Step-by-Step Process for UK Company FDI in India via RBI

A UK company can invest in India through the Foreign Direct Investment (FDI) route, which is governed by the Foreign Exchange Management Act (FEMA), 1999, and the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (DPIIT). For most sectors, the automatic route applies, meaning no prior approval from the Reserve Bank of India (RBI) or the government is needed. The process involves receiving funds, issuing shares, and filing mandatory returns with the RBI.

The first step is to identify the sector in which the UK company intends to invest. Sectors such as manufacturing, IT, healthcare, and services are under the automatic route, allowing 100% FDI. However, sectors like defence, media, and multi-brand retail have caps or require government approval. The UK company must also ensure it does not have a beneficial owner in a country sharing a land border with India, as per Press Note 3 (2020), unless additional government clearance is obtained.

Once the sector is confirmed, the UK company must comply with the pricing guidelines under FEMA. For an unlisted Indian company, the share price must be determined using a valuation method acceptable to the RBI, such as Discounted Cash Flow (DCF) or Net Asset Value (NAV). For a listed company, the price must not be less than the SEBI-determined price for preferential allotment. The investment must be received through normal banking channels in Indian rupees or convertible foreign currency.

The UK company must submit a set of documents to the Indian investee company, which then files the necessary returns with the RBI. The key documents include a board resolution from the UK company authorising the investment, a share subscription agreement, and a share valuation certificate from a Chartered Accountant or Merchant Banker. The Indian company must also provide its board resolution, audited financial statements, and a copy of the Foreign Inward Remittance Certificate (FIRC) from the bank.

The share subscription agreement should clearly state the number of shares, issue price, and payment terms. The valuation certificate must be dated within 60 days of the share issuance. If the UK company is investing in an existing Indian company, a valuation report from a SEBI-registered merchant banker is mandatory. For a new company, the valuation can be based on the net asset value method.

Additionally, the UK company must provide a declaration that it is not a resident of a country sharing a land border with India, or if it is, that it has obtained prior government approval. This declaration is part of the Form FC-GPR (Foreign Currency-Gross Provisional Return) filed by the Indian company.

The UK company must remit the investment amount from its bank account in the UK to the Indian company's bank account designated for FDI. The Indian company must open a non-interest-bearing current account called the "FC-GPR Account" to receive the funds. The remittance must be made through normal banking channels, and the Indian company must obtain a FIRC from its bank within 30 days of receipt.

Once the funds are received, the Indian company must issue shares to the UK company within 60 days from the date of receipt of funds. If shares are not issued within 60 days, the Indian company must return the funds within 15 days of the expiry of the 60-day period. The share issuance must be recorded in the company's register of members, and the UK company must be allotted shares with a fair value determined as per RBI guidelines.

The Indian company must then file Form FC-GPR with the RBI within 30 days of share issuance. This form includes details of the UK company, the investment amount, the number of shares issued, and the valuation certificate. The RBI will issue a Unique Identification Number (UIN) for the FDI, which is required for future compliance.

After the investment is made, the UK company must ensure the Indian company complies with ongoing RBI reporting requirements. The Indian company must file Form FC-TRS (Foreign Currency-Transfer of Shares) with the RBI within 60 days of any transfer of shares between residents and non-residents. Additionally, the Indian company must file an Annual Return on Foreign Liabilities and Assets (FLA) with the RBI by July 15 every year.

The UK company must also comply with the pricing guidelines for any future transfer of shares. If the UK company sells its shares to a resident Indian, the sale price must not exceed the fair value determined by a Chartered Accountant. If the sale is to another non-resident, the price must be in accordance with the RBI's pricing guidelines.

The Indian company must maintain proper records of all FDI transactions, including the FIRC, share certificates, and valuation reports. Non-compliance with RBI reporting requirements can result in penalties under FEMA, including fines up to three times the amount involved or INR 2 lakh, whichever is higher.

A UK company investing in India is subject to Indian tax laws, including the Income Tax Act, 1961, and the Double Taxation Avoidance Agreement (DTAA) between India and the UK. The UK company must pay tax on any income arising from the investment, such as dividends, interest, or capital gains. Dividends are currently taxed in the hands of the recipient at 20% (plus surcharge and cess) under the Income Tax Act, but the DTAA may provide a lower rate.

Capital gains from the sale of shares are taxed based on the holding period. If the shares are held for more than 24 months, the gain is long-term and taxed at 20% with indexation benefit. If held for less than 24 months, the gain is short-term and taxed at the applicable corporate tax rate. The DTAA may provide relief from double taxation, allowing the UK company to claim a foreign tax credit in the UK for taxes paid in India.

The UK company must also comply with the General Anti-Avoidance Rules (GAAR) if the investment is structured through a tax haven. Additionally, the Indian company must deduct tax at source (TDS) on payments such as dividends or interest to the UK company. The UK company should obtain a Permanent Account Number (PAN) in India for tax compliance.

If you are a UK company planning to invest in India, consult a qualified chartered accountant or legal professional to ensure compliance with RBI pricing, reporting, and tax requirements. They can assist with documentation, valuation, and filing of forms to avoid penalties.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.