Prerequisites for Foreign Investment
- The Indian Company is prohibited to make overseas investment in a foreign company engaged in Real Estate Business or banking business. It requires prior permission from RBI.
- The company investing in a foreign company should not be on RBI export caution list or list of defaulters in the banking system.
- Annual Performance Report must be filed up to date for all foreign investment in the format provided.
- The details of transactions of the investment in the foreign company have to be routed only through one authorized dealer.
- The direct investment is made in an overseas JV or WOS (foreign company) engaged in a bonafide business activity.
- The company total financial commitment should be up to a prescribed limit(100%) of the net worth of the company as on the date of the balance sheet last audited
Financial commitment means the amount of direct investments outside India (foreign investment) by an Indian Party
- By way of subscription to equity shares.
- Investing in the JV / WOS preference shares.
- As loans to its WOS / JV abroad
- 100% of the amount of corporate guarantee issued on behalf of its overseas JV/WOS and
- 50% of the amount of performance guarantee issued on behalf of its overseas JV/WOS.
- Bank guarantee/standby letter of credit issued by a resident bank on behalf of an overseas JV / WOS.
- Creation of charge.
For the purpose of the limit of 100% of the net worth, the following shall be reckoned, namely
- Cash remittance by market purchase.
- Export proceeds capitalization.
- Fifty percent of the value of guarantees issued by the Indian party to or on behalf of the joint venture company or wholly owned subsidiary.
- Investment in agricultural operations through overseas offices or directly.
- External Commercial Borrowing in accordance with other parameters of the ECB guidelines.