Introduction: Explore the manner in which resident individuals and Indian entities can engage in overseas investments under the Foreign Exchange Management (Overseas Investment) Rules, 2022. Get answers to key questions about making investments in foreign parent companies, subsidiaries, and step-down subsidiaries.
Manner of making overseas investment by Resident Individual/Indian Entity/Person Resident in India in parent company/subsidiary/step-down subsidiary under Foreign Exchange Management (Overseas Investment) Rules, 2022
“Comprehensive insights into the pervasive query-
Overseas Direct Investment (referred to as ‘ODI’)”
Manner of making overseas investment by Resident Individual/Indian Entity/Person Resident in India in parent company/subsidiary/ step-down subsidiary under Foreign Exchange Management (Overseas Investment) Rules, 2022
Q.1 Can a resident individual engage in ODI?
Ans. Yes, a resident individual can participate in ODI, provided they adhere to the regulations outlined in Schedule III of the rules.
Q.2 Can a resident individual make ODI in a foreign entity where they exert control and which possesses one or more subsidiaries?
Ans. No, the resident individual is not permitted to make ODI in a foreign entity in which he exercises control and it has one or more subsidiaries.
Schedule III clearly specifies that “ODI in an operating foreign entity not engaged in financial services activity and which does not have subsidiary or step down subsidiary where the resident individual has control in the foreign entity” is allowed. Any deviation from these conditions would lead to noncompliance.
Q.3 Can a resident individual directly invest in a subsidiary or step-down subsidiary of a foreign entity over which they have control?
Ans. No, a resident individual cannot directly invest in a subsidiary or step-down subsidiary of the foreign entity, even if the parent company isn’t involved in the financial services sector. However, if the resident individual doesn’t have control in the foreign entity with one or more subsidiaries, they are not restricted from investing in the subsidiary or step-down subsidiary.
Q.4 Is it possible for a resident individual to engage in ODI within a foreign entity where they do not exercise control, but the entity is involved in financial services activities?
Ans. Even though the resident individual doesn’t exercise control in the foreign entity, yet he is not allowed to make ODI if the entity is engaged in financial services. This remains a restricted scenario.
Q.5 Can a resident individual invest in a foreign entity with the intention of ganing control?
Ans. Yes, a resident individual can make an ODI in a foreign entity prior to establishing control. The investment can be made with the goal of achieving control at a later stage.
Q.6 Can a resident individual invest in the subsidiary or step-down subsidiary of a foreign entity where they don’t hold control?
Ans. No, a resident individual can engage in ODI within such subsidiaries, even though he doesn’t exercise control in the foreign entity. As per the construction of the said provisions, it clearly seems that he should be allowed to make ODI in the aforesaid subsidiaries in the absence of control over foreign entity. However, as per the discussion with the AD category bank, it is known that he is not eligible for this transaction.
Q.7 Are there any limitations for Indian entity or person resident in India to make ODI in parent companies, subsidiaries, or step-down subsidiaries?
Ans. No, there are no restrictions for Indian entities or person resident in India to partake in ODI within parent companies, subsidiaries, or step-down subsidiaries, or step-down subsidiaries. Compliance with their respective schedules is necessary to ensure conformity with regulations.
Situations be delineated
according to the following Illustration
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