Cyprus Granted FPI Category I Licence by The Government of India
Background
The Securities and Exchange Board of India (SEBI) has allowed entities to invest in India via various routes, such as Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), Foreign Venture Capital Investment, Alternative Investment Fund etc. The Foreign Portfolio Investment (FPI) regime is currently the route chosen by many global investors that comply with the regulations.
Foreign Portfolio Investment
FPI involves holding financial assets in a country other than the investor’s country. Such holdings include stocks, bonds, shares, mutual funds, units of business trusts, AGRs, GDRs etc.The FPI regime came after the merging of Foreign Institutional Investor (FII) and Qualified Foreign Investor (QFI) as a harmonised route in India.
FPI Category I Explained:
Under the SEBI amendments of the Foreign Portfolio Investors Regulations 2019 the scope of granting Category I Licence was enhanced to contain entities outside the Financial Action
Task Force (FATF) members that have reached an agreement with the Government of India.
FPI applicants are considered to be:
● appropriately regulated funds;
● unregulated funds whose Investment Manager is appropriately regulated and registered as a Category I FPI; and
● university related endowment funds of universities in existence for more
than 5 years Cyprus: eligible for Category I Licence and the impact on the economy On June 14th, the Government of India issued a notification form the Department of economic affairs approving Cyprus as an eligible country for obtaining FPI Category I Licence subject to applicable requirements.
Key Takeaways:
● Investors in Category I FPIs are exempt from the applicability of “Indirect Transfer” provisions under the Indian Income-tax Act. Indirect Transfer tax provision is applicable to an overseas investor upon transfer of shares / interest in a foreign entity which derives its value from assets in India
● Issue/ invest in Offshore Derivative Instruments (such as Participatory Notes), after compliance with the Know Your Client (KYC) norms as specified by SEBI;
● Lesser KYC documentation required by SEBI as compared to Category II FPI;
● Higher position limits for investing in derivatives.
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