Share Valuation: India rules for foreign companies

How fair value is worked out

FEMA pricing protects against value leaving India cheaply and money arriving at inflated prices. A foreign investor may not subscribe below fair value or sell to a resident above it.

For unlisted companies, fair value is computed under an internationally accepted pricing methodology on an arm's-length basis, usually a discounted cash flow for operating businesses or net asset value for asset-heavy or early companies. The certificate is issued close to the transaction date.

Income-tax rules separately test share issues and transfers against their own fair market value formulas, so the price should be checked against both sets of rules to avoid a tax adjustment.

When a valuation is needed

• Fresh issue of shares after incorporation.
• Rights issues where the investor takes more than its entitlement.
• Transfers between the parent and an Indian resident.
• Conversion of loans or instruments into equity.

The FEMA valuation is separate from any valuation the parent prepares for its own financial reporting.

Checklist

• Choose the valuation method
• Obtain the certificate near the transaction date
• Check the income-tax fair value too
• Fix share numbers against rupee receipts
• Report in FC-GPR or FC-TRS

Common mistakes

• Using an old valuation
• Ignoring the income-tax pricing test
• Issuing shares on a currency amount, not the rupee receipt
• Missing FC-TRS on a share transfer

How this applies to your country

• USA to India en-US
• UK to India en-GB
• Japan to India en-JP
• Germany to India en-DE
• Singapore to India en-SG
• Australia to India en-AU
• China to India en-CN
• Hong Kong to India en-HK
• Russia to India en-RU
• Spain to India en-ES
• France to India en-FR
• UAE to India en-AE

Our service: FEMA and RBI reporting