JV / SPV Structuring

FEMA (Non-Debt Instruments) Rules, 2019, Rule 23 governs downstream investment structuring for Indian joint ventures and SPVs that hold foreign investment. Under Rule 23(1), an Indian entity that has received foreign investment and is not owned and controlled by resident Indian citizens — or is owned or controlled by a person resident outside India — is classified as a Foreign-Owned and/or Controlled Company (FOCC).

Any further ("downstream") investment made by an FOCC into another Indian entity (Rule 23(7)(g)) is treated as indirect foreign investment, and must independently satisfy the entry route, sectoral caps, and pricing guidelines applicable to direct foreign investment in the downstream entity's sector — it is not exempt merely because the immediate investor is an Indian-incorporated company.

Rule 23(4)(b) additionally requires that downstream investment be funded only out of inbound foreign remittance or internal accruals (post-tax reserves); funds borrowed in the domestic market cannot be used to fund a downstream investment. The overarching statutory principle is that what cannot be done directly by a foreign investor cannot be achieved indirectly through a layered JV/SPV structure. Downstream investment must be reported by the investee Indian entity to the RBI via Form DI within 30 days of the investment. This framework governs the permissible structuring of multi-tier joint ventures, holding-company SPVs, and step-down subsidiaries with foreign parentage.

JV and SPV structuring is the design of the special purpose vehicle through which a joint venture or a project is held and financed — the company or the LLP, the shareholding and the control, the funding through the equity and the debt, the FEMA and the FDI positions for the foreign partners, and the tax structure under the Income-tax Act 1961 for the returns, the repatriation and the exit. The SPV is the container that holds the venture, and its structure decides the tax, the regulatory and the liability position of every party in it.

The SPV is where the venture's economics are actually set. The funding structure decides the returns to each partner — the equity returns, the interest on the debt, the management fees — and each flow carries its own tax: the dividends, the interest under Section 194A withholding, the capital gains on the exit. The control structure — the shareholding, the board, the reserved matters — decides who runs the venture, and the FEMA structure decides what the foreign partner can hold and repatriate.

The cost of an unstructured SPV is the re-engineering: the venture that grows into a tax structure it did not plan, the foreign investment that hits the FDI limits it did not map, the exit that pays the tax it did not anticipate. Each is a restructuring cost that the upfront design would have avoided.

This service is for parties forming joint ventures and projects. We design the SPV structure — the entity, the shareholding and the control, the funding and the returns — map the FDI and the FEMA positions under the NDI Rules 2019, plan the tax structure under the Act for the operations, the repatriation and the exit, and implement the entity, the agreements and the filings so the venture starts with the structure it will need.