#TaxmannPPT | Valuation under FEMA

VALUATION UNDER FEMA October 20, 2023 Presented by CA. Niki Darshak Shah Registered Valuer Mobile No.-9930547923

TABLE OF CONTENTS Index

Page No.

FEMA BACKGROUND

03

FOREIGN DIRECT INVESTMENTS

04

DOWNSTREAM INVESTMENT

09

OVERSEAS DIRECT INVESTMENTS

11

APPLICABILITY

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TABLE OF CONTENT

02

OVERVIEW

FEMA 1. Consolidate and amend the law relating to foreign exchange.

2. Facilitating external trade and payments

3. Promoting the orderly development and maintenance of foreign exchange market in India 4. 49 sections under FEMAAct 5. FEM (Non-debt Instruments) Rules, 2019

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03

FOREIGN DIRECT INVESTMENT WHEN DOES TRANSACTION AFFECTS

VALUATION CERTIFICATE

Inflow of money by

To be taken from

investment by a Non-

Chartered Accountant

Resident on a repatriable

METHODOLOGY

PRICING GUIDELINES

Issue of Shares by Indian

or SEBI registered

For Listed Cos. Price worked out in accordance with the

basis in capital instruments

Merchant Banker or

relevant SEBI guidelines

of an Indian company

Practicing Cost

For Unlisted Cos.

OR

Accountant.

Internationally accepted

By Issue of Shares.

Cos- Price should not be less than Fair Value

pricing methodology

• Special Comments The valuation certificate should not be more than 90 days old as on the date of allotment/transfer of shares.

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04

TRANSFER OF SHARES Transfer of shares must be reported in Form FC-TRS to RBI

When The Transfer Of Shares Is Made By Way Of Sale Between A Person Resident In India To NonResident.

Transfer Of Shares By Indian Cos- Price Should Not Be Less Than Fair Value

To Be Taken From Chartered Accountant Or Sebi Registered Merchant Banker Or Practicing Cost Accountant.

- For Listed Cos. Price Worked Out In Accordance With The Relevant Sebi Guidelines -For Unlisted Cos. Internationally Accepted Pricing Methodology

FC-TRS should be filed within 60 days of receipt/remittance of sale consideration TABLE OF CONTENT

05

TRANSFER OF SHARES FROM NON-RESIDENT TO RESIDENT If shares are transferred by Non-resident to person Resident in India must be reported in Form FC-TRS to RBI When does transaction affects -Shares are transferred between a person Resident outside India to Resident in India.

Valuation Certificate

01

03

-To be taken from Chartered Accountant or SEBI registered Merchant Banker.

Methodology

Pricing Guidelines -Transfer of Shares from a nonresident to resident -Price should not be more than Fair Value

02

04

• For Listed Cos. - price worked out in accordance with the SEBI guidelines • For Unlisted Cos. -Internationally accepted pricing methodology TABLE OF CONTENT

06

FC-TRS IS NOT REQUIRED In Case of-

In Case of• Transfer of shares from Non-Resident holding shares on non-repatriable basis to a • Resident Transfer and of shares from Non-Resident holding shares on nonvice versa repatriable basis to a Resident and vice versa • Transfer of Shares from a person Resident outside India holding on a repatriable basis • to Transfer ofresident Shares from a person a person outside India Resident outside India holding on a repatriable basis to a person resident outside India • A transfer of shares by way of Gift • A transfer of shares by way of Gift

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BIRD’S EYE VIEW Valuation norms for Issuance/transfer of shares in an Indian Company Nature

Listed Company

Unlisted Company

Issue by an Indian Company

Price should not be < the price as per SEBI guidelines

Price should not be < the Fair Value worked out by a CA

Transfer from R-NR

Price should not be < the price as per SEBI guidelines

Price should not be < the Fair Value worked out by a CA

Transfer from NR-R

Price should not be > the price as per SEBI guidelines

Price should not be > the Fair Value worked out by a CA

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DOWNSTREAM INVESTMENTS • Indirect foreign investment is often referred to as “Downstream Investment (DI) under FEMA •If an Indian company receiving any FDI and that FDI is used for the purpose of

investing in the capital instrument in any other Indian company.

• Investor company has to make reporting in FORM DI for such Downstream Investment.

• Reporting- First level Indian company making DI has to do reporting.

•If the investee company makes any DI and so forth, the onus of making reporting for DI shall also remain on first level Indian company Ex- Walmart-> (77%) Flipkart-> Supermart (Grocery delivery startup) •Issue/transfer/pricing/valuation of shares shall be in accordance with SEBI/RBI

guidelines

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DOWNSTREAM INVESTMENTS • Equity = 50% or more OR • Controlled by foreign Investor

Foreign Investor

• Direct Foreign Investment

Outside India India

Indian company (IC) - First level • Indirect Foreign Investment

Downstream Investment - Secondlevel

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10

OVERSEAS DIRECT INVESTMENT ODI stands for Investment by way of-

1. Contribution to the capital or subscription to the memorandum of a foreign entity Or 2. by way of purchase of existing shares of a foreign entity Either in Joint Venture or Wholly Owned Subsidiary by market purchase or private placement.

3.ODI can be by way of funds, capitalisation of receivable within realisable time period, swap of securities due to merger, demerger, amalgamation, liquidation.

4. ODI upto 400% of net worth of Indian entity is permitted

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11

OUTBOUND INVESTMENTS Routes for Overseas Investments

Overseas Direct Investment by Indian Party

Investment in overseas JV/WOS

Overseas Investment

by Individual in India

Investment in foreign securities other than by way of foreign Investment

Liberalized Remittance Scheme (LRS)

Acquisition of qualification/right shares

ODI by proprietorship concern

Shares under ESOP Scheme

Indian Depository Receipt

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12

OVERSEAS DIRECT INVESTMENT

When does transaction affects -When an Resident forms JV or WOS outside India OR Acquires or transfer stake in a foreign entity

Valuation Certificate

-No Valuation is required for newly set-up company outside India -Existing Venture from SEBI registered Merchant Banker or a Chartered Accountant.

Methodology Internationally accepted pricing methodology

Pricing Guidelines Share price should not be more than the Fair Value

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13

DISINVESTMENT IN JV/WOS • Transfer by way of sale of Shares of a JV/WOS outside India

If Listed SharesTransfer should be through Stock Exchange If Unlisted SharesPrice should not be less than the Fair Value

Valuation Certificate

Outstanding Dues

From Chartered Accountant OR Certified Public Accountant

By way of dividend, technical know-how fees, royalty, consultancy, commission or other entitlements and/or export proceeds from the JV/WOS

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APPLICABILITY AT A GLANCE Particulars

Registered Valuer

Merchant Banker (SEBI Registered)

Chartered Accountant

Cost Accountant

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(DCF)

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(NAV)

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Issue of Shares Companies Act 2013

Income tax Act 1961 FEMA,1999

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SEBI laws

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Companies Act 2013

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Income tax Act 1961

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SEBI laws

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FEMA,1999

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Transfer of Shares

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SEBI laws includes many rules and regulations which prescribes merchant banker to carry out valuation, however recently those are amended to recognize registered valuer (as per Companies Act,2013) TABLE OF CONTENT

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JOIN TAX AN D F E MA W HAT SAP P G R O U P For r e c e n t u p d a t e s

Niki Darshak Shah Partner | SN & Co F.C.A, Registered Valuer (IBBI), FEMA Advisory Mobile No.: 9930547923 Email: niki@snco.in

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