Investment in Stock markets by NRI
One of my NRI friend wants to invest in Indian stock markets. I have the following questions:
1) Can he form a private limited company through which he can trade and invest in stocks, derivatives, currencies, commodities etc ?
2) He wants me to be a partner/director in the private limited company. Can he give me an ownership? Is there any restriction in giving me a majority ownership like say 75%?
3) Does the income tax authorities/RBI question the source of income that is earned abroad. He resides in Singapore and there are no capital gains tax. Will he be asked to pay tax in India?
Asked 2 years ago in Business Law from Delhi, Delhi
1. The company will be formed in India for investing in Indian share market. So, its action will be governed by Indian law,
2. You can be a partner or lion's share holder without investing any or least amount in the Company/Firm where in you shall be giving your labour in the business & your NRI friend will be a sleeping partner.
Thank you Sir for the quick response. Another small question I have is:
Can my NRI friend keep investing the capital earned from abroad at regular basis (say quarterly or half yearly) without any change in shareholding structure?
Asked 2 years ago
1. Yes , a NRI or a foreign citizen can form company in India and carry on trading.
2.If it is company then there is no question of ownership. ownership rests with the company. However percentage of share may with the Directors.
3.Money earned in abroad but invested in India is amenable for taxation by Indian authorities.
1) As per the regulations NRIs are allowed to invest up to a certain percentage of the total paid up capital of the company by directly subscribing to the equity/convertible debentures of the company either though a public offering made by the company or through private placements on one to one basis. Regulations provide for different ceilings on such investments based on the industry to which the company belongs and also the nature of investments (repatriation/non-repatriation basis).
2) you can be a director in the company and hold certain percentage of shares .
3) as far as tax liability is concerned consult a chartered accountant
Thank you Ajay Sir. My only concern was whether the NRI can invest in stock markets through a private limited company incorporated in India wherein he can bring inward remittances on a non-repatriation basis...
Asked 2 years ago
Reserve Bank vide its Notification NO. FERA 143/93 RB dated 26th April 1993, has granted general permission to NRIs to subscribe to the Memorandum and Articles of Association and to take up the shares of Indian companies for their incorporation.
Reserve Bank has granted general permission to NRIs/ OCBs to subscribe to the shares/ convertible debentures of an Indian company on non repatriation basis, and to an Indian company to subscribe to issue shares or convertible debentures by way of new / rights / bonus issue to NRIs/ OCBs on non repatriation basis provided that the invested company is not engaged in agricultural/ plantation activities or real estate business (excluding real estate development i.e. development of property or construction of houses) or chit fund or is not a Nidhi company . The payment for these shares should, however, be received from the NRIs/ OCBs by inward remittance or by debit to their NRE / FCNR/ NRO accounts maintained with an authorised dealer or an authorised bank in India. Consequently, it will be in order for companies in India to issue shares/ convertible debentures to NRIs / OCBs on non repatriation basis by way of new, rights or bonus issues without the prior approval of Reserve Bank provided the condition mentioned in the Notification are satisfied.
1. Yes, NRIs can periodically invest in Indian share market,
2. Since yours will be a partnership firm or Pvt. Ltd. Company wherein the share holding pattern between the sleeping partner & the working partner has already been decided, you can continue to have the same pattern despite the increase in the working capital from the remittances periodically made by the sleeping partner.