Setting up a Trading Company by Foreign Investor

Foreign Direct Investment - Policy

Foreign investment for trading can be approved through the automatic route up to 51% foreign equity and beyond this by the Government through FIPB as detailed hereunder.

Under the Automatic Route
For approval through the automatic route, the requirement would be that the company is engaged primarily in export activities and is an export house/trading house/super trading house/star trading house registered under the provisions of the Export and Import Policy in force.
Remittance of dividend to the shareholders outside India can be made only after the company has secured registration in any of the aforesaid categories from the Director General of Foreign Trade, Ministry of Commerce, Government of India, New Delhi.

Under the FIPB Route

1. FDI up to 100% is permitted by the Government in case of trading companies for the following activities:

   • exports;
   • bulk imports with export / expanded warehouse sales;
   • cash and carry wholesale trading;

   • other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and for third party use or onward transfer / distribution /sales.

2. The following kinds of trading are also permitted, subject to provisions of Export-Import (EXIM) Policy:

   • Companies for providing after-sales services (that is not trading per se).

   • Domestic trading of products of JVs is permitted at the whole sale level for such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India.

   • Trading of hi-tech items / items requiring specialized after-sales service.

   • Trading of items for social sector.

   • Trading of hi-tech, medical and diagnostic items.

   • Trading of items sourced from the small-scale sector under which, based on technology provided and laid down quality specifications, a company can market that item under its brand name.

   • Domestic sourcing of products for exports.

   • Test marketing of such items for which a company has approval for manufacture provided such test marketing will be for a period of two years and investment in setting up manufacturing facilities commences simultaneously with test marketing.

Foreign Direct Investment - Procedure

1. Under Automatic Route

   • RBI has given permission to Indian companies to accept investment under this route without obtaining prior approval from RBI.

   • Investors are required to notify the Regional office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and file the required documentation within 30 days of issue of shares.

   • This facility is available to NRI/OCB investment also..

2. Under FIPB (Government) Route

   • Application to be filed with the Secretariat for Industrial Assistance, Government of India, Ministry of Commerce and Industry, Udyog Bhavan, New Delhi - 110 011 in form FC/IL (SIA).

   • In addition to above, a covering letter to be prepared, to be signed by the foreign company explaining briefly the proposal for foreign investment.

   • The approval will be issued initially in the name of the foreign
     company.

   • RBI has granted general permission under Foreign Exchange Management Act (FEMA) in respect of proposals approved by the Government. Indian companies getting foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and may issue shares to the foreign investors.

   • Such companies are, however, required to notify the Regional Office concerned of the RBI of receipt of inward remittances within 30 days of such receipt and to file the required documents with the concernd Regional Office of the RBI within 30 days after issue of shares to the foreign investors.

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