Introduction… Foreign investment in Indian listed securities were permitted only under FII / Sub-account route Only NRIs were allowed till then Up to August 2011 A new category of foreign investor introduced Qualified Foreign Investors (QFI) Permitted to invest in Indian Mutual Funds August 2011 QFIs are permitted to invest directly in Indian Listed Equity Companies January 2012 QFI are permitted to invest directly in Indian corporate debt securities July 2012 An Opportunity for the Foreign Investors to invest directly in Indian listed companies
Who is a QFI ? a person resident in a country that iscountry compliant with FATF standards; Signatory to IOSCOs multilateral MoU Should Be a person resident in India registered with SEBI as FII or Sub-account Should Not Be *Financial Action Task Force International Organisation of Securities Commission Memorandum of Understanding QFIs to meet KYC norms prescribed by SEBI No Need to obtain separate SEBI Registration !!
Permissible Transactions QFIs can Purchase/Sale equity shares; Listed or To be Listed on recognized stock exchange in India (including right shares, bonus shares etc.) Purchase/Sale corporate debt; Listed or To be Listed on recognized stock exchange of India Purchase/Sale the units of mutual funds QFIs cannot Issue offshore derivative instruments / participatory notes
Investment Restrictions Investment Limits as a % of paid up capital of the Company by a single QFI - 5% Aggregate by all QFIs – 10% Investment limit for corporate debt is $ 1 bn for QFIs Investment limit for Debt scheme of MF is $ 1 bn and for equity scheme is $ 10 bn The investment limits are over and above the limits of FII & NRI investment ceilings. However, sectoral cap would need to be complied.
Mechanics & Process Flow
Mechanics Open DMAT account for holding shares (Only One Permitted) Open trading a/c with recognised stock brokers (Multiple a/c permitted) Designate one overseas bank account for remittances Obtain Permanent Account Number (PAN) QFI shall open a single non- interest bearing Rupee account with an AD-category-I bank in India for routing the receipt and payments for transactions. QFI
Process Flow… Reverse process at the time of sale & DP to remit the money to designated overseas bank account QFI to transfer funds to Bank account and instruct DP to purchase shares DP to instruct broker to purchase shares DP will make payment to broker & credit shares in DMAT account of QFI
…Process Flow… Single non-interest bearing Rupee Bank Account Overseas Bank Account DP Dmat Account QFI Broker Outside India India Foreign inward / outward remittance throughnormal banking channel Transfer of Funds Request DP to Purchase Shares
Taxation & Repatriation Aspects
Taxation & Repatriation Taxation DP will deduct appropriate taxes as may be applicable on the income earned by QFI Taxation will be similar to any other foreign party Indicative tax rates Payment and Repatriation QFI to make foreign inward remittance through normal banking channels in any freely convertible currency Sale proceeds will be directly credited in single rupee bank account Dividend can either be credited directly to designated overseas bank or to the domestic bank account
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Albania FranceMaltaSouth Africa AlbertaGermany MexicoSpain Australia GreeceMontenegro Sri Lanka AustriaGuernseyMoroccoSrpska, Republic of BahrainHong KongNetherlandsSweden BelgiumHungary New Zealand Switzerland BermudaIcelandNigeriaSyrian Arab Republic BrazilIndiaNorwayChinese Taipei British ColumbiaIsle of Man Oman Tanzania British Virgin IslandsIsraelOntarioThailand BulgariaItalyPakistanTunisia Cayman IslandsJapanPolandTurkey CanadaJersey PortugalUnited Kingdom ChinaJordanQatarUnited States of America Croatia,Kenya QuébecUruguay Cyprus,KoreaRomania West African Monetary Union Czech Republic KuwaitRussia Denmark LiechtensteinSaudi Arabia Dubai LithuaniaSerbia, Republic of EstoniaLuxembourgSingapore Finland Malaysia Slovakia Former Yugoslav Republic of Macedonia MaldivesSlovenia Signatory to IOSCOs Multilateral MoU
Nature of incomeTax rate Dividend IncomeNil Long Term Capital GainNil Short Term Capital Gain15% of the gain amount (excluding Surcharge & Cess) Notes: 1.An equity share would be considered as long term capital asset if held for a period of more than 12 months. 2.It is assumed that the asset will be held as capital asset and the gain would be regarded as in the nature of capital gains. 3.These are the tax rates as per Indian tax laws. The benefit under tax treaty of the investors jurisdiction will need to be considered separately. 4.It will be advisable for the investor to seek an advice from the tax consultant for the tax rates applicable to the specific QFI. Indicative Tax Rates