We are an US-based company. Can we acquire the entire shareholding
of an Indian software development company, which in turn holds the
entire shareholding of an Indian company that has an ISP license?
The acquisition of the entire shareholding of the software development
company would require the prior approvals, first of the Foreign
Investment Promotion Board (FIPB) and thereafter of the Reserve
Bank of India.
Foreign Direct Investment (FDI) norms applicable
to investing companies in the services sector may, however, impact
your company's ability to acquire the entire shareholding of the
software development company or its ability to continue to hold
the entire shareholding of the ISP company. In terms of FDI norms
in the services sector, where there is a prescribed cap for foreign
investment, only the FDI in the services company is considered for
the prescribed cap and FDI in the investing company is not set off
against this cap if the FDI in the investing company does not exceed
49 per cent and the management of the investing company is with
Indian shareholders. Hundred per cent FDI is permitted with prior
FIPB approval in an ISP not providing gateways (both for satellite
and submarine cables). However, FDI in an ISP with gateways is limited
to 74 per cent. In either case, FDI beyond 49 per cent requires
prior FIPB approval.
Consequently, if the ISP has gateways, your
company may either acquire up to 74 per cent of the software development
company (which will be set off against the prescribed sectoral cap
in the ISP) or acquire the entire shareholding of the software development
company and reduce the shareholding of the software development
company in the ISP to 74 per cent in view of the prescribed cap
for FDI. If the ISP is without gateways, your company may acquire
the entire shareholding of the software development company, which
continues to hold the entire shareholding of the ISP. In either
case, in addition to prior FIPB approval for the acquisition of
shares, your company will require prior FIPB approval for the continued
shareholding by the software development company in the ISP (as
your company's shareholding in the software development company
will be set off against the prescribed sectoral cap in the ISP).
Your company or the software development company can file a composite
application with the FIPB for both approvals. In addition, if your
company is listed in the US or other parts of the world, then your
company will need to divest 26 per cent of its indirect shareholding
in the ISP in favour of the Indian public within five years of the
We are a software company set up under the
Software Technology Parks (STP) scheme of the Government of India,
with a private bonded warehouse license issued by the Customs authorities.
We intend to re-export some of our imported warehoused goods to
our parent company in the US. Will re-export of these goods entail
payment of customs duty?
If the goods that you wish to re-export have
not been taken out of the bonded warehoused premises of the STP
unit, you can re-export these goods without payment of customs duty.
In terms of Section 69 of the Customs Act, 1963, any warehoused
goods (provided these goods are not prohibited goods under the Customs
Act) can be exported to a place outside of India without payment
of import duty if (i) the shipping bill or a bill of export has
been presented in respect of such goods; (ii) the export duties,
penalties, or other charges payable in respect of such goods have
been paid; and (iii) an order of clearance of such goods for exportation
has been made by the concerned customs officer. This facility of
re-export is also provided in the Export-Import Policy 2002-2007,
which states that capital goods and spares that have become obsolete/surplus
can be exported by a STP unit.
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