globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload |
17 January 2018 Indian Government liberalizes Foreign Direct Investment policy in key sectors The Union Cabinet of India has approved the liberalization of the Foreign Direct Investment (FDI) Policy (the FDI Policy) in key sectors such as single brand retail trading, construction development and civil aviation through a press release issued on 10 January 2018 with the intent to attract higher FDI inflows and to promote ease of doing business in India. This Alert highlights the key changes in the FDI Policy. The changes will be effective upon issuance of formal press notes and notifications under the Foreign Exchange Management Act, 1999, which is expected shortly and may also provide detailed guidelines. Under the current FDI Policy, FDI of up to 49% is automatically permitted; whereas FDI in excess of 49% requires the Indian Government's prior approval. The liberalization policy will now allow FDI up to 100% automatically without prior approvals. Currently, more than 51% FDI triggers a mandatory local sourcing requirement of 30% of value of goods for the FDI investee entity. The proposed change permits such entity to offset its incremental sourcing of goods for that single brand from India for global operations (either directly or through group companies) during the initial five years, against the mandatory 30% sourcing requirement. After completion of the five-year period, the entity must meet the mandatory 30% sourcing requirement directly towards its Indian operations on an annual basis. FDI is currently prohibited for the real estate business in India. Under the Indian National Industrial Classification, the activity of real estate broking services was included in the definition of real estate business, creating ambiguity on permissibility of the FDI in companies engaging in real estate broking business. The new FDI Policy clarifies that real estate broking services do not constitute real estate business and are therefore eligible for the 100% FDI under the automatic route. Under the current FDI Policy, up to 100% FDI is permitted into an Indian company engaged only in the activity of investing in the capital of other Indian entities and into core investing companies (CIC), subject to a prior approval of the Indian Government. The new FDI Policy allows for automatic approval, if the investee Indian company or the CIC is regulated by any financial sector regulator. If this condition is not met, prior approval would be required.
Document ID: 2018-5147 |
