Introduction:
NRIs are the “Non-Resident Indians”, whose contribution to the economy and growth of India has always been highly valued by the Government. Realising the value of their contributions, the Government of India has permitted the NRI’s to make investments in Indian business in the form of Limited Liability Partnership (“LLP”), Proprietary concern or Partnership Firm.
Investments by NRI’s in “LLP, Proprietary concern or Firm” are governed by the provisions of Foreign Exchange Management Act (“FEMA”) read with relevant rules on “Non-Debt Instrument Foreign Exchange Management (Non-debt Instruments) Rules, 2019” (“NDI Rules,2019”).
Here in this article, we will cover the provisions with respect to investments by NRI’s in LLP, Proprietary concern, Firm, the conditions subject to which investments can be made and limitations, if any, on investments.
A. Limited Liability Partnership (“LLP”)
Limited Liability Partnership (“LLP”) means “a partnership formed and registered under the Limited Liability Partnership Act, 2008”. In India, LLP form of organization is growing rapidly owing to the flexibility in its structure and operation.
NRI’s or OCI’s are permitted to make investments in LLP in India in accordance with the extant NDI Rules, 2019. As per the said Rules, investments in LLP can be made on repatriation or non-repatriation basis. Further, Companies, Trust and Partnership Firms which are owned and controlled by NRI’s or OCI’s are also allowed to invest on non-repatriation basis. Specific conditions as prescribed in the said Rules with respect to investments in LLP are as under:
1. Investments on non-repatriation basis:
We have highlighted below the key provisions to be considered were investments are made on a non-repatriation basis:
Note 1: However, it is observed that, various banks in past have allowed repatriation of such proceeds under USD 1 million scheme. Hence, it is advisable to seek professional advise and Bank’s guidance before undertaking any transaction related to investment in LLP.
2. Investments on repatriation basis:
Foreign investments in LLP can be made on repatriation basis, subject to the following conditions:
a. Investments in LLP can be made either by way of capital contribution or by way of acquisition or transfer of profit share of LLP
b. Foreign investment is permitted under the automatic route in LLPs operating in sectors/ activities where 100% Foreign Direct Investment (FDI) is allowed, through the automatic route and there are no FDI linked performance conditions.
c. Foreign Investment in LLP is subject to the compliance of LLP Act, 2008.
d. Pricing guidelines norms - The price at which investment is made in an LLP should not be less than the fair price worked out as per any valuation norm which is internationally accepted or adopted as per market practice. Further, a valuation certificate to this effect shall be issued by the Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
e. In case of transfer of capital contribution or profit share from a person resident in India to a person resident outside India, the transfer should not be for consideration less than the fair price of capital contribution or profit share of LLP. Further, in case of transfer of capital contribution or profit share from a person resident outside India to a person resident in India, the transfer should not be for consideration more than the fair price of capital contribution or profit share of LLP.
f. The amount of consideration should be paid by way of inward remittance from abroad through banking channels out of funds held in NRE/FCNR(B)/NRO Account maintained in accordance with the FEMA Regulation.
B. Investments in Partnership Firm/ Proprietary Concern:
NRI’s or OCI’s are allowed to make investments in the capital of partnership firm or a proprietary concern in India subject to the condition that such investment can be made only a on “non -repatriation basis”. Further, such investments are subject to the below mentioned key provisions:
a. The firm or proprietary concern should not be engaged in any of the following activities:
· Agricultural/plantation; or
· Print media; or
· Real estate business.
Note: In general, “Real estate” means buying and selling of property but does not include development of townships, construction of residential/ commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and regulated under the SEBI (REITs) Regulations, 2014.
Disclaimer: It is always advisable to take a professional help before making any investments in real estate business activity.
b. The amount of consideration should be paid as inward remittance from abroad through banking channels or out of funds held in NRE/ FCNR(B)/ NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
c. The disinvestment proceeds shall be credited only to the NRO account of the person concerned, irrespective of the type of account from which the consideration was paid.
d. The amount invested for contribution to the capital of a firm, or a proprietary concern and the capital appreciation thereon shall not be allowed to be repatriated abroad. However, it is observed that, various banks in past have allowed repatriation of such proceeds under USD 1 million scheme. Hence, it is advisable to seek professional advise and Bank’s guidance before undertaking any transaction related to investment in proprietary concern or firm.
Conclusion:
In light of the above, it can be observed that the Government of India has provided a far stretched benefit to NRI’s for making investments in Indian business. The above guiding provisions will help the NRI in deciding their investment plan in India which will ultimately result in the economic growth of the country.
RBI permission: Additionally, one may also note that, investments by NRI’s or OCI’s in LLP, proprietorship and partnership firm in any other manner other than above, will require prior approval of RBI.
- Updated 04/2024