Monthly Archives: April 2016

Foreign Direct Investment (FDI) In E-Commerce Sector Of India 2016 Series

Techno Legal Initiatives Of Perry4Law And PTLBE-commerce has generated tremendous interest among various stakeholders and entrepreneurs in India. Indian government is also interested in helping the e-commerce entrepreneurs and stakeholders in having a trouble free environment. Indian government is also committed to protect the socio economic interests of India. As a result the government is bringing policy reforms but in a bit by bit fashion. However, policy clarity, especially a good techno legal framework, in India is still missing. Nevertheless, foreign direct investment (FDI) aspects of e-commerce are witnessing consolidation and are frequently clarified by Indian government.

As per the FDI policy, contained in the “Consolidated FDI Policy Circular 2015” (pdf) (FDI Policy) as amended from time to time, FDI up to 100% under automatic route is permitted in Business to Business (B2B) e-commerce. No FDI is permitted in Business to Consumer (B2C) e-commerce. However, FDI in B2C e-commerce is permitted in following circumstances:

i) A manufacturer is permitted to sell its products manufactured in India through e-commerce retail.

ii) A single brand retail trading entity operating through brick and mortar stores, is permitted to undertake retail trading through e-commerce.

iii) An Indian manufacturer is permitted to sell its own single brand products through e-commerce retail. Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in house, and sources, at most 30% from Indian manufacturers.

2.0 In order to provide clarity to the extant policy, guidelines for foreign direct investment on e-commerce sector have been formulated and are enumerated below:

2.1 Definitions:

i) E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.

ii) E-commerce entity– E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

iii) Inventory based model of e-commerce– Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

iv) Marketplace based model of e-commerce– Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

2.2 Guidelines for Foreign Direct Investment on e-commerce sector:

i) 100% FDI under automatic route is permitted in marketplace model of e-commerce.

ii) FDI is not permitted in inventory based model of e-commerce.

2.3 Other Conditions:

i) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

ii) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

iii) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfillment, call centre, payment collection and other services.

iv) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

v) An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

vi) In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

vii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

viii) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of the seller.

ix) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

x) Guidelines on cash and carry wholesale trading as given in para 6.2.16.1.2 of the FDI Policy (pdf) will apply on B2B e-commerce.

3.0 Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security and other conditionalities, sale of services through e-commerce will be under automatic route.

4.0 The above decision will take immediate effect.

Related Documents:

(1) Consolidated FDI Policy Circular Of 2015 By DIPP (pdf)

(2) Guidelines For Foreign Direct Investment (FDI) On E-Commerce 2016 Series (pdf)

(3) Review Of Foreign Direct Investment (FDI) Policy On Insurance Sector 2016 (pdf)

(4) Review Of Foreign Direct Investment (FDI) Policy On Pension Sector 2016 (pdf)

Software For Calculating E-Commerce Exports Developed By Indian Government

Software For Calculating E-Commerce Exports Developed By Indian GovernmentIndian government has been streamlining e-commerce and activities related to the same for the past one year. Initially an e-commerce friendly foreign direct investment policy was formulated by Indian government. The same may be accessed at Consolidated FDI Policy Circular Of 2015 By DIPP (pdf). Then guidelines were issued to further clarify the e-commerce related business activities in India. The same can be accessed at Guidelines For Foreign Direct Investment (FDI) On E-Commerce 2016 Series (pdf).

Now Indian government is testing a software that intends to capture crucial data related to export of e-commerce related goods and services in India. Indian government has already indicated that it would impose tax on online transactions happening in India for certain cases. For instance, according to the Budget announcement, any person or entity that makes a payment exceeding Rs 1 lakh in a financial year to a non-resident technology company will now need to withhold 6% tax on the gross amount being paid as an equalisation levy.

The said rule is applicable when the payment is made to companies that don’t have a permanent establishment in India. This tax, however, is only applicable when the payment has been made to avail certain B2B services from these technology companies. Specified services include online and digital advertising or any other services for using the digital advertising space. This list, however, may be expanded soon.

Indian government now plans to tap data on overseas online sales as part of efforts to boost outbound shipments through e-commerce platforms and channel benefits to these dedicated exporters. Indian government has made a software for e-commerce exports that would capture data for further action and policy decisions. This would benefit small exporters as customised solutions can be then provided to them by Indian government. Presently the value of items shipped through couriers is often not captured in export data because they are categorised as samples or gifts. These are labelled as samples because under the normal export channel exporters have to file shipping bills and are subject to checks by custom officials, which is cumbersome, especially for small exporters with low-value shipments. The software intends to mitigate these rigours and further help in claiming duty drawbacks for e-commerce exports. To give benefits to small exporters, the director general of Foreign Trade has defined “e-commerce” as the buying and selling of goods and services, including digital products, conducted over digital and electronic networks.

These steps are being introduced a year after the government provided export incentives to the shipment of goods through couriers or foreign post offices using e-commerce in the Foreign Trade Policy of 2015-2020. At present, exports that can avail of these sops are capped at Rs 25,000 per consignment, a value considered small for such purchases. Moreover, only six product categories i.e. handicrafts, handlooms, toys, customised fashion garments, books and leather footwear are entitled to these incentives under the Merchandise Exports from India Scheme (MEIS).