Transferring Equity Shares from Resident to Non-Resident in India: A Complete 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 subject to regulations set forth by the Reserve Bank of India (RBI). Adhering to these regulations is essential for a seamless transfer process.

Filing Form FCTRS

Form FCTRS must be submitted within sixty days of either the equity instrument transfer date or the date of fund receipt/remittance, whichever is earlier. This form is submitted through an Authorized Dealer (AD) Category-I bank and is processed via the RBI FIRMS portal.

• Valuation Certificate:

  • In accordance with Para 8.10.3 of the RBI Master Direction on Foreign Investment in India, the valuation certificate should be issued by a Chartered Accountant, a SEBI-registered Merchant Banker, or a practicing Cost Accountant. The certificate must be issued no more than ninety days before the transfer date.

• Responsibility for Filing:

  • The resident transferor or transferee is responsible for filing Form FCTRS.
  • There is no fee for submitting the FC-TRS Form through the RBI-FIRMS Portal.
  • If shares are acquired by a non-resident through a stock exchange, the investee company must file the FC-TRS form.
  • For gift transfers, additional documentation and declarations will be required, and the process may vary slightly.

• Sectoral Limits:

  • It is vital to check and comply with applicable sectoral limits of the company prior to transferring shares.

• Late Submission Fees:

  • Failure to submit Form FCTRS within the stipulated timeframe may incur a late submission fee as prescribed by the RBI.

Registration on RBI-FIRMS Portal

Two types of registrations are required on the RBI-FIRMS Portal before submitting the FC-TRS Form:

1. Entity Registration
2. Business User Registration

Pricing Guidelines for Equity Instruments Transfer

Per Para 8.2 of the RBI Master Direction on Foreign Investment in India, the following pricing guidelines apply:

• For Listed Entities:

  • The transfer price should comply with the applicable SEBI guidelines for listed Indian companies.

• For Unlisted Companies:

  • Valuation of equity instruments must employ an internationally accepted pricing method 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

The following documents must accompany the e-form FC-TRS submission:

1. Consent Letter: Signed by both the Buyer and Seller.
2. Declaration: From the non-resident transferor/transferee, formatted as per the RBI FIRMS User Manual.
3. Share Transfer Deed: In Form SH-4.
4. Valuation Certificate: Demonstrating fair share value, issued by a Chartered Accountant or a SEBI-registered Merchant Banker, in line with the RBI circular.
5. Share Purchase Agreement.
6. Board Resolution: Issued by the Investee Company.
7. Shareholding Pattern: Before and after the non-resident's acquisition of shares.
8. FIRC and KYC: Documents obtained from the Authorized Dealer (AD) Bank.

By following this structured approach, compliance requirements for transferring equity shares from a resident to a non-resident entity can be met efficiently.