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Transferring Equity Shares from Residents to Non-Residents in India: A Step-by-Step Guide

Procedure for Transferring Equity Shares of an Indian Company from a Resident to a Non-Resident

Overview

The transfer of equity shares from a resident to a non-resident in India is governed by specific regulations outlined by the Reserve Bank of India (RBI). Compliance with these regulations ensures a smooth transfer process.

Filing Form FCTRS

The Form FCTRS must be submitted within sixty days from either the date of the equity instrument transfer or from the date of the receipt/remittance of funds, whichever occurs first.

  • Valuation Certificate:

    • As per Para 8.10.3 of the RBI Master Direction on Foreign Investment in India, the valuation certificate must be issued by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practicing Cost Accountant. This certificate should not exceed ninety days in age as of the transfer date.

  • Responsibility for Filing:

    • The resident transferor or transferee bears the responsibility for filing the FCTRS Form.
    • No fee is required for submitting the FC-TRS Form via the RBI-FIRMS Portal.

  • Sectoral Limits:

    • It is crucial to ensure compliance with the applicable sectoral limits of the company prior to transferring shares.

  • Late Submission Fees:

    • Failure to file the Form FCTRS within the specified timeframe could result in the responsible entity incurring a late submission fee as determined by the RBI.

Registration on RBI-FIRMS Portal

There are two types of registrations necessary on the RBI-FIRMS Portal before submitting the FC-TRS Form:

  1. Entity Registration
  2. Business User Registration

Pricing Guidelines for Equity Instruments Transfer

According to Para 8.2 of the RBI Master Direction on Foreign Investment in India, the following pricing guidelines are applicable:

  • For Listed Entities:

    • The transfer price must align with the relevant SEBI guidelines for listed Indian companies.

  • For Unlisted Companies:

    • The equity instruments must be valued using any internationally accepted pricing methodology for arm’s length transactions, certified by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practicing Cost Accountant.

Required Documents for e-Form FC-TRS

When filling out the e-form FC-TRS, the following documents must be attached:

  1. Consent Letter: Signed by both the Buyer and Seller.
  2. Declaration: By the Non-resident transferor/transferee, in the format specified in the RBI FIRMS User Manual.
  3. Share Transfer Deed: In Form SH-4.
  4. Valuation Certificate: Indicating the fair value of shares, issued by a Chartered Accountant or a SEBI-registered Merchant Banker as specified in the RBI circular.
  5. Share Purchase Agreement.
  6. Board Resolution: From the Investee Company.
  7. Shareholding Pattern: Of the Investee Company before and after the acquisition of shares by the non-resident.
  8. FIRC and KYC: Documentation received from the Authorized Dealer (AD) Bank.

This structured approach will facilitate the compliance requirements for transferring equity shares from a resident to a non-resident entity efficiently.