Purchase of Residential Property by Foreign Companies
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| Posted : Oct, 15, 2010 | Author [indrealty]
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A foreign company which has established a Branch Office or other place of business in India, in accordance with FERA / FEMA regulations, can acquire any immovable property in India, which is necessary for, or incidental to carrying on such activity. The payment for acquiring such a property should be made by way of foreign inward remittance through proper banking channel.
A declaration in form IPI should be filed with Reserve Bank within ninety days from the date of acquiring the property. Such a property can also be mortgaged with an Authorized Dealer as a security for other borrowings. Once the business winds up, the sale proceeds of such property can be repatriated only with the prior approval of Reserve Bank.
Further, acquisition of immovable property by entities that had set up Branch Offices in India and incorporated in Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of Reserve Bank to acquire such immovable property.
However, if the foreign company has established a Liaison Office, it can not acquire immovable property. In such cases, Liaison Offices can take a property by way of lease not exceedinStyles & Formattingg 5 years.
Methods to have business unit in India
A foreign company planning to set up business operations in India has the following options:
1. To have an incorporated entity as a Company incorporated under the Companies Act 1956.
1. as a wholly owned subsidiary or
2. in a joint venture
2. To have an office of a Foreign entity through:
1. Representative Offices / Liaison Office
2. Project Office
3. Branch Office
Only NRIs and PIOs can establish a Partnership or a Proprietorship firm in India. This investment is also allowed on a non-repatriation basis.
Thus, it is profitable to set up a Company in India as it is far easier and cost effective.
NRIs are allowed to invest in the following activities through their Companies:
* Development of serviced plots and construction of built up residential premises.
* Investment in real estate covering construction of residential and commercial premises, including business centers and offices.
* Development of townships.
* City and regional level urban infrastructure facilities, including both roads and bridges.
* Investment in manufacture of building materials, which is also open to FDI.
* Investment in participatory ventures in (a) to (e) above.
* Investment in housing finance institutions, which is also open to FDI as an NBFC.
Investment opportunity for Foreign Companies under Automatic route of FDI policy
Under the automatic route of FDI policy, investment opportunities for foreign companies exist in the construction sector, development projects, including housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure, and townships.
The conditions for the investment are as follows:
* Minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for a joint venture. The funds would have to be brought within six months of the commencement of Company business.
* Minimum area to be developed under each projecta^EUR"10 hectares in case of development of serviced housing plots; and
* A built-up area of 50,000 sq. mts. is required in case of a construction development project; and any of the above in case of a combination project
Procedure to set up a Company in India under the Companies Act 1956
* A Company can be established under the provisions of Companies Act 1956.
* To start a Private Limited company in India, there is a minimum requirement of two Directors.
* These Directors are required to have a Directors Identification Number (DIN) from the Ministry of Company Affairs.
* Moving ahead with the name as approved by the Ministry, the Memorandum and the Articles of Association of the Company can be formulated and filed with the registrar of Companies of the jurisdiction where the registered office of the Company is to be situated.
* The registrar of Companies (ROC) issues a Certificate of Incorporation which is the conclusive evidence for the establishment of the Company.
* The minimum capital requirement for a private limited Company is Rupees One hundred thousand. For a Public Limited Company the minimum capital requirement is Rupees Five Hundred Thousand.
* The Directors can be the shareholders of the Company and can also transfer shares as per the regulations of RBI.
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