South Korean Chaebols Acquiring Indian Companies: FEMA & DTAA Guide

Why Korean Chaebols Are Targeting Indian Acquisitions

Cumulative Korean FDI into India stands at US$7.27 billion, according to Export-Import Bank of Korea data cited by the Embassy of India in Seoul. The bilateral trade relationship, underpinned by the India-Korea Comprehensive Economic Partnership Agreement (CEPA) signed in 2009, drove trade volumes to a peak of US$27.8 billion in calendar 2022, and at their April 2026 summit the two governments agreed to expand annual trade from around US$25 billion to US$50 billion by 2030.

Korean chaebols are pursuing Indian acquisitions across several strategic sectors. Hyundai Motor has committed multi-trillion-won investment plans to its Indian operations and listed its Indian subsidiary on the stock exchange in October 2024. POSCO has signed a memorandum of understanding with the JSW Group to build an integrated steel plant in India — with Odisha reported as the likely site — which would rank among POSCO's largest overseas steel investments. Samsung operates the world's largest mobile phone factory in India.

For chaebols evaluating acquisitions, India's regulatory framework requires careful navigation across three domains: FEMA compliance, DTAA tax structuring, and competition law clearance.

FEMA Framework for Korean Acquisitions

FDI Route Determination

Before structuring any acquisition, the Korean acquirer must confirm whether the target's sector falls under the automatic route or government approval route. Most sectors in India now permit 100% FDI under the automatic route, meaning no prior government approval is required.

However, Korean chaebols should be aware of sector-specific limits: defence manufacturing (74% under the automatic route, beyond that only with government approval), multi-brand retail (51%, government approval route), and media/broadcasting (various caps). If the target operates in a restricted sector, the acquirer must file an application with the relevant ministry through the Foreign Investment Facilitation Portal (FIFP). The FIFP application process typically takes 8-12 weeks, though complex cases involving national security considerations can take longer.

Korean chaebols operating in sectors like metallurgy, automobiles, electronics, and hospital/diagnostic centres — the top sectors attracting Korean FDI historically — generally benefit from 100% automatic route access. However, the acquirer's legal team should conduct a thorough sectoral analysis, as many Indian companies have diversified operations that may span multiple sectors with different FDI caps.

Share Acquisition Pricing Rules

Under FEMA regulations, the price at which shares of an Indian company are acquired by a non-resident cannot be less than the fair market value determined by a Chartered Accountant, a SEBI-registered merchant banker, or a practising Cost Accountant using internationally accepted pricing methodologies. For unlisted companies, the DCF (Discounted Cash Flow) method is standard. For listed companies, the price must comply with SEBI pricing guidelines, typically based on the volume-weighted average price.

This is a critical compliance point for chaebols. If the acquisition price is below the floor price determined by the valuation, the RBI will reject the filing. As a matter of accepted market practice, the valuation report should be dated not more than 90 days before the transaction date.

FC-GPR and FC-TRS Filing Requirements

Two key forms govern the RBI reporting process:

• FC-GPR (Foreign Currency-Gross Provisional Return): Filed when the Indian company issues new shares to the Korean acquirer. Must be submitted within 30 days of share allotment through the RBI's FIRMS portal.
• FC-TRS (Foreign Currency-Transfer of Shares): Filed when existing shares are transferred from a resident to the Korean non-resident acquirer. Must be submitted within 60 days of the share transfer or receipt/remittance of funds, whichever is earlier.

Late filing attracts Late Submission Fees (LSF) as determined by the RBI. For a chaebol acquiring a significant stake, missing the FC-TRS deadline by even a few days can result in penalties and compliance complications.

Downstream Investment Considerations

If the Korean chaebol acquires an Indian company that itself holds investments in other Indian entities, the downstream investment provisions under FEMA apply. The acquired company is treated as an "Indian company owned or controlled by non-residents," and any further investment it makes must comply with FDI sectoral caps and entry routes applicable to the downstream sectors.

This is particularly relevant for chaebols acquiring Indian conglomerates or holding companies with multiple subsidiaries. Each subsidiary's sector must be independently evaluated for FDI compliance. If any downstream entity operates in a sector where FDI is prohibited or restricted, the chaebol may need to divest that subsidiary or restructure the acquisition to exclude it.

FEMA Reporting Timeline Summary

India-Korea DTAA: Tax Treaty Benefits

Overview of the Revised Treaty

The revised India-Korea DTAA was signed on 18 May 2015 and came into force on 12 September 2016, effective for income derived in fiscal years beginning on or after 1 April 2017. The revision introduced significant changes to withholding rates and capital gains taxation that directly impact M&A structuring.

Key Withholding Tax Rates

For chaebols remitting dividends from an Indian subsidiary back to Korea, the DTAA caps the rate at a flat 15% regardless of the size of the shareholding — the 15%/20% ownership tiers applied only under the old 1985 convention. The treaty's 10% cap on royalties and technical service fees also delivers a genuine saving now that India has raised the domestic rate for non-residents to 20% under section 207(2) (Table, Sl. Nos. 1 and 2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). To claim DTAA benefits, the Korean entity must obtain a Tax Residency Certificate (TRC) from Korean tax authorities and file Form 145 (formerly Form 15CA) with the Indian tax department before remittance, adding a Form 146 (formerly Form 15CB) certificate only for Part C — a taxable remittance above INR 5 lakh in the financial year that is not covered by an Assessing Officer's certificate.

Capital Gains Taxation

The revised DTAA introduced source-based taxation for capital gains on shares, a significant change from the earlier residence-based regime. The rules depend on the shareholding percentage:

• Holdings of 5% or more: If the Korean seller held, directly or indirectly, at least 5% of the Indian company's capital at any time during the 12 months preceding the sale, India has the right to tax the capital gains at source. The Korean chaebol will pay tax in India and can claim credit against Korean taxes.
• Holdings below 5%: Only Korea has the right to tax, unless the shares derive more than 50% of their value from immovable property in India, in which case India may tax them as land-rich shares.

This 5% threshold is particularly relevant for chaebol acquisitions, which typically involve controlling stakes (51-100%). In such cases, India will always have the right to tax the capital gains, and the effective tax rate depends on the holding period and type of shares (listed vs. unlisted).

Limitation of Benefits (LoB) Clause

The revised India-Korea DTAA includes a Limitation of Benefits clause that denies treaty benefits to entities controlled by non-residents of both contracting states. Korean chaebols must ensure the acquiring entity is a bona fide Korean tax resident and not a conduit structure routed through Korea from a third country.

CCI Approval for Korean Acquisitions

The Competition Commission of India (CCI) must approve acquisitions that cross prescribed thresholds. Following the MCA notification of 7 March 2024, which enhanced the Section 5 asset and turnover values by 150%, the key thresholds are:

• Enterprise test: Combined assets of acquirer and target in India exceed INR 2,500 crore, or combined turnover in India exceeds INR 7,500 crore
• Group test: The group the target joins has assets in India exceeding INR 10,000 crore or turnover in India exceeding INR 30,000 crore
• Deal Value Threshold (DVT): Introduced on 10 September 2024 — transactions where the global deal value exceeds INR 2,000 crore (approx. US$238 million) and the target has "substantial business operations in India"

For most chaebol acquisitions, which tend to be high-value transactions in sectors like automotive, steel, electronics, and chemicals, CCI notification is mandatory. The de minimis exemption (target assets in India of not more than INR 450 crore or turnover of not more than INR 1,250 crore, now codified in Section 5(e) read with the Competition (Minimum Value of Assets or Turnover) Rules, 2024) may apply for smaller deals but does not shield transactions caught by the DVT.

Combinations with no horizontal, vertical, or complementary overlaps qualify for the green channel route and are deemed approved on acknowledgment of a complete filing. Other cases are typically cleared within about 30 days, and the statutory outer limit for a CCI decision is 150 days — reduced from 210 days by the Competition (Amendment) Act, 2023.

A practical consideration: the CCI notification must be filed before the acquisition is consummated. Gun-jumping — closing a transaction before receiving CCI clearance — attracts penalties of up to 1% of the total turnover or the assets or the value of the transaction, whichever is higher. Korean chaebols accustomed to their home jurisdiction's merger control timelines should factor in the Indian CCI process early in the deal timeline.

Sector-Specific CCI Scrutiny

Korean chaebols in automotive (Hyundai, Kia), electronics (Samsung, LG), and steel (POSCO) sectors face heightened CCI scrutiny because of existing market presence. If the target company operates in the same sector where the chaebol already has Indian operations, the CCI will evaluate horizontal overlaps, vertical integration effects, and potential market dominance. In such cases, the chaebol should prepare a detailed market definition analysis and be ready to offer remedial commitments such as divestitures or behavioral conditions.

Step-by-Step M&A Process for Chaebols

1. Preliminary due diligence: Conduct a comprehensive due diligence covering FDI compliance history, FEMA filings, tax assessments, and pending litigations. Engage a SEBI-registered merchant banker for valuation.
2. Regulatory clearance: File CCI notification (if thresholds are met). For government route sectors, file with FIFP. Allow 30-150 days depending on complexity.
3. Share purchase agreement: Execute the SPA with FEMA-compliant pricing, warranty clauses, and indemnity provisions. Include escrow arrangements for deferred consideration.
4. Payment and share transfer: Remit funds as an inward remittance in freely convertible foreign currency through normal banking channels. The transaction is reported to the RBI through the Indian AD Category-I bank.
5. RBI reporting: File FC-TRS within 60 days through the AD bank on the FIRMS portal. Submit supporting documents including the valuation certificate, board resolutions, SPA, and KYC documents.
6. Post-acquisition filings: Ensure the share transfer is executed on Form SH-4 (the instrument of transfer) and the Register of Members (Form MGT-1) is updated, file Form MGT-14 with the ROC where a special resolution was passed, file FLA return with RBI by July 15 of the following year, and update beneficial ownership records.

Common Pitfalls for Korean Acquirers

Press Note 3 Complications

An entity or citizen of a country sharing a land border with India (including China) can invest only with prior government approval under Press Note 3 (2020), regardless of the sector or FDI cap. For a Korean-incorporated acquirer with Chinese shareholders, Press Note 2 (2026 Series), dated 15 March 2026 and operative through the FEMA Non-Debt Instruments amendment notified in early May 2026, narrows the look-through test: the approval requirement is triggered only where land-border citizens or entities exceed the PMLA Rule 9(3) beneficial-ownership thresholds (more than 10% for a company), hold control over the acquiring entity, or exercise ultimate effective control over the Indian target. Several Korean conglomerates have joint ventures with Chinese partners, making this a practical diligence point.

Transfer Pricing Exposure

Post-acquisition, the Indian subsidiary's transactions with the Korean parent and other group companies become related-party transactions subject to transfer pricing regulations. The Indian subsidiary must maintain contemporaneous documentation and file the transfer pricing report (Form 48 (formerly Form 3CEB)) annually.

Permanent Establishment Risk

Korean executives or technical personnel deployed to the Indian target post-acquisition may create a permanent establishment risk for the Korean parent in India. If Korean employees exercise decision-making authority in India or if the Indian subsidiary constitutes a "dependent agent PE" of the Korean parent, additional tax exposure arises. Under the India-Korea DTAA, a fixed place PE is created if the Korean parent maintains a fixed place of business in India through which it carries on its business. Additionally, a service PE can be triggered if Korean employees provide services in India for more than 183 days within any 12-month period for the same or a connected project.

Currency and Remittance Considerations

Korean chaebols must structure the acquisition payment in freely convertible foreign currency. Because the Korean won is not fully convertible offshore, remittances are in practice made in US dollars or another freely convertible currency. The exchange rate risk between the SPA signing date and the actual remittance date can be significant for large transactions. Chaebols should consider hedging mechanisms and ensure the SPA includes exchange rate adjustment clauses. Post-acquisition, repatriation of dividends, royalties, and technical service fees from the Indian subsidiary back to Korea must comply with TDS under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961) and FEMA current account transaction rules.

Structuring Alternatives

Korean chaebols typically consider three acquisition structures:

Given the revised India-Korea DTAA's competitive rates and the tightening of treaty shopping provisions globally, direct acquisition from Korea is increasingly the preferred route for chaebols. The Singapore SPV route, once popular, faces greater scrutiny under the Multilateral Instrument (MLI) and India's General Anti-Avoidance Rules (GAAR).

Key Takeaways

• Korean chaebols benefit from the revised India-Korea DTAA with reduced withholding rates: a flat 15% on dividends, 10% on interest, and 10% on royalties/FTS.
• Capital gains on shareholdings of at least 5% (held at any time in the 12 months before the sale) are taxable in India under source-based taxation — relevant for all controlling-stake acquisitions.
• FC-TRS must be filed within 60 days of share transfer; FC-GPR within 30 days of new share allotment. Missing these deadlines triggers RBI penalties.
• CCI approval is mandatory for most chaebol-sized deals, with the new Deal Value Threshold (INR 2,000 crore) catching even smaller acquisitions with significant India operations.
• Check Press Note 3 (2020) applicability where Chinese shareholders in the Korean group structure cross the Press Note 2 (2026) beneficial-ownership thresholds (more than 10% for a company) or hold control, as this can convert an automatic-route transaction into a government-approval requirement.