Introduction:

Overseas Direct Investments (ODI) in the Indian Context means, any capital outflows / investments made by Indian residents in a foreign country but does not include portfolio investment.

As more companies involve themselves with foreign investments, the importance of the Foreign Exchange Management Act (FEMA) regulations and their compliance becomes a major part of the company’s operations. ODI can be made either by an Individual or by any other Indian entity. Originally when Liberalized Remittance Scheme was announced there was no restriction on setting up overseas entities by Individuals. However, RBI interpreted provisions differently. According to RBI the general permission under LRS was restricted to overseas portfolio investment and not for overseas direct investment. However 5th August 2013, individuals are allowed to make ODI under the Liberalized Remittance Scheme (LRS) up to USD 2,50,000/- per financial year. Two other primary condition that need to be met are

(i) Investor should invest his own money, meaning thereby he cannot borrow and invest and

(ii) The overseas company where investment is made will not be allowed to have step down subsidiary.

Overseas Direct Investments

There are two routes through which a person resident in India may invest overseas viz. Automatic Route and Approval Route. Under the Automatic Route, there is no need to take prior approval of the RBI while investing abroad. However, under the Approval route, a person investing abroad needs to obtain prior approval from the RBI. In case the investment exceeds USD One billion or 400% of net worth in a financial year, approval of RBI is compulsory.

FORMS TO FILED IN RESPECT OF ODI:

Name of the Form Purpose Time of Filling
ODI Part I Intimation of Investment At the time of  initial remittance
ODI Part II Details of all remittances /repatriation of income from overseas venture in terms of dividends, interest, royalties, fees for technical services…etc. Known as Annual Performance Report (APR) to be submitted before 31st December every year.
ODI Part III Details of divestments At the time of divestments
FLA Return Annual Return on Foreign Liabilities and Assets containing details of foreign assets and liabilities as on the 31st March of the immediately preceding financial year. On or before 15th July every year.

INDEX GENERAL PART- I

1. LEGAL BOUNDARIES TO BE REFERRED

Legal Boundaries To Be Referred

2. Financial Commitment or Overseas Direct Investment

Financial Commitment or Overseas Direct Investment

3. METHODS OF INVESTING

Methods of Investing

4. NET WORTH OF INDIAN PARTY-EXAMPLE

Net Worth of Indian Party-Example

5. NET WORTH OF INDIAN PARTY

Net worth of its holding company (which holds at least 51% stake in the Indian Party)

or its subsidiary company (in which the Indian party holds at least 51% stake)

May be taken into account to the extent not availed of by the holding company or the subsidiary independently and has furnished letter of disclaimer in the favor of the Indian Party.

6. PROHIBITIONS

Prohibitions

 

7. Entities allowed for ODI & Its Governance

Entities allowed for ODI & Its Governance

8. Permissible Sources of Funding

Permissible Sources of Funding

9. General Permission (Regulation 4)

General Permission (Regulation 4)

10. ODI under Automatic Route

ODI under Automatic Route

11. ODI UNDER AUTOMATIC ROUTE

Odi Under Automatic Route 2

12. ODI-AUTOMATIC ROUTE (AR)-PARAMETER

ODI-Automatic Route (Ar)-Parameter

13. ODI-Automatic Route -1 Eligible Limit

ODI-Automatic Route -1 Eligible Limit

 

14. ODI-Automatic Route –2 Procedure

ODI-Automatic Route –2 Procedure

15. ODI-Automatic Route –3 Total FC “Comprise of” and Limit Prescribed

Automatic Route –3 Total FC “Comprise of” and Limit Prescribed

16. ODI-Automatic Route –3 Total FC “Comprise of” and Limit Prescribed-2nd Page

Automatic Route –3 Total FC “Comprise of” and Limit Prescribed-2nd Page

17. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment

Conditions for Investment or Financial Commitment

18. ODI-Automatic Route –4 Conditions for Indian Entity may offer Guarantee-Corporate or personal

Conditions for Indian Entity may offer Guarantee-Corporate or personal

19. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment 

Conditions for Investment or Financial Commitment 2

20. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment

Conditions for Investment or Financial Commitment 3

21. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment

Conditions for Investment or Financial Commitment 4

22. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment 

Conditions for Investment or Financial Commitment 5

23. ODI-Automatic Route –4 Conditions for Investment or Financial Commitment 

Conditions for Investment or Financial Commitment 6

24. ODI-Automatic Route –4 Conditions-acquiring shares in exchange of ADRs/GDRs

Conditions-acquiring shares in exchange of ADRs-GDRs

25. ODI-Automatic Route –4 Conditions-acquiring shares in exchange of ADRs/GDRs

Conditions-acquiring shares in exchange of ADRs-GDRs 2

26. ODI-Automatic Route –5 Investment or FC in Nepal and Bhutan

5 Investment or FC in Nepal and Bhutan

27. ODI-Automatic Route –6 FAFT Countries

6 FAFT Countries

28. ODI-Automatic Route –Investment through Special Purpose Vehicle (SPV)

Investment through Special Purpose Vehicle (SPV)

 

29. Issue of guarantee by an Indian Party to step down subsidiary of JV / WOS-AUTOMATIC ROUTE (AR)

Issue of guarantee by an Indian Party to step down subsidiary of JV

30. Issue of guarantee by an Indian Party to step down subsidiary of JV / WOS-AUTOMATIC ROUTE (AR)

Issue of guarantee by an Indian Party to step down subsidiary of JV 2

31. Issue of guarantee by an Indian Party to step down subsidiary of JV / WOS-AUTOMATIC ROUTE (AR)

Issue of guarantee by an Indian Party to step down subsidiary of JV 3

32. Investment in unincorporated/ incorporated entities Overseas in Oil Sector under Automatic Route

Investment in unincorporated-incorporated entities Overseas in Oil Sector under Automatic Route

33. Investment in unincorporated/ incorporated entities  Overseas in Oil Sector under Automatic Route

Investment in unincorporated- incorporated entities  Overseas in Oil Sector under Automatic Route

34. Construction and maintenance of submarine cable systems under the Automatic Route

Construction and maintenance of submarine cable systems under the Automatic Route

35. Construction and maintenance of submarine cable systems under the Automatic Route

Construction and maintenance of submarine cable systems under the Automatic Route 2

36. METHOD OF FUNDING-Out of One or More sources

Method of Funding-Out of One or More Sources

37. METHOD OF FUNDING-General Permission for Person Resident in India for such Investment

Method of Funding-General Permission For Person Resident In India For Such Investment

38. Capitalization of Exports and Other Dues

Capitalization of Exports and Other Dues

39. Investments (or financial commitment) engaged in  Financial Services Sector-Additional Condition

Investments (or financial commitment) engaged in  Financial Services Sector-Additional Condition

40. Investment in equity of companies registered overseas / rated debt Instruments

Investment in equity of companies registered overseas -rated debt Instruments

41. Investment in equity of companies registered overseas / rated debt Instruments (Cont.)

Investment in equity of companies registered overseas -rated debt Instruments (Cont.)

42. Approval of the Reserve Bank

Approval of the RBI

 

43. Investments in energy and natural resources sector-like Oil, Gas, Coal & Mineral ores

Investments in energy and natural resources sector-like Oil, Gas, Coal & Mineral ores

44. Overseas investments by proprietorship concerns/Unregistered Partnership firm- Eligibility Criteria-Approval Route Condition

Overseas investments by proprietorship concerns-Unregistered Partnership firm- Eligibility Criteria-Approval Route Condition

45. Overseas investments by Registered Trust-Eligibility Criteria-Approval Route Condition

Overseas investments by Registered Trust-Eligibility Criteria-Approval Route Condition

46. Overseas investments by Registered Society-Eligibility Criteria-Approval Route Condition

Overseas investments by Registered Society-Eligibility Criteria-Approval Route Condition

47. Investments in proprietorship concerns/Unregistered Partnership firm, Society or Trust- Compliance

Investments in proprietorship concerns-Unregistered Partnership firm, Society or Trust

48. Post investment changes / additional investment (or financial commitment) in existing JV / WOS

Post investment changes- additional investment (or financial commitment) in existing JV -WOS49. Restructuring of the balance sheet of the overseas entity involving write off of capital and receivables- Primary Details

Restructuring of the balance sheet of the overseas entity involving write off of capital and receivables- Primary Details

50. Write off of capital and receivables Reporting Compliance & Documentation (Automatic & Approval Route)

Reporting Compliance & Documentation

51.Acquisition of a foreign company through bidding or tender procedure

bidding or tender procedure

52. (1) Obligations of Indian Party (IP) and Resident Individual (RI) for Direct Investment Abroad

Obligations of Indian Party (IP) and Resident Individual (RI)

 

53. (1) Obligations of AD Category 1 Bank-Monitor Receipt of such documents and verify its Bona Fide of them

AD Category 1 Bank-Monitor Receipt

(2) Obligation-APR for Unincorporated Entity in the Oil Sector

Unincorporated Entity

(3) Obligations by IPs-APR submitted based on Unaudited Accounts

Where the law of the host country does not mandatorily require auditing of the books of accounts of JV / WOS, the Annual Performance Report (APR) may be submitted by the Indian Party based on the un-audited annual accounts of the JV / WOS provided: 

Obligations by IPs-APR submitted based on Unaudited Accounts

56. An annual return on Foreign Liabilities and Assets (FLA)

An annual return on Foreign Liabilities and Assets (FLA)

57. Transfer by way of sale of shares of a JV / WOS

Transfer by way of sale of shares of a JV -WOS

 

58. Transfer by way of sale of shares of a JV / WOS to Resident outside India-Conditions

Resident outside India-Conditions

Note: India party is required to submit details of such disinvestment through its designated AD category-I bank within 30 days from the date of disinvestment.

59. Transfer by way of sale of shares of a JV / WOS involving write off of the investment (or FC)-Automatic Route

(1)  Indian party may disinvest Without prior approval of RBI where amount repatriated is less than the original amount invested:

investment (or FC)-Automatic Route

60. Transfer by way of sale of shares of a JV / WOS involving write off of the investment (or FC)-Automatic Route

(2) Such disinvestments shall be subject to the conditions (same condition of without write off:

Such disinvestments shall be subject to the conditions (same condition of without write off)

(3) If any of the condition mentioned earlier is not satisfied-RBI prior approval is required to be obtained

61. Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step Down Subsidiary (SDS)

Pledge of shares of Joint Venture (JV), Wholly Owned Subsidiary (WOS) and Step Down Subsidiary (SDS)

62. Rollover of Guarantees

Rollover of Guarantees

63. Creation of charge on domestic and foreign assets

Creation of charge on domestic and foreign assets

64. Overseas Direct Investments by resident individuals

Overseas Direct Investments by resident individuals

65. Hedging of overseas direct investments

Hedging of overseas direct investments

66. Opening of Foreign Currency Account abroad by an Indian Party- Conditions

Opening of Foreign Currency Account abroad by an Indian Party- Conditions

67. Permission for purchase/ acquisition of foreign securities in certain cases- “GENERAL PERMISSION TO RESIDENT ENTITY”

Permission for purchase and acquisition of foreign securities in certain cases- “GENERAL PERMISSION TO RESIDENT ENTITY”

68. Purchase equity shares offered by a foreign company under its ESOP Schemes- “GENERAL PERMISSION”- DetailedPurchase equity shares offered by a foreign company under its ESOP Schemes “GENERAL PERMISSION”

69. Transfer by way of sale of foreign securities in certain cases- “SPECIAL PERMISSION TO RESIDENT ENTITY”

Transfer by way of sale of foreign securities in certain cases- “SPECIAL PERMISSION TO RESIDENT ENTITY”

70. Transfer by way of Repurchase of shares by Foreign Company- “SPECIAL PERMISSION TO RESIDENT ENTITY”

Transfer by way of Repurchase of shares by Foreign Company- “SPECIAL PERMISSION TO RESIDENT ENTITY”

71. General permission in certain cases-Foreign Security acquired by Resident Entity, if it represents

General permission in certain cases-Foreign Security acquired by Resident Entity, if it represents

72. Acquiring the shares of SWIFT by a resident Bank

Acquiring the shares of SWIFT by a resident Bank

73. Issue of Indian Depository Receipts (IDRs)

Issue of Indian Depository Receipts (IDRs)

74. Maintenance of collateral by FIIs for transactions in derivative segment- opening of demat accounts by Clearing Corporations and Clearing Member

Maintenance of collateral by FIIs for transactions in derivative segment

GENERAL PART -II- OPERATIONAL INSTRUCTIONS TO AUTHORIZED DEALER BANK

1. Designated Branches

Designated Branches

2. Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004

Investments under Regulation 6

3. Investments under Regulation 6 of Notification No. FEMA 120/2004-RB dated July 7, 2004- Explanation

Investments under Regulation 6 of Notification No. FEMA 120 of 2004-RB dated July 7, 2004- Explanation

4. General procedural instructions- Online Reporting Allowed for ODI Transactions

General procedural instructions- Online Reporting Allowed for ODI Transactions

5. General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue

General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue

6. General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue

General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue2

7. General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue

General procedural instructions- Online Reporting Allowed for ODI Transactions-Continue 3

 

8. Investments (or financial commitment) under Regulation 11 of Notification No. FEMA.120/2004-RB dated July 7, 2004

Investments (or financial commitment) under Regulation 11 of Notification No. FEMA.1202004-RB dated July 7, 2004

9. Allotment of Unique Identification Number (UIN)

Allotment of Unique Identification Number (UIN)

10. Investment by way of share swap

Investment by way of share swap

11. ODI under Regulation 9 of Notification No. FEMA.120/2004-RB dated July 7, 2004- Certain Cases require prior approval

ODI under Regulation 9 of Notification No. FEMA. 120 of 2004-RB dated July 7, 2004- Certain Cases require prior approval

12. Purchase of foreign securities under ADR / GDR linked Stock Option Scheme

Purchase of foreign securities under ADR and GDR linked Stock Option Scheme

13. Transfer by way of sale of shares of a JV / WOS outside India

Transfer by way of sale of shares of a JV and WOS outside India

14. Verification of evidence of investment

Verification of evidence of investment

15. Opening of Foreign Currency Account abroad by an Indian Party

Opening of Foreign Currency Account abroad by an Indian Party

Conclusion:

Almost simplified procedures for ODI reflects lenient approach of government as compared to FDI regulations which keeps on changing so frequently which shows extra precautions by Indian government. Legal issues found more in Foreign Direct Investment (Now Non-Debt Instrument and Debt Instrument Regulations from FY 2019) than Foreign Investment in Joint Venture or Wholly Owned Subsidiary related litigations.

Tags:

Author Bio

More Under Fema / RBI

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031