Rules about investments in trading companies in India

A trading company incorporated in India may issue shares or convertible debentures to the extent of 51% of its capital under the Automatic route to non-residents subject to the condition that remittance of dividend to the shareholders outside India is made only after the company has secured registration as an export / trading / star trading / super trading house from the Director General of Foreign Trade in the Ministry of Commerce.

100% FDI is permitted in the case of trading companies for the following activities:

Automatic route

– Exports;

– Cash and carry wholesale trading.

Approval route

– Bulk imports with export/expanded warehouse sales;

– Imports of other goods or services provided at least 75% is for the procurement and the sale of goods and services among the companies of the same group, and not for third party use or onward transfer/distribution/sales.

51% FDI is permitted in the case of trading for single brand product retailing. Single brand product retailing would mean products which are branded during manufacturing and sold under the same brand internationally.

The following kinds of trading are also permitted, subject to the provisions of the prevalent Export-Import (EXIM) Policy:

– Companies providing after-sales services, i.e. not trading per se;

– Domestic trading of products, permitted at the wholesale level for trading companies that wish to market manufactured products on behalf of Joint Ventures (JVs) in which they have equity participation in India;

– Trading of high-tech items/items requiring specialized after sales service;

– Trading of items for social sector;

– Trading of high-tech, medical and diagnostic items;

– Trading of items sourced from the small scale sector in which, based on technology provided and established quality specifications, a company can market those items under its brand name;

– Domestic sourcing of products for export;

– Test marketing of items for which a company has manufacturing approval, provided the test marketing facilities will be used for a period of two years, and investment in setting up manufacturing facilities starts simultaneously with test marketing;

– FDI up to 100% for e-commerce activities is allowed. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading.

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