Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLP) formed and registered under the Limited Liability Partnership Act, 2008 is governed under Foreign Exchange Management (Non-debt Instruments) Rules, 2019 which have superseded Foreign Exchange Management (Transfer by Issue of Security by a Person Resident outside India) Regulations, 2017 vide Notification S.O. 3732(E) issued by Ministry of Finance (Department of Economic Affairs).
A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition/transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9.
A. Eligible Investors
A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), may contribute foreign capital either by way of capital contribution or by way of acquisition/transfer of profit shares in the capital structure of an LLP.
However, Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines are not eligible to contribute foreign capital in the LLP.
B. Eligible investment
Contribution to the capital of an LLP would be an eligible investment under the scheme.
Note: Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.
C. Eligibility of an LLP
FDI in LLPs is permitted, subject to the following conditions:
i. FDI is permitted under the automatic route in LLPs operating in sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions.
ii. An Indian company or an LLP, having foreign investment, will be permitted to make downstream investment in another company or LLP engaged in sectors in which 100% FDI is allowed under the automatic route and there are no FDI linked performance conditions. The onus shall be on the Indian company / LLP accepting downstream investment to ensure compliance with the above conditions.
iii. FDI in LLP is subject to the compliance of the conditions of Limited Liability Partnership Act, 2008.
iv. A company having foreign investment can be converted into an LLP under the automatic route only if it is engaged in a sector where foreign investment up to 100 percent is permitted under the automatic route and there are no FDI-linked performance conditions.
D. Pricing
i. FDI in an LLP either by way of capital contribution or by way of acquisition/transfer of profit shares would have to be more than or equal to the fair price as worked out with any valuation norm which is internationally accepted/adopted as per market practice (hereinafter referred to as “fair price of capital contribution/profit share of an LLP”) and a valuation certificate to that effect shall be issued by the Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
Note – In the case of an LLP which is recently incorporated and has not done any business activities to date, the methodologies mentioned above cannot be applied to determine the fair value of the LLP and hence the percentage of FDI in the capital contribution of the LLP should be considered as the fair value of the LLP.
ii. In case of transfer of capital contribution/profit share from a resident to a non-resident, the transfer shall be for a consideration equal to or more than the fair price of capital contribution/profit share of an LLP. Further, in case of transfer of capital contribution/profit share from a non-resident to a resident, the transfer shall be for a consideration that is less than or equal to the fair price of the capital contribution/profit share of an LLP.
E. Mode of payment
i. Payment by an investor towards capital contribution in LLPs shall be made:
ii. by way of inward remittance through banking channels; or
iii. by debit to NRE / FCNR(B) account of the person concerned, maintained with an AD Category – bank in accordance with Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time.
F. Reporting
i. Annual Return on Foreign Liabilities and Assets: LLP which has received investment by way of capital contribution in the previous year(s) including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year.
ii. Form FDI- LLP (I): A Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP (I) within 30 days from the date of receipt of the amount of consideration. The form shall be accompanied by:
Mandatory Documents to be attached with form LLP-I
1. FIRC /Debit statement and KYC, as applicable to be attached.
2. Valuation certificate to be attached
3. Declaration and the certificate from the designated partner/ authorized representative in the specified format as mentioned in the RBI user manual.
iii. Form FDI- LLP (II): The LLPs shall report disinvestment/ transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) within 60 days from the date of receipt of funds in Form Foreign Direct Investment-LLP (II).
Mandatory Documents to be attached with form LLP-II
1. FIRC /Debit statement/ outward remittance certificate and KYC, as applicable to be attached at the specified attachment.
2. Relevant acknowledgment letters for the capital contribution being transferred to be attached as specified.
3. Valuation certificate to be attached at the specified attachment
4. Buyer and seller consent letter and transfer agreement (relevant extracts)
5. Declaration from the Non-resident transferor/ transferee in the specified format as mentioned in the RBI user manual.
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