thakker_indian clients and indian assets

8/3/2019 Thakker_Indian Clients and Indian Assets

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Indian Clients and Indian Assets

June 4, 2007

Bijesh Thakker


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Topics

India The New Trillion Dollar Economy andOpportunities

Financial Market Supervision in India Regarding CrossBorder Services

Specialized Indian Laws You Must Know

Limitations on Financial Services Provisions

Specialized Tax Efficient Structuring

Secrets For Successful Indian Financial Arrangements Watch Out on Regulatory Issues

Cultural Issues

Questions?


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What do Swiss Banks, Independent Asset Manager

and Trust-Companies need to bear in mind

when dealing with Indian Clients


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India The New Trillion Dollar Economy

and Opportunities


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Strong and Optimistic GDP Indicator%

9.2%

GDPGrowthRate


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Strengthening Rupee

The rupee has appreciated about 8.4% in 2007

Rup

eeEquivalentof1USD

Exchange Rate - INR vs USD

40.5


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Bullish Stock Market

4th largest in Asia

BSE sensex

14,471

BSESensex


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Favourite Destination For Inbound / Outbound

Investments

Inbound Outbound

1.6

0.043.2

0.8

1.5

0.6

1.4

0.9

3.5

3.5

3.9

6.3

17.0

24.4

January to April


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Opportunities in Financial Services

India has one of the strongest

financial sector with low systemic risk

The USD 28 billion Indian financial

sector has grown at around 15% Overall banking sector is growing by

18% and is projected to grow by 20%

in the next 1 year

India has one of the 10 fastest

growing population of HNIs globally


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Highest return on equity in Asia

13.0

14.7

19.3

%ageofReturnonInvestme

nt

Source: US Department of Commerce Countries


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Lowest average of gross bad loans

8.18

15.05

13.0811.80

9.73

Source: Moodys Investor Services

Countries


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Financial Market Supervision in India

Regarding Cross Border Services


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Indian Legal System An Overview

India a common law country

Well-developed legal system,

established during British rule, prior

to independence Almost all laws written in English;

higher courts conduct proceedings

in English

Judicial remedy is fair, but delayed


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Specialized Indian Laws You Must Know (1/8)

Foreign Exchange Control

Investment Rules Inbound/Outbound

Banking and Financial Services Laws

Contract Laws

Tax Laws

Dispute Resolution Laws


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Foreign Exchange Control

India is regulated by exchange controls inflow/outflow

of money has rules

Exchange controls monitored by Reserve Bank of India(RBI), Indias federal bank, based in Mumbai with

regional offices throughout India

Foreign Exchange Management Act, 1999 (FEMA) &

circulars issued by the RBI govern all transactions Foreign exchange on capital account transactions

continues to be regulated, subject to general or specific

exemption


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Inbound Investment Rules

Sophisticated but liberalized inboundinvestment rules

Invest through

Foreign Institutional Investment (FII)Route

Foreign Direct Investment (FDI)Route

Other schemes for Non ResidentIndians (NRIs)

FDI regulations substantiallyliberalized

No prior Government permissions arerequired for FDI, except in certain

cases


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Outbound Investment Rules

Outbound investment rules

sophisticated but liberalized

Resident Indians not permitted tohold assets outside India except

under special schemes

Resident Indian companies

permitted to hold assets outsideIndia subject to regulations


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Banking and Financial Services Laws

Sophisticated banking and finance laws

RBI is the central regulatory and supervisory authority for

Indian financial system Other important regulators - Finance Ministry, Securities

& Exchange Board of India (SEBI), Registrar of

Companies (ROC)

Foreign banks set up regulated in India

Financial services sector detailed regulation/capital

injection thresholds


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Contract Law

Indian contract law based on

English common law but codified

Privity of contract principal Breach of control delayed

claims

Awards are small and delayed

Nominee holding controlled by

separate legislation


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Tax Laws

Well developed tax laws

DTAA with 71 countries

India not an OECD signatory butDTAAs based on general

principles laid down in model

OECD draft

FDIs mostly routed throughMauritius and Singapore to avail

of capital gains benefits


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Dispute Resolution Laws

Choice of Law enforceability of

proper law of contract

Choice of Jurisdiction subject tocourt having inherent jurisdiction

Arbitration & Conciliation Act, 1996

based on UNCITRAL Model Law

Singapore and London - favouritevenues for arbitration


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Advisory on inbound / outbound

investment strategy

Assistance in deployment of funds

Investment structures - successfulproduct offering against limitations


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Advisory on Inbound/Outbound Investment Strategy

If provided from outside India no

registrations required in India but

watch out on tax issues

If provided from a base in India -investment advisory services

considered a non fund based Non

Banking Financial Companies

(NBFC) activity Subject to minimum

capitalization requirement of

USD 0.5 million


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Assistance in Deployment of Funds

Regulatory Touch Points

Inbound Outbound

FIPB (if not automatic route) RBI

RBI

SEBI

ROC


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Assistance in Deployment of Funds in India (1/2)

Mandatory registration with SEBI required for providing

following services

Asset Management

Net worth of atleast INR 100 million (USD 2.2 million) Portfolio Management

Net worth of atleast INR 5 million (USD 0.11 million)

Above activities considered as NBFC activities under

FDI guidelines


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Assistance in Deployment of Funds in India (2/2)

Minimum capitalisation norms for financial services

51%: USD 0.5 million, to be invested upfront

51% to 75%: USD 5 million, to be invested upfront

75% to 100%: USD 50 million; out of which USD 7.5million to be invested upfront and balance over 24

months


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Investment Structures - Successful Product OfferingAgainst Limitations (1/3) Inbound Investments

Objective Limitation Investment Structures/Products

Investment onstock exchange

Foreignresidents/citizens

not permitted toparticipate

PNs issued by FIIs

Sub account of a FII

Directinvestment inIndian ventures

Exchange controland FDI sectoralcap

FDI compliant investment by bankowned Special Purpose Vehicles(SPVs) based on:

Investment backed by offshoresecurities/deposits

Offshore call & put arrangement


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Investment Structures - Successful Product OfferingAgainst Limitations (2/3)


Raising fundsinternationallyfor inbound

investments

Exchange controlregulations

Outbound

investmentguidelines

FDI guidelines

ECB guidelines

ADR\GDR\FCCB

guidelines

Offshore joint ventures/ whollyowned subsidiaries raise fundsthrough

Private equity Preference shares

Borrowings for investmentin Indian equity

Offshore floats such as

ADRs/GDRs/FCCBs


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Investment Structures - Successful Product OfferingAgainst Limitations (3/3)


Outboundinvestment by

corporates

Outboundinvestment

guidelines

Offshore joint ventures/ whollyowned subsidiaries raise funds

through Private equity

Leveraging funds fromoverseas through speciallystructured instruments

Outboundinvestment byindividuals

USD 100,000 perperson per year

Solicitation of suchdeposits by foreignbanks requiresprior RBI approval

All transactions except certaintransactions such as purchaseof lottery tickets, football pools,etc.

Outbound Investments


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Investment structuring relevant for capital gains

Commonly used DTAAs

India Mauritius

India Singapore

India Cyprus


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Country Favorable tax provision under the DTAA

Mauritius Capital Gains Tax exemption available

Has to be a GBL1 company

Singapore Capital Gains Tax exemption availableCannot be a shell company

Cyprus Capital Gains Tax exemption available

Has to be a Cyprus resident

Monitor

Monitor


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Case Study - A

Mr. X, a non-resident wants to invest in real estate

FDI in real estate permitted subject to certain conditions

Routes for investment

Direct investment subject to FDI guidelines

NRI in personal/individual name

OCBs

SPVs floated by NRIs Property fund

Mortgage

* Subject to guidelines

** RBI approval required at the time of enforcement

**

*

*


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Case Study - B

ABC, a foreign corporate wants to invest in Indian

unlisted companies

Routes for investment (direct or through DTAA

preferred countries) Direct investment subject to FDI guidelines


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Case Study C

XYZ, a foreign corporate wants to invest on the Indian

stock exchange

Routes for investment (direct or through DTAA

preferred countries) Investment as a FII or a sub account of a FII

Investment through PN route

*

* Subject to obtaining of necessary approvals


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Secrets of Successful Indian

Financial Arrangements


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Secrets of Successful Indian Financial Arrangements(1/4) 2 Success Mantras

Remember to watch out

on regulatory issues

Understand Indian cultureto which you would come

close


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Secrets of Successful Indian Financial Arrangements(2/4)

Watch out on regulatory issues

Indian regulators well informed, educated, experienced

and powerful respect their territory

India has a disclosure based regime of regulations Disclosures under Section 187C of Companies Act

required incase of nominee shareholders

Benami/nominee transactions illegal

Exchange control violations earlier criminal offence -since 2000 civil offence


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Understand Indian culture

Family tends to be large but ability to divide to beprovided

Senior members remain powerful but conservative

Wealth may not be measured by outward materialsurroundings/actual wealth

Young Indians are global citizens - know banking andfinance well and are willing to shift for right

product/country/currency mix Indians remain at heart saving oriented, but increasingly

willing to leverage for better return

Confidentiality and discretion universally appreciated,patience even more


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Offshore family trust structure

most openly kept secret

Discretionary trusts widely used

Not tested regulatory waters yetin India on FEMA compliance


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Mumbai Office Delhi Office Bangalore OfficeNirmal, 20th Floor A/320 Unit No. 706, Carlton TowerNariman Point Defence Colony No. 1, Airport RoadMumbai 400 021 New Delhi 110 024 Bangalore 560 008Tel : (91 22) 6630 8000 Tel : (91 11) 2433 9776 Tel : (91 80) 2526 5776

Fax : (91 22) 6630 8100 Fax : (91 11) 2433 3545 Fax : (91 80) 2526 4357

BIJESH THAKKER

Managing Partner

MUMBAI DELHI BANGALORE

Questions?


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Glossary (1/2)

ADR American Depository Receipt

BSE- Bombay Stock Exchange

DTAA- Double Taxation Avoidance Agreement

ECB- External Commercial Borrowings

FCCB - Foreign Currency Convertible Bond

FEMA- Foreign Exchange Management Act, 1999

FDI- Foreign Direct Investment

FII- Foreign Institutional Investor

FIPB- Foreign Investment Promotion Board

GBL1- Global Business License Type 1

GDP- Gross Domestic Product

GDR - Global Depository Receipt


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Glossary (2/2)

HNI- High Networth Individual

LLCs- Limited Liability Companies

LLPs- Limited Liability Partnerships

NRI- Non-Resident Indian

NBFC- Non-Banking Financial Companies OCBs- Overseas Corporate Body

OECD- Organisation for Economic Co-operation andDevelopment

PN- Participatory Notes

RBI- Reserve Bank of India

ROC- Registrar of Companies

SEBI- Securities and Exchange Board of India

UNCITRAL- United Nations Commission on International

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