Press Note 2 (2026 Series), issued by India’s Department for Promotion of Industry and Internal Trade (DPIIT) on 15 March 2026, reformed the blanket FDI restrictions that Press Note 3 imposed in 2020 on investments linked to land border countries (LBCs), principally China. While the UAE is not a land border country, UAE-based investors are far from exempt. Any fund, holding company, or NRI vehicle incorporated in the UAE that carries Chinese beneficial ownership above a 10% threshold now falls within the government approval route.
The concept that defines this regulatory architecture, and the one this article examines throughout, is beneficial ownership tracing: the mechanism that determines whether capital routed through Dubai, Abu Dhabi, or any other non-LBC jurisdiction still triggers India’s investment screening framework.
Why Does Press Note 2 Affect Investors Who Are Based In The UAE?
Beneficial ownership tracing requires India’s regulators to look through the immediate investor entity and identify who ultimately controls or benefits from the capital. A venture capital fund domiciled in DIFC or ADGM with a Chinese limited partner holding more than 10% beneficial ownership will require government approval before investing in India, regardless of the fund’s Emirati registration.
This challenge predates Press Note 2. Under the original Press Note 3 (2020), any beneficial ownership by an entity in a land border country triggered mandatory government approval, with no minimum threshold and no defined decision timeline. Between FY 2020-21 and FY 2021-22, investment proposals worth INR 756.91 billion (approximately US$8.1 billion) were submitted under these rules. Authorities approved only INR 136.25 billion (US$1.45 billion), an effective non-approval rate of roughly 82% by value (CRISIL Market Intelligence Report, March 2026, cited in India Briefing).
That bottleneck suppressed legitimate global capital flows. Many UAE-domiciled funds carrying even minimal Chinese LP exposure chose to avoid India entirely rather than face an indefinite approval process.
How Does Press Note 2 (2026) Change The Rules For Beneficial Ownership?
Press Note 2 introduces three structural reforms that directly affect UAE-based investors with LBC exposure.
First, it establishes a 10% beneficial ownership threshold. Investments where no single LBC-linked entity holds 10% or more of beneficial ownership may proceed through the automatic route, with no government approval required. The definition of beneficial ownership is anchored in Rule 9(3) of the Prevention of Money Laundering Act (PMLA), 2002, providing statutory precision that was absent under Press Note 3.
Second, for investments that do exceed the 10% threshold but involve minority, non-controlling stakes, the framework introduces a 60-day processing timeline for priority sectors. This replaces the open-ended waiting period that characterised Press Note 3 approvals.
Third, the FEMA (Non-Debt Instruments) Amendment Rules, codified across three tranches on 1 May, 2 May, and 12 June 2026, embed these changes into enforceable law rather than retaining them as policy guidance alone.
Konark Bhandari, Fellow at Carnegie India’s Technology and Society Program, observed in April 2026: “The 10 percent automatic route threshold is modest, the sixty-day processing timeline introduces accountability, and the recognition that ambiguous beneficial ownership rules were deterring legitimate global investment is overdue. The key challenge is implementation” (Carnegie India, April 2026).
What Is The Scale Of UAE Investment In India, And Why Does This Matter?
The UAE ranked fifth as a source of FDI equity inflow into India during April to December FY 2025-26, contributing US$2.45 billion, roughly 5% of total FDI equity inflow in that period (DPIIT FDI Quarterly Factsheet, 2026). Cumulative Emirati FDI since 2000 stands at US$22.84 billion, placing the UAE among India’s seven largest cumulative investors.
Bilateral merchandise trade between the two countries reached US$101.25 billion in FY 2025-26 (Middle East Briefing, 2026), having more than doubled since the Comprehensive Economic Partnership Agreement (CEPA) took effect in May 2022. During Prime Minister Modi’s visit in May 2026, the UAE pledged a headline investment of US$5 billion into India.
These figures underscore the stakes. Should beneficial ownership tracing place even a fraction of UAE-sourced capital in regulatory limbo, the consequential cost is measured in billions, not millions.
Which UAE Investment Structures Face The Highest Risk?
Three categories of UAE-based investors should conduct immediate structuring assessments.
Global private equity and venture capital funds domiciled in the UAE with Chinese LPs above the 10% threshold face mandatory government approval. Multi-family offices in Dubai holding pooled capital from diverse nationalities, including Chinese principals, must trace beneficial ownership through every layer of their structure. Sovereign or quasi-sovereign vehicles that co-invest alongside Chinese state-backed entities in joint ventures will need to demonstrate that Chinese beneficial ownership remains below the threshold, or submit to the approval route.
Ankur Munjal, India Country Director at Dezan Shira & Associates, noted in 2026: “Investors evaluating eligibility under India’s FDI rules should conduct a detailed beneficial ownership and structuring assessment before entry. Advisory support can help determine automatic route eligibility and manage approval timelines.”
King, Stubb & Kasiva, writing in Legal500 in June 2026, characterised the new framework as “simultaneously more open and more sophisticated than what it replaced.”
Did Press Note 3 Actually Achieve Its Objectives Before The Reform?
The original restrictions succeeded at one narrow objective: limiting Chinese FDI. Total Chinese FDI into India since 2000 amounts to US$2.51 billion, or 0.32% of India’s cumulative equity inflows (Carnegie India, Konark Bhandari, April 2026). Yet India’s trade deficit with China grew from US$85 billion in 2023-24 to an estimated US$116 billion in calendar year 2025. Bhandari noted plainly: “The Press Note 3 restrictions succeeded in keeping Chinese capital out but did nothing to arrest the flood of Chinese goods inwards.”
A March 2026 CRISIL market intelligence report projects that under the revised rules, Chinese investment as a proportion of India’s total FDI could gradually return to pre-restriction levels of around 2% (CRISIL, March 2026, cited in India Briefing). For UAE-based funds, this shift is consequential: capital that was previously blocked entirely now has a defined, if narrow, pathway into India.
What Should UAE-Based Investors Do Now?
Practical next steps centre on beneficial ownership tracing. Every UAE-domiciled entity considering Indian FDI should map its ownership chain against the PMLA Rule 9(3) definition, determine whether any single LBC-linked beneficial owner exceeds 10%, and assess whether its target sector qualifies for the 60-day priority approval timeline.
India received US$58.85 billion in total FDI inflows in FY 2025-26, an 18% increase over the prior year (India Briefing, citing DPIIT, June 2026). The corridor is expanding, the regulatory architecture is evolving, and UAE investors who understand beneficial ownership tracing will navigate it with considerably less friction than those who assume Emirati domicile alone provides a free passage.
Frequently Asked Questions
Does Press Note 2 (2026) Apply Directly To UAE-Based Investors?
Press Note 2 applies to any investor, regardless of domicile, whose beneficial ownership chain includes entities from land border countries (China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, Afghanistan) above a 10% threshold. A UAE-registered entity with Chinese beneficial ownership exceeding that threshold requires Indian government approval before proceeding.
What Is The Beneficial Ownership Threshold Under Press Note 2?
The threshold is 10%, defined by reference to Rule 9(3) of the Prevention of Money Laundering Act, 2002. Investments where no single LBC-linked entity holds 10% or more may proceed through the automatic route without government approval, satisfying the relevant statutory requirements.
How Long Does Government Approval Take Under The New Rules?
Press Note 2 introduces a 60-day processing timeline for proposals in priority sectors, replacing the open-ended process under Press Note 3 that contributed to an 82% non-approval rate by value between FY 2020-21 and FY 2021-22 (CRISIL, March 2026). Timely compliance with submission requirements supports smoother processing within this window.
Is Hong Kong Treated The Same As Mainland China Under These Restrictions?
Hong Kong is treated as part of China for purposes of Press Note 2 beneficial ownership tracing. UAE funds with Hong Kong-based LPs should assess their exposure accordingly and seek expert guidance where the ownership structure presents ambiguity.
How Much FDI Does The UAE Send To India Annually?
The UAE contributed US$2.45 billion in FDI equity inflows to India during April to December FY 2025-26, ranking fifth among source countries (DPIIT, 2026). Cumulative Emirati FDI since 2000 stands at approximately US$22.84 billion, reflecting the enduring depth of the bilateral investment relationship.
