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Transfer Of Shares Between Resident And Non-Resident (Private Limited Companies)

February 20, 2018     by Mayank Verma

 

Transfer of shares between two residents (of India) involves payment of consideration (buyer to the seller) and execution of share transfer deed. Share transfer deed to be duly stamped @ 0.25% of the consideration amount. When the transaction is between a resident and a non-resident, there are regulations concerning inward and outward remittance of funds, valuation of shares and submission of form FC-TRS on e-biz portal. The Reserve Bank of India (RBI) through Notification No. FEMA 20(R)/ 2017-RB dated November 07, 2017, made Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 to regulate investment in India by a Person Resident outside India.

FC-TRS

 

FORM FOREIGN CURRENCY-TRANSFER OF SHARES (FC-TRS):

Form FC-TRS is required to be filed for transfer of capital instruments (Equity Shares, Fully and Compulsory Convertible Securities) of an Indian Company in the following cases:

  1. When the transfer is made between a person resident outside India (repatriable basis) and a person resident outside India (non-repatriable basis)
  2. When the transfer is made between a person resident outside India (repatriable basis) and a person resident in India.

 

Who is to file form FC-TRS?

Transfer of capital instruments prescribed above shall be reported on receipt of every tranche of payment. One of the important dilemma between public at large is that who has to file this form with Authorised Dealer Bank?

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis, as the case may be.

 

What is the Time Limit for filing FC-TRS?

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

 

What is the Procedure for filing FC-TRS?

The following steps are included in filing of FC-TRS form:

  1. Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:
    • Share Transfer Deed as per SH-4
    • Duly signed Consent letters from the buyers and seller.

Note: While executing the share transfer deed, stamp duty @ 0.25 % on the consideration amount is to be paid by purchasing the share transfer stamps, affixing those on the SH-4 and then crossing the same.

  1. Transfer of Funds: The funds should be transferred through proper Banking channels. Copy of FIRC and copy of KYC of person resident outside India should be obtained from Authorised Dealer Bank.
  1. Registration on E-biz portal: it is mandatory to register the details of the person filing form along with his/her digital signatures (DSC) on e-biz portal.
  1. Filing of form on E-Biz portal with the required attachments: The form is filled online on E-biz portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting form.
  1. Scrutiny from AD Bank: Post submitting form on E-Biz portal, AD bank scrutinize each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.
  1. Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is a documentary evidence which states that FDI compliances are duly taken care off by the applicant.
  1. Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

Additional Step may be required in delay submission of FC-TRS: In case the applicant fails to file FC-TRS within 60 days of transfer, then the AD Bank will forward the application to RBI for its approval.

 

Is there any Statutory Fees for filing FC-TRS?

There is no upfront (like MCA portal) statutory fees for filing FC-TRS on E-biz portal, but AD Bank may charge for processing FC-TRS. The processing fees may vary from Bank to Bank. The bank may ask for an authorisation from Applicant in order to deduct the bank charges from account.

 

What are the Attachments to be filed with form FC-TRS on E-biz portal?

Form FC-TRS is an online form that is to be filled and filed through E-biz portal along with the following important documents:

  1. Consent Letter from Buyer and Seller.
  2. Copy of FIRC in cases of foreign remittance is received by resident Indian.
  3. Copy of KYC of the buyer (NRI) on the letterhead of the bank.
  4. Valuation Report from the Certified Valuer certifying the value of shares.

 

Is there any prescribed method for valuation of shares?

Price of share shall be decided on the basis of valuation of Shares as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant.

  • While transferring shares from resident to non-resident, the minimum bar on price is set. The price cannot be less than the price determined from the valuation report.
  • In case the shares are transferred from non-resident to resident investor, the upper cap for price is set. The price cannot be more than the price determined from the valuation report.

 

 

 

32 thoughts on “Transfer Of Shares Between Resident And Non-Resident (Private Limited Companies)

  1. Hello Sir,

    Can you tell me that if NRI holding 80% in an Indian Company transfer its shares to Foreign company which is incorporated outside India?

    If yes, do we need to take the prior approval of RBI and what are the others compliances to be done in FEMA?

    1. Dear Sir,
      Yes, NRI can transfer its shares to the Foreign Company which is incorporated outside India.

      NRI would be required to check whether the Company falls under the Automatic Route or Approval Route and the applicable sectoral cap as per the RBI Guidelines. If it falls under the Approval Route then prior approval of RBI would be required.

      Also, in case of transfer of shares from NRI to Foreign Company, reporting of FC-TRS is not required unless the NRI is holding the shares on non-repatriable basis and transferring the shares to foreign company on repatriable basis.

  2. Sir, thankyou for your articles. My query is:
    NR company transfers shares to Resident company. Does the onus of reporting lie on the Resident Company (Transferee) or on the Company whose shares have been transferred?

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 onus of submission of Form FC-TRS is on the resident transferor or transferee.

      Therefore in your case, Resident Company is required to file Form FC-TRS.

  3. A Foreign co. paid expenses on behalf of the Indian co. but the Indian co. does’t have cash to paid them. So the Indian co. want to give some shares to Foreign co. What is the procedure under Income tax act, companies act and FEMA ?

    1. This is a case of issuing of shares on consideration other than cash (indirect loan to the Indian company)

      As per the provisions of the Companies Act, 2013, prior to the transaction, an agreement is to be entered and approved by the shareholders (special resolution) for issuing shares on consideration other than cash basis

      If the above provisions are complied then you may proceed with the following procedure:

      Companies Act
      1. Issue a letter from the foreign company for exercising its right as per the terms of the agreement approved.
      2. Conduct a Board Meeting and allot the shares based on the valuation of a registered valuer.
      3. Filing of Form PAS-3 with ROC within 30 days of allotment on other than cash basis.
      4. Payment of stamp duty within 30 days of allotment of securities

      FEMA
      1. Report to RBI in Form FC-GPR Within 30 days of allotment of shares
      2. Attach (i) the copy of the agreement (ii) the FIRC or proof of payment of expenses by the foreign company. (iii) Valuation Report (iv) CS Certificate and Auditor Certificate and (viii) Other documents as prescribed.

      Income tax
      If shares are issued at a value higher that the value determined in the valuation report, the provisions of capital gain will apply.

  4. Shares hold at the time of resident status on Non Repat basis and later sold to NR Entity with Repat basis, while the resident status change to NR at the time of share purchase agreement.

    Kindly advise what status to be consider of seller for FCTRS filing. and whether the filing is applicable and require RBI approval or not.

    1. The status of non-resident shall be considered as at the time of executing share purchase agreement, therefore, the status of the resident has been changed to non-resident.

      Yes, shares acquired by resident can be sold on repatriation basis to non-resident.

      But as per RBI Guidelines, in case of transfer of capital instruments from a person resident outside India holding capital instruments on non-repat basis to a person resident outside India on repat basis, reporting in Form FC-TRS is required.

      So, in this case, FC-TRS is required to be filed.

  5. Hi sir
    Can a NR shareholder Company transfer its 20% shareholding to resident individual by way of gift? If yes what are the necessary documents required to be executed except SH-4, and Board Resolution. In this case, FCTRS would not be required. Pls confirm

    1. As per regulation 10(3) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, a person resident outside India can gift shares to Resident Individual. To approve transfer “SH-4/ gift deed” shall be required along with board resolution.

      FCTRS shall be required to be filed by the resident transferor/transferee.

      Documents required- Transfer Agreement (gift deed) / Valuation Certificate and Relevant Acknowledgement for Initial Investment or Approval letter

  6. Indian company shares held by person resident outside India are transferred to another person resident outside India .Please assist pricing guideline applicable or not. if yes under which head.

    1. As per Regulation 11 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, pricing guidelines are applicable in case transfer is made between resident of India and a person resident outside India and vice versa. However, the Regulation does not mention any pricing guidelines for the transfer of shares by or to a person resident outside India.

      But in such transactions, restriction under Income Tax needs to be taken care of. If the shares or interest derive, directly or indirectly, its value substantially from the assets located in India, the person needs to pay tax in India.

  7. what is
    1. the procedure of transfer of shares from NR to RI

    2. WHen transferring can the share value be discounted to half ?

    1. For procedure of transfer of shares from NR to RI, please read our blogs:
      1. https://www.bsamrishindia.com/transfer-of-shares-between-resident-and-non-resident-private-limited-companies/
      2. https://www.bsamrishindia.com/single-master-form-smf-and-the-new-filing-platform-firms/

      Regarding the second question, in case of share transfer from NR to IR, the consideration payable by the IR (Transferee) shall not exceed the valuation of capital instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant.

      In short, in case of share transfer from NR to IR, the consideration payable by IR shall not exceed the valuation done by the CA.

  8. Our Pvt. Company(ABC Pvt. Ltd) is a wholly owned subsidiary of a Public company(XYZ Ltd.)The shares of ABC Pvt. Ltd are in demat form. Now XYZ Ltd wants to transfer 49% shares to an Korean Company. What are the compliances to be done ?

  9. Shares are transferred by a Resident Individual in a Indian Company to Non-resident company which eventually holds majority stake in Indian company.
    Liability to file FCTRS is with resident individual who has sold shares of Indian company or Indian company shall file FCTRS whose shares are sold by resident individual to Non Resident company.
    Please assist

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 onus of submission of Form FC-TRS is on the resident transferor or transferee.
      But considering the current scenario, individuals cannot registered themselves on FIRMS portal.
      Therefore, Form FC-TRS is to be filed by the company whose shares are being transferred till the time RBI comes up with a clarification in this regard.

    1. The FEMA Regulations do not specify the validity of the valuation report. However, as per general practice, it shall be appropriate if the valuation report is maximum 6 months old from the date of execution of transfer

  10. Hi, I got your reference from one of your ex-employee and would like to extend my best compliments on your blogs. they are really useful and easy to understand.

    I have two major queries related to FEMA:
    1. What is the difference between NRI investment and FDI investment?

    2. I was a resident in India in 2015 and through LRS i incorporated a company overseas (100% my ownership). In 2016, few investors invested in my overseas company and that company became a joint venture. Now in 2019, myself (a NRI) and that company want to do some investments in my Indian Company. this proposed investment would be from my funds i transferred overseas under LRS. Is this transaction permissible under FEMA?
    In crux: Can a NRI make investment in Indian Company with the proceeds he transferred under LRS when he was a resident?

    I hope to receive answer to this query asap.

    1. Sir, thanks for appreciation. There isn’t much difference between NRI and FDI from NR. However, investment from NRI on non repatriable basis is treated as domestic investment.
      Regarding your 2nd query, this is not the medium to seek answer on a very technical issue which needs further examination and research.

  11. The share is transferred from resident to non resident, FCTRS is to be filed in Individual capacity or is to be filed by the company whose shares are transferred.

    1. As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 the onus of reporting is on the resident transfer/transferee.
      As per the current scenario, individuals cannot be registered on FIRMS portal. Therefore, the liability of filing FC-TRS is on the Company whose shares are being transferred.

  12. What are the sectoral caps and FDI Policy applicability of an Indian Company with Software Testing and Development operations?

  13. Where foreign Company shares are transferred from resident to Non resident what are the compliance’s to be done?

    1. In accordance to Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000
      “A person resident in India, who has acquired or holds foreign securities in accordance with the provisions of the Act, rules or regulations made thereunder, may transfer them by way of pledge for obtaining fund based or non-fund based facilities in India from an authorised dealer”
      For further detailed information you can visit your respective AD Bank.

  14. In case of transfer of 99% share capital of an indian company (Health Sector) to a Foreign Company, will it be under Automatic route or Approval route?

    1. As per FDI policy, 100% investment in the manufacturing of Medical devices under automatic route is allowed.
      We shall need more information on the exact business of the company to provide conclusive answer.

  15. Non resident has transferred shares to 2 indian resident amounts to Rs. 450 , so we need to take tax clearance certificate for this transaction?? and tax clearance certificate is required every time when transfer from resident to non resident and vice versa.
    Please reply.
    Thanks in advance.

    1. As mentioned in regulation 12 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, all transaction under these regulations shall be subject to payment of applicable taxes and other duties/ levies in India irrespective of the amount remitted.
      Therefore, it is mandatory to obtain tax clearance certificate from either Income tax Authority or from the Chartered Accountant

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