In view of giving more flexibility to non resident Indians (NRIs) to decide the structure of their investments in the country, the government announced that investment by NRIs owned and controlled companies, trusts, partnership entity and other incorporated entities on non repatriation basis will now be treated as domestic investment. It means NRI’s investments through their owned and control companies, trusts and LLPs would be deemed to be domestic investment made by residents. Earlier this benefit is enjoyed by individual NRIs only. Now the government of India has extended the benefits to NRI owned and controlled companies, trusts and other in-corporated entities as part of the liberalized FDI norms. Extract of  statement issued by the Government Agency in this regard  states –  “In order to attract larger investments, which are possible through incorporated entities only, the special dispensation of NRIs has now been also extended to companies, trusts and partnership firms which are incorporated outside India and are owned and controlled by NRIs.”  Accordingly as per the revised norms it is not mandatory that 100% control of the  investor firm, company or in trust  has to be with an NRI.  Even the majority ownership in a firm, company or in trust can invest in India.

This relaxation has come after amendment in to Schedule 4 of the Foreign Exchange Management Act (FEMA) Regulations in May this year and approval of the same by Union Cabinet.

Investment in LLP under automatic route
The FDI policy for LLPs has been also harmonized with the companies. Under the liberalized FDI policy, 100% FDI is now permitted under the automatic route in LLPs in sectors where 100% FDI is allowed through the automatic route and there are no FDI – linked performance conditions. Now investments in LLPs will not require government approval in sectors fully opened to investments. Now the LLPs will be treated on par with companies which are a step further toward more liberalization.

Further, the terms ownership and “control” with reference to LLPs have also been defined. It has been decided that in line with companies, a LLP having foreign investment will be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route and there are no FDI-linked performance conditions. Earlier LLPs with FDI were not eligible to make any downstream investments. Further, the term ‘internal accruals’ has also been defined for the purpose of the FDI policy, even though they haven’t been made public. So these steps are a welcome steps and attract more investment in India particularly in service sector.