DIRECT TAXES
| Let foreigners set up LLPs in areas open to FDI Sun, 04 Jul 2010 21:12:54 GMT |
| The Economic Times Let foreigners set up LLPs in areas open to FDI NEW DELHI: The finance ministry has pitched for allowing foreigners to set up Limited Liability Partnerships (LLPs) in all the sectors open to foreign direct investment. The ministry has written to the department of industrial policy and promotion, or DIPP, government body that frames foreign investment policy, to expeditiously take up the issue. “Allowing foreign direct investment in LLPs in line with the sectoral limits will encourage foreign investment and not complicate the current regulatory regime,” said a finance ministry official. The policy regime for limited liability partnerships, a form of business structure that combines features of partnership and limited liability company, is not yet settled though this new form of business organisation was allowed about a year ago. “The existing FDI policy framework encapsulates only the corporate form of entity,” says Akash Gupt, executive director, PwC. The finance ministry’s thrust for a speedier decision comes after the Foreign Investment Promotion Board, the key government body that approved foreign investment proposals, received applications to set up LLPs with foreign partners. The board had at its last meeting in May deferred a request by Mumbai-based Samir V Mehta to set up a LLP with non-resident partners, as foreign direct investment is not yet allowed in this form of business organisation. The finance ministry houses the apex body for clearing foreign investment proposals, but the DIPP formulates the policy on foreign direct investments. After initial discussions earlier this year, the department had decided against opening to foreigners though the Reserve Bank of India was also in favour of allowing up to 49% FDI in LLPs in select sectors. The current policy allows FDI in companies subject to sectoral limits, but not in partnerships firms. However, sole proprietorship firms can have investment from non-resident Indians on a non-repatriable basis. Globally, the practice is to allow 100% foreign investment in limited liability partnerships, but they are not allowed in certain sectors. A foreign direct investment regime for would have to be backed by a clear framework for it to work. “Once FDI is allowed in LLPs, specific policy would need to be formulated on matters such as applicable valuation/pricing norms for investments, determination of FDI caps and foreign control, convertible debt funding and conversion of existing companies into LLPs,” says Mr Gupt. The government had notified the LLP Act on April 1, 2009, but only about a 1,000 LLPs have been registered so far. The limited liability partnership structure offers certain advantages over the conventional company structure including lower tax rate. LLPs can also have unlimited number of partners unlike a private limited companies where number of shareholders is limited to 50 and also a less cumbersome compliance requirements. |
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