New Restrictions on FDI and Key Measures Announced Regarding Companies Act and Insolvency & Bankruptcy Code in India
Restriction on investments having beneficial owner as Chinese company/entity/national: Government of India has recently revisited the norms prescribed under the Foreign Exchange Management Act, 1999 and the Companies Act, 2013. The amendments are introduced to protect Indian market from the opportunistic acquisitions from China but the way the provisions have been drafted, every investment coming to India which may have Chinese beneficial owner or a Chines entity as the ultimate parent could be impacted and prior approval from government would be required. For instance: If an equity investment is being made from U.S in India., it will be have to be seen if the US entity has any Chinese investment or any other investment where the Beneficial Owner is a Chinese person or a Chinese entity. Such an investment will require prior approval from the Government of India before investing in India.
Over 14,000 prosecutions have been withdrawn under the Companies Act, 2013 which is a very welcome move and would significantly dilute this draconian law. This will surely prevent undue harassment and make compliances significantly less onerous for companies operating in India. With a reduced tax rate for companies in India and the new classical way of taxation of dividends, having a company structure for your investments in India would be the most suitable structure in a vast majority of cases.