REPORTING OF FOREIGN DIRECT INVESTMENT

July 21, 2022

INTRODUCTION:

Foreign direct investment simply means purchasing of interest in the company by an investor or a company located outside boarders. Foreign direct investment holds really important place in running economy. Companies considering a foreign direct investment generally look only at companies in open economies that offer a skilled workforce and above-average growth prospects for the investor. Light government regulation also tends to be prized.

WHAT IS FOREIGN DIRECT INVESTMENT:

Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy. Ownership of 10 percent or more of the voting power in an enterprise in one economy by an investor in another economy is evidence of such a relationship. FDI is a key element in international economic integration because it creates stable and long-lasting links between economies. FDI is an important channel for the transfer of technology between countries, promotes international trade through access to foreign markets, and can be an important vehicle for economic development. The indicators covered in this group are inward and outward values for stocks, flows and income, by partner country and by industry and FDI restrictiveness.

TYPES OF FOREIGN DIRECT INVESTMENT:

Horizontal foreign direct investment- The most common type of FDI is Horizontal FDI, which primarily revolves around investing funds in a foreign company belonging to the same industry as that owned or operated by the FDI investor. Here, a company invests in another company located in a different country, wherein both the companies are producing similar goods. For example, the Spain-based company Zara may invest in or purchase the Indian company Fab India, which also produces similar products as Zara does. Since both the companies belong to the same industry of merchandise and apparel, the FDI is classified as horizontal FDI.
Vertical foreign direct investment- Vertical FDI is another type of foreign investment. A vertical FDI occurs when an investment is made within a typical supply chain in a company, which may or may not necessarily belong to the same industry. As such, when vertical FDI happens, a business invests in an overseas firm which may supply or sell products. Vertical FDIs are further categorised as backward vertical integrations and forward vertical integrations. For instance, the Swiss Coffee producer Nescafe may invest in coffee plantations in countries such as Brazil, Columbia, Vietnam, etc. Since the investing firm purchases, a supplier in the supply chain, this type of FDI is known as backward vertical integration. Conversely, forward vertical integration is said to occur when a company invests in another foreign company which is ranked higher in the supply chain, for instance, a coffee company in India may wish to invest in a French grocery brand.
Conglomerate foreign direct investment- When investments are made in two completely different companies of entirely different industries, the transaction is known as conglomerate FDI. As such, the FDI is not linked directly to the investors business. For instance, the US retailer Walmart may invest in TATA Motors, the Indian automobile manufacturer.
Platform foreign direct investment- The last types of foreign direct investment is platform FDI. In the case of platform FDI, a business expands into a foreign country, but the products manufactured are exported to another, third country. For instance, the French perfume brand Chanel set up a manufacturing plant in the USA and export products to other countries in America, Asia, and other parts of Europe. If you intend to invest via FDI, you must know about the different types of FDI with examples. With FDI, the money invested can be used to start a new business in a foreign country or to invest in an already existing business in a foreign country. For more information on FDIs, consult Angel One advisors.

STEPS FOR REPORTING FOREIGN DIRECT INVESTMENT:

1. Creation of Entity User Investee Indian Company has to create Entity Master if they are receiving foreign investment first time, Entity User is short form required to be filed by authorized representative of Investee Indian Company with the following details: Advertisement His / Her Full name, Address, Email Id, PAN, Mobile No; User Name for Investee Indian Company; Name of Investee Indian Company/LLP, Address and its CIN/LLPIN; Jurisdictional Regional office of RBI; Authority Letter in a specified format. Once Entity Master form is approved, you will get user id and password in your provided e-mail id. Login to https://firms.rbi.org.in/firms/faces/pages/login.xhtml and fill entity master details.

2. Creation of Business User After successful filing of entity master details, Investee Indian Company has to create business user, Business User is short form required to be filed by authorized representative of Investee Indian Company with the following details: His/her Full name, Address, Email Id, PAN, Mobile No; User Name for Investee Indian Company; Details of Authorized Dealer Bank to whom reporting is made; Name of Investee Indian Company, PAN and CIN; Authority Letter in a specified format. Once Business User is created, you will get user id and password in your provided e-mail id. Login to https://firms.rbi.org.in/firms/faces/pages/login.xhtml. After login you can find Single Master Form (SMF) in left tab. You can click and select FC-GPR for reporting of foreign investment. Advertisement

3. Filing of form FC-GPR for issue of shares Form FC-GPR needs to be filled within 30 days from the date of issue of shares with the following documents: Copy of Foreign Inward Remittance Certificate received from AD Bank Copy of KYC of Foreign Investor received from AD Bank Certificate from the Company Secretary of the company accepting investment from persons resident outside India certifying that: All the requirements of the Companies Act, 2013 have been complied with; Terms and conditions of the Government approval, if any, have been complied with; The company is eligible to issue shares under these Regulations; and The company has all original certificates issued by authorised dealers in India evidencing receipt of amount of consideration; Certificate from Statutory Auditors or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India. Declaration from Director/Authorized Representative of Investee Indian Company in a specified format. Any other supporting documents like MOA in case of allotment towards subscription, Board / General Meeting Resolution in case of subsequent allotment etc.

REFERANCE:

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July 21, 2022