India plans to strengthen foreign property rules in a decision that could have important implications for companies ranging from electronic commerce to pharmaceutical products.
The changes would redefine the way in which India considers companies belonging to foreign companies, whether directly or indirectly, making them subject to foreign direct investment regulations (IDE) when it comes to sharing transfers or restructuring.
The discussions are about to be finalized, the two sources said, the two government officials said. They refused to be identified because the discussion was not public.
India examines its laws on foreign investments to simplify them and connect all gaps.
New Delhi plans to create a new category “foreign and controlled entities” (FOCE), which will also include Indian companies with “indirect foreign investments”, said the first source.
“What cannot be done directly should not be authorized either indirectly. This will now be clearly reflected in the rules,” said the source.
“Even interior restructuring or internal transfer could trigger IED obligations for companies belonging abroad if the change of rule is implemented,” said the source.
A FOCE will be defined as an Indian company or an investment fund controlled by people residing outside India. In addition to covering the indirect property, it will also make foreign companies directly held subject to the rules of the IED with regard to changes in structure or property.
In particular, any transfer of indirect shareholding must be reported and will have to comply with sectoral foreign investment ceilings.
These transactions will also be subject to rules indicating that they will be carried out at a fair market value.
The revision proposed in the rules aims to guarantee that foreign investors cannot bypass the intention of IED policy in India, according to sources.
The central bank agree on the issue, said the second manager.
Since 2020, India has required the government’s previous approval for nations investments sharing its land borders, including China, after clashes between the two neighbors of the Himalayan border.
The new definition of FOCE will make it more difficult for Chinese or other foreigners to use indirect structures such as offshore investment funds or Indian strata to enter the sectors regulated by the rear door, said the second source.
This is a copy generated by the agency and will be updated with the reaction of the Ministry of Finance and the Reserve Bank of India, when they are received.
