The Overseas Corporate Bodies (OCBs) as an investor entity for NRIs were de-recognized in September 2003. They are now all set to make a comeback as NRI investment vehicle.
This follows the recent move to relax foreign direct investment (FDI) norms whereby investments by companies, trusts, and partnerships, owned and controlled by NRIs (on non-repatriation basis), are now to be treated as the domestic investments. Thus, providing a level playing field for the NRI investors, in effect, this indirectly recognizes OCB as a class of investor entity - something that was de-recognized in September 2003.
According to Foreign Exchange Management Act, no pricing and sectoral restrictions apply if the investment is made by NRI on "non-repatriation basis". However, instances of 'OCB-shopping' by investors pushed the government to plug this route as a vehicle for NRI investment. In 2003, after de-recognition, the RBI has banned OCBs from investing under the Portfolio Scheme that is solely for the benefit of NRIs. In fact, the category of OCB was abolished on a whole and such entities were allowed only to invest on repatriation-basis like any other foreign investor.
Tax experts and corporate lawyers also opine that the NRIs will now have more options for structuring their investments to India. Experts also dispel the fears that the move to reinstate OCBs as a vehicle for NRI investment will lead to 'OCB-shopping'. According to Akash Gupt, leader (regulatory services) at PwC India, the regulatory environment of the present times is very different from that of 2003. "Robust KYC (know-your-customer) norms are in place, while regulatory arbitrages have gone down," says Gupt.
The Overseas Corporate Body means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60% by the NRI. As on September 16, 2003, these NRIs were eligible to undertake transactions pursuant to the general permission granted under Foreign Exchange Management Regulations (FEMR). It is not known if the government would allow NRIs to hold 100% equity in such an entity, or would continue permitting them a minimum 60% holding, with the balance held by other investors, as was the case in the pre-2003, OCB regime.