INDIA STRUCTURE ISSUES Jonathan Blake

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INDIA STRUCTURE ISSUESJonathan Blake
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COMMERCIAL STRUCTURES

• Self-liquidating Fund
• Evergreen Fund
• Quoted Funds
• Funds for individuals

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BASIC STRUCTURE
Carried Interest
Shareholders
Investors
FUND
Manager
Investee Companies
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OBJECTIVES

• Limited liability
• Taxation the fund must be exempt or transparent
• Investors no worse off than for direct
  investments
• Suitable for all kinds of investors

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OBJECTIVES (CONTINUED)

• Tax efficient management charge no VAT
• Tax efficient carried interest
• Capable of being marketed
• Ease of administration

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TAX ISSUES

• Permanent Establishment
• Local tax on capital profits
• Withholding taxes on interest and dividends
• Transparency of partnerships recognised
• Double tax treaties
• Use of IHCs Luxembourg, Mauritius, Cyprus,
  Netherlands

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AVOIDING TAXABLE PERMANENT ESTABLISHMENT

• Local office only advisors
• GP/Manager overseas
• Brand of GP/Manager composition and meetings
• Offshore administration
• Dos and don'ts decisions and signing documents

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AVAILABLE LEGAL STRUCTURES

• Transparent
• Limited Partnerships
• Parallel Investment
• Non-Transparent
• UK Investment Trust
• Jersey/Bermudan companies/or trusts
• Dutch BV
• Luxembourg SICAV
• Mauritius Company

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SPECIFIC INDIAN ISSUES

• Structure and terms broadly similar to European
  funds
• Availability of double tax relief
• Use of Mauritius and Cyprus holding companies
• Various investment norms and restrictions apply

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POSSIBLE INDIAN FUND STRUCTURE
General Partner
Investors
Executives
General Partner Partnership
General Partner
Limited Partnership
Limited Partners
Mauritius Co
Indian Advisory Company
Investment
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FDI (Foreign Direct Investment)
Fund
SPV
Investment in India
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FDI (Foreign Direct Investment)

• Direct investment permitted under automatic route
  subject to sectoral caps, prescribed
  capitalisation norms and pricing guidelines
• Approval required from FIPB/RBI if FDI exceeds
  sectoral caps or falls outside prescribed
  conditions
• FDI not permitted in sensitive sectors such as
  agriculture
• Progressive liberalisation of FDI norms in areas
  such as infrastructure, telecommunications, real
  estate and retail

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FII (Foreign Institutional Investor)
Manager (FII)
Fund
Sub-Account of FII (SPV)
Custodian/Broker
Investment in India
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FII (Foreign Institutional Investor)

• Certain categories of institutional investors can
  register with SEBI as FIIs
• pension funds, investment funds, asset managers,
  banks
• regulated by appropriate regulatory authority
• proven track record

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FII (Foreign Institutional Investor)

• FIIs can invest own funds or on behalf of clients
  (e.g. SPV) registered as sub-accounts with SEBI
• FIIs can invest in equity and debt securities
  (listed or unlisted, primary or secondary
  market), mutual funds, certain derivatives.
  Off-exchange transactions require RBI approval.
  Reporting of derivative instruments issued by
  FIIs.

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FII (Foreign Institutional Investor)

• Investment limits apply
• Debt instruments - 30
• Equities - FIIs 10 with 24 overall cap for all
  FII investment
• Sub-accounts 5 or 10 as prescribed

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FVCI (Foreign Venture Capital Investor)
Fund
FVCI (SPV)
Domestic VCF
Investment in Unlisted VCU
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FVCI (Foreign Venture Capital Investor)

• Foreign funds can register with SEBI as an FVCI
• FVCIs can invest in domestic VCF or in unlisted
  companies (VCUs) which are not on negative list,
  e.g. equipment leasing, HP companies
• Not mandatory to register as FVCI but offers
  certain benefits
• no entry or exit pricing restrictions apply
• no lock-in restrictions

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OPPORTUNITIES CHALLENGESIN PE AND VENTURE
CAPITALNovember 2006Jonathan BlakeSJ Berwin
LLP