etc. The offer on right basis to the person’s resident outside India shall be:

(a)     in the case of shares of a company listed on a recognized stock exchange in India, at a price as determined by the company;

(b)     in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders.

 

2020-03-27 10:54:57

PROCEDURES FOR CLOSURE OF LIAISON, BRANCH AND PROJECT OFFICE IN INDIA

PROCEDURES FOR CLOSURE OF LIAISON, BRANCH AND PROJECT OFFICE IN INDIA:

Followings approvals are required to obtain

  1. Ministry of Corporate Affairs
  2. Reserve Bank of India

 

  • Approval from Ministry of Corporate affairs – File Form FC-2, Attachments

 

  1. Certified true copy of the Board resolution, if any
  2. Copy of the general meeting resolution
  3. Copy of approval letter (it is mandatory if any approval is required for such alteration).
  4. Translated version of the documents in English (in case documents attached are not in English).
  5. Particulars of alterations in the place of business in India of the company
  6. Particulars of alteration in details of the directors or secretaries
  7. Particulars of alterations in details of the company authorized representative

 

Note: All filling related compliances must be fulfill.

 

 

  • Approval from Reserve Bank of India-

 

  1. Copy of the Reserve Bank's permission/ approval from the sectorial regulator(s) for establishing the Branch/ Liaison/ Project office.
  2. Auditor’s certificate- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India
  3. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance
  4. A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.
  5. Any other document/s, specified by the Reserve Bank while granting approval.
  6. Financial statement as on date along with the status of assets in India.

 

PROCEDURES FOR CLOSURE OF LIAISON, BRANCH AND PROJECT OFFICE IN INDIA: Followings approvals are required to obtain

  1. Ministry of Corporate Affairs
  2. Reserve Bank of India

 

  • Approval from Ministry of Corporate affairs – File Form FC-2, Attachments

 

  1. Certified true copy of the Board resolution, if any
  2. Copy of the general meeting resolution
  3. Copy of approval letter (it is mandatory if any approval is required for such alteration).
  4. Translated version of the documents in English (in case documents attached are not in English).
  5. Particulars of alterations in the place of business in India of the company
  6. Particulars of alteration in details of the directors or secretaries
  7. Particulars of alterations in details of the company authorized representative

 

Note: All filling related compliances must be fulfill.

 

 

  • Approval from Reserve Bank of India-

 

  1. Copy of the Reserve Bank's permission/ approval from the sectorial regulator(s) for establishing the Branch/ Liaison/ Project office.
  2. Auditor’s certificate- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India
  3. Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance
  4. A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 2013, in case of winding up of the Office in India.
  5. Any other document/s, specified by the Reserve Bank while granting approval.
  6. Financial statement as on date along with the status of assets in India.

 

 

2020-03-25 09:11:11

FDI - Repatriation

Remittance on winding up/liquidation of Companies

AD Category – I banks have been allowed to remit winding up proceeds of companies in India, which are under liquidation, subject to payment of applicable taxes.Liquidation may be subject to any order issued by the court winding up the company or the official liquidator in case of voluntary winding up under the provisions of the Companies Act, 2013. AD Category – I banks shall allow the remittance provided the applicant submits:

No objection or Tax clearance certificate from Income Tax Department for the remittance.

Auditor's certificate confirming that all liabilities in India have been either fully paid or adequately provided for.

Auditor's certificate to the effect that the winding up is in accordance with the provisions of the Companies Act, 2013.

In case of winding up otherwise than by a court, an auditor's certificate to the effect that there is no legal proceedings pending in any court in India against the applicant or the company under liquidation and there is no legal impediment in permitting the remittance.

2020-03-02 04:58:03