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Chinese, Hong Kong or Singapore-Routed Money in Your Round: What the 2026 Press Note 3 Changes Actually Allow, and What Still Needs Approval
Since 2020, any investor with Chinese or Hong Kong beneficial ownership needed approval to invest in an Indian company. In 2026, a narrow door opened: under 10%, non-controlling. What that means for your foreign investors.
Published 28 September 20264 min read
The short answer
Press Note 3 of 2020 requires government approval for any investment in an Indian company where the investor or its beneficial owner is from a country sharing a land border with India, including China and Hong Kong. Press Note 2 of 2026, notified in March 2026 with FEMA amendments from May 2026, allows investments where land-border-country beneficial ownership is below 10% and non-controlling to go through the automatic route, with reporting. Anything at or above 10%, or with control, still needs approval, which can take months.
Who this is for: Founders raising from foreign funds, especially funds with Asian LPs, Singapore or Hong Kong vehicles, or strategic investors with Chinese shareholders.
Summary: what most founders miss
- Press Note 3 looks through the investor to its beneficial owners. A Singapore fund with Chinese LPs can be caught.
- Since 2026, beneficial ownership below 10% and without control can use the automatic route, but it must still be reported through your bank.
- The 10% test follows the anti-money laundering definition of beneficial owner: 10% or more of shares, capital or profits of the investing vehicle, or control.
- Government approval for investments above the threshold is still required, with a faster 60-day track only for certain manufacturing sectors.
- Ask every foreign investor for a written beneficial ownership declaration before you sign a term sheet, not at closing.
In April 2020, India introduced Press Note 3, which made any investment from an entity in a country sharing a land border with India, or where the beneficial owner is from such a country, subject to government approval. China and Hong Kong were the practical targets. For startups, the rule quietly reshaped cap tables: funds with even small Chinese LP bases had to seek approval or step back.
In 2026, the government eased the rule. The change is narrower than headlines suggested, and misunderstanding it can still stall a round.
What did the 2026 change actually do?
| Question | Press Note 3 (2020) | After Press Note 2 (2026) and FEMA amendments |
|---|---|---|
| Who is caught | Investors from, or with beneficial owners from, a country sharing a land border with India | Same |
| Threshold | Any beneficial ownership, as commonly applied | Beneficial ownership of 10% or more, or control |
| Below the threshold | Approval route | Automatic route, if non-controlling |
| Reporting | Through approval process | Still reported to RBI through the authorised dealer bank |
| Approval timelines | Often many months | 60-day expedited track for priority manufacturing sectors; other sectors on standard timelines |
| Strategic sectors | Approval | Approval |
Press Note 2 of 2026 was notified on 10 March 2026; FEMA non-debt instrument rule amendments followed on 1 May, 2 May and 12 June 2026. Based on published legal analysis; confirm current text before relying on it.
Why this matters for consumer startups
Many global funds and some Singapore-based vehicles have LPs from across Asia. Strategic investors, such as electronics or consumer companies, may have Chinese shareholders. Under the 2020 rule, founders often discovered this in the last weeks before closing, when the investor's lawyers ran their beneficial ownership check.
| Investor | Land-border-country link | Likely route after 2026 |
|---|---|---|
| US fund with no Chinese or Hong Kong LPs | None | Automatic |
| Singapore fund where Chinese LPs hold 7% combined, no control | Below 10%, non-controlling | Automatic, with reporting |
| Singapore fund where one Hong Kong LP holds 15% | 10% or more | Government approval |
| Strategic investor controlled by a Chinese parent | Control | Government approval |
| NRI or OCI who is a citizen of a land-border country | Citizenship-based | Check carefully; likely approval |
What to do in your round
- Ask every foreign investor for a written beneficial ownership declaration at the term sheet stage, including LPs holding 10% or more and any controlling party.
- If an investor is near the threshold, get your lawyer's view before the term sheet, not during closing.
- For investors below the threshold, make sure your authorised dealer bank has what it needs for reporting.
- If approval is needed, build it into the timeline as a condition precedent and consider closing other investors first.
- Keep a record. Your next round's diligence will ask for it.
Case study
The Series A that waited five months
Consumer electronics accessories brand, raising a ₹45 Cr Series A led by a Singapore-based growth fund
Situation
The term sheet was signed in 2025, before the 2026 change. In the third week of diligence, the fund's lawyers confirmed that a Hong Kong LP held about 11% of the fund.
What was missed
Under Press Note 3, the investment needed government approval, which was not in the timeline. The company had four months of runway.
What changed
The founders split the round: a domestic co-investor funded ₹15 Cr in a first close, and the lead's ₹30 Cr waited for approval. The approval arrived about five months later.
Outcome
The company survived on the first close and a small bridge from insiders. Under the 2026 rules the outcome would be the same, because the LP held more than 10%. Had the LP held 8% without control, the automatic route would now apply.
The lesson
Check beneficial ownership at the term sheet, and never plan runway around a closing that may need approval.
Illustrative case. Figures are representative of patterns in Indian rounds, not a specific company.
Related: India, Delaware or Singapore in 2026? and Why Good Brands Fail Due Diligence. Raising from foreign funds? Talk to us before the term sheet.
Read next: NRI investment, repatriable vs non-repatriable. Preparing to raise? See how our fundraising advisory support works.
Questions founders ask us
Can a Chinese investor invest in an Indian startup in 2026?
Yes, but investments where the investor or its beneficial owner is from a land-border country and holds 10% or more of the investing vehicle, or has control, still need government approval. Below 10% and non-controlling, the automatic route is available with reporting.
Does Press Note 3 apply to Singapore funds?
It applies if the fund's beneficial owners include persons or entities from a land-border country at or above the threshold, or with control, regardless of where the fund is registered.
What changed in Press Note 3 in 2026?
Press Note 2 of 2026 allowed investments with land-border-country beneficial ownership below 10% and without control to use the automatic route, and introduced a faster approval track for certain manufacturing sectors.
How long does Press Note 3 approval take?
It varies. A 60-day expedited track applies to certain priority manufacturing sectors; other sectors follow standard timelines, which can take several months.
Do I still need to report investments below the 10% threshold?
Yes. Investments with a land-border-country link below the threshold are still reported to the RBI through the authorised dealer bank.
About the author
Written by the Alphamark Ventures team, a fundraising advisory firm helping founders raise seed, angel and pre-Series A rounds, with a focus on consumer, consumer tech and consumer AI. Figures are as of the date shown and are for general information; this is not legal, tax or investment advice.
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