Case study on advisory provided for Overseas Direct Investment and Foreign Direct Investment into the construction and rent yielding real estate sector compliant to FEMA
Contributed by: Vishnu Ameya
Email id: vishnu@simplybiz.in
Overseas investment from India to the USA and foreign investment into India from the USA span a variety of sectors. However, the emerging area of investment into rent-yielding real estate through the purchase and development of land, marks a novel trend, particularly when the business involves two-way investments between the two countries. This area is also seen as a grey area with the foreign exchange laws both inward into and outward from India explicitly prohibiting investments into Real Estate.
The intricate dynamics of cross-border investments demand careful attention to compliance with various regulatory frameworks, tax efficiency, and investor protection. Businesses operating in this space often seek professional advisory and assistance to navigate the legal, financial, and procedural requirements, ensuring seamless execution of transactions while maximizing returns.
Client requirements
Our client, who is engaged in the business of investing into rent-yielding real estate operations across India and the USA, approached us to facilitate cross-border investments compliant to the applicable regulatory framework. The client’s business model mirrors that of a Real Estate Investment Trust (REIT), pooling investments from Indian investors to acquire rent-generating properties in the USA and raising funds from US-based investors to invest in Indian properties. The portfolio spans diverse assets, including solar parks, gas stations, commercial properties, and vacant lands earmarked for long-term leasing and potential future development.
The client sought comprehensive advisory services to structure these investments seamlessly, commencing from remittance of funds to the eventual repatriation, while ensuring adherence to the Foreign Exchange Management Act (FEMA) in the most tax efficient manner.
Our work
We have prepared two comprehensive advisory notes on Overseas Investment and Foreign Direct Investment to guide clients through the entire process. This note covered all aspects, from client onboarding for investment and remittance to receiving rental yields and disinvestment proceeds. We advised the client on:
- Mode and structure of investment
a. Compliance with ODI and FDI norms by setting up an LLC in the USA for ODI through LRS and establishing an LLP in India for FDI without triggering the NBFC regulations.
b. Structured investments via an LLC in the USA for pooling funds and an LLP in India for managing construction, development, and leasing projects.
2. End to end Reporting and compliance
a. Reporting and compliance under the LRS & the ODI framework for remittance, receipt of rental yields, and repatriation of disinvestment proceeds.
b. Reporting and compliance for receipt of funds, rental income, and repatriation of disinvestment proceeds, ensuring adherence to FDI regulations and reporting norms.
3. Advising on investment into Real Estate activities
a. Structured investments to focus on constructing and operating properties for generating rental income, ensuring compliance with FEMA guidelines on permissible activities.
b. Advised on acquiring and holding land for long-term leasing and future development in alignment with FEMA norms that do not permit speculative investments.
4.Tax advisory
a. Leveraging the Double Tax Avoidance Agreement (DTAA) provisions between India and the USA to avoid double taxation and claim tax credits for efficient cross-border transactions.
b. Taxation of dividends received from the LLC in the USA, ensuring compliance with Indian and US tax laws and withholding requirements.
c. Tax liabilities arising from the sale of assets and liquidation of entities, advising on minimizing capital gains tax and ensuring compliant repatriation of proceeds.
The entire assignment was completed in a smooth & seamless manner. Our experience of handling various assignments related to end to end advisory, and execution of Overseas Investment and Foreign Investment has given us considerable exposure on the critical aspects to be looked into, in the process.
If you are looking for overseas investment and foreign direct investment support for a transaction, we can help you with the same. SimplyTransact is a solution that evaluates the actual requirement and navigates through the entire process of a corporate transaction.
If you want to seek advisory and execution on a transaction, please write to us at SimplyTransact@simplyBiz.in
Leave A Comment