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Alerts:

FEMA Update

01 March 2017

Background

Reserve Bank of India (RBI) has, on March 3, 2017 notified Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017. The Regulations have substituted Schedule 9 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2000 (FEMA Regulations) titled “Foreign Direct Investment (FDI) in Limited Liability Partnerships (LLPs) formed and registered under the Limited Liability Partnership Act, 2008”.

Key changes in revised Schedule 9 are as under:

  • Qualified Foreign Investors (QFIs) are now allowed to invest in a LLP, which was earlier not permitted.
  • Company having FDI can be converted into an LLP under automatic route, only if it is engaged in a sector where foreign investment upto 100% is permitted under automatic route and there are no FDI linked performance conditions.
  • Conditions related to appointment of an Indian company as a designated partner has been discarded. This means that the appointment of designated partner has to be in compliance with the Limited Liability Partnership Act, 2008.
  • Earlier, there was a specific reference of LLPs not being eligible to raise ECBs. This provision has been done away with. Since the Master Circular on External Commercial Borrowings talks of ‘companies’ as eligible borrowers, we believe that LLPs would still not qualify for borrowing ECB.
  • Reporting of foreign investment in LLPs and divestment/transfer of capital contribution or profit share to be made in a manner as prescribed by RBI.