Introduction:
Foreign Investment was permitted in an LLP with effect from May 20, 2011.
A Limited Liability Partnership (LLP), established under the LLP Act 2008, offers a hybrid structure conveying corporate limited liability while retaining partnership-style operational flexibility and tax benefits.
Foreign Investment is any investment made by a person resident outside India (PROI) /foreigner on a repatriable basis in equity instruments of an Indian Company or to the capital of an Indian LLP.
Note: Investment on a repatriation basis means an investment where the sale proceeds, after taxes, can be sent back to source country out of India.
Route and limit of investment:
1) Automatic Route: In which the investment by foreigner does not require the prior approval from the Central Government.
2) Approval Route: In which investment by foreigner requires prior Government approval. Foreign investment received under this route shall be in accordance with the conditions stipulated by the Government in its approval.
Sectoral Caps:
Sectoral cap defines the upper limit of FDI which is allowable in India for a particular sector. The total foreign investment shall not exceed the % limit defined by sectoral cap.
A person residing outside India & foreign company (except citizens or entities of Pakistan or Bangladesh), who is not a Foreign Portfolio Investor or a Foreign Venture Capital Investor, can invest in the capital of a LLP operating in sectors where 100% foreign investment is allowed under the automatic route and there are no performance-linked conditions.
Guidelines applicable for FDI in LLP:
- Master Direction – Foreign Investment in India (Updated as on January 20, 2025)
- Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments)
- Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
- Consolidated FDI Policy (Effective from October 15, 2020) issued by Department for Promotion of Industry and Internal Trade (Ministry of Commerce and Industry, Government of India)
Pricing guidelines:
- When investing in an LLP (either by contributing capital or buying/transferring profit shares), the amount paid cannot be below the fair value, which must be determined using any internationally accepted valuation method.
- A valuation certificate confirming this fair price must be issued by a Chartered Accountant, practicing Cost Accountant, or an approved government panel valuer.
- However, this certificate is not required when making the initial subscription to the LLP’s capital. Valuation certification becomes necessary only when there is any further acquisition, transfer, or repatriation of capital or profit shares.
Prohibited Sectors/ Persons:
Investment by a PROI is prohibited in the following sectors, this means that LLP which is into following business is not eligible to receive FDI:
- Lottery Business including Government/ private lottery, online lotteries
- Gambling and Betting including Casinos.
- Chit funds
- Nidhi company
- Trading in Transferable Development Rights (TDRs).
- Real estate business (except construction of buildings, townships, roads, bridges, or REITs)
- Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
- Activities/sectors not open to private sector investment viz., (i) Atomic energy and (ii) Railway operations
- Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.
Reporting Requirements:
1) Form FDI LLP – (I): To be filed within 30 days of receiving capital or profit share investment in the LLP from Foreign Partner.
2) Annual Return on Foreign Liabilities and Assets (FLA): Must be submitted to RBI by July 15 each year if the LLP received FDI in the current or previous financial year (April–March).
3) Form FDI LLP – (II): The disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) shall be filed in Form LLP(II) within 60 days from the date of receipt of funds. The onus of reporting shall be on the resident transferor/transferee.
In case of delay in reporting, Late Submission Fees will be applicable to the person responsible for filling. Hence it is important to check with Professional or FEMA Expert on applicable filing due dates and do timely compliance.
