Overseas Direct Investment (ODI) is investment by Indian companies to an entity overseas by way of contribution to the equity shares, by providing loan or by providing guarantee. The equity shares can be acquired by way of market purchase or by private placement or through stock exchange. Portfolio investment is excluded from this purview.
The Indian Party can invest in overseas entity by way of acquiring equity shares or by providing loan or guarantee, the overall limit of such equity, loan and guarantee shall not exceed 400% of net worth of the Indian Party.
Any Indian Party that which opts to make the investment under ODI Regulations, shall approach a designated Authorised Dealer for making the remittance of the amount. The remittance request shall be accompanied with duly filled up form ODI Part I. Form ODI-I shall accompany the documents such as form A-2, a resolution of the Board of Directors, A Certificate from the statutory Auditors, Certificate of incorporation, Memorandum & articles of association, PAN card copy of the Indian Entity, certificate of Incorporation, bye laws of the overseas entity etc.
On submitting the documents, the Authorised Dealer (AD) Bank scrutinises and approves the documents, as per the regulatory guidelines, the remittance/ investment will be processed and submits the documents to RBI.
On remitting the funds RBI generates a Unique Identification Number (UIN) for the particular Joint Venture Company/ Wholly Owned Subsidiary (JV/ WOS). The UIN is specific to the JV/ WOS overseas and the same UIN shall be used for further investments/ remittances in the JV/ WOS.
The following shall be considered as Indian Party for the purpose of making investment under the ODI Guidelines-
1. A Company registered in India
2. A Body created under an Act of Parliament
3. A Partnership Firm registered under the Limited Liability Partnership Act,1932
4. Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act,2008
5. Any other entity in India as notified by RBI
In case of Unregistered Partnership Forms, they need prior approval from RBI for making any remittance outside investments.
Limits for Overseas investment-
There is a limit on the financial commitments. The term Financial Commitments includes the following-
1. the direct investment made by the Indian Party through equity, loan.
2. 100 percent of the amount guarantees, issued by the Indian party in favour of its overseas JV/ WOS
3. 50 percent of the performance guarantees as issued by the Indian party in favour of its overseas JV/ WOS.
The limit of the Financial Commitment is 400% of the net worth of the Indian Party (as per the latest audited balance sheet) subject to a maximum cap of USD 1 billion per financial year.
Establishing the Joint Venture (JV) and Wholly Owned Subsidiary (WOS)
The term Joint Venture (JV) means a foreign entity formed registered or incorporated in accordance with the laws and regulations of the host country in which the Indian Party makes a Direct Investment jointly with an India or overseas partner.
The term Wholly Own Subsidiary Companies (WOS) means a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country, whose 100% share capital is held by the Indian Party, there is no other partner in the share capital of the WOS.
Reporting requirements and other obligations for an Indian Party, post remittance/ investment
Once the investment is made and the UIN from RBI is received, the reporting obligation of the Indian Party is as under-
- A copy of the Share Certificate issued by the overseas entity is to be submitted to the AD Bank as a proof of investment made. The copy of the share certificate is to be submitted within a period of 6 months from the date of remittance of the funds.
- Annual Performance Report (APR) – Part-II of form ODI is to be submitted by the Indian Party to the AD Bank every year. The due date for submission of APR is 31st December every year. Copy of the annual account of the overseas entity is to be annexed with the form APR. The APR is to be certified by the Auditors. The APR is to be submitted separately with respect to each JV/ WOS overseas.
- Annual Return on Financial Liabilities and Assets (FLA) is to be submitted to RBI every year. The due date is 15th July every year. FLA return is to be submitted to RBI online.
- The Indian Party ensure that it repatriates all dues such as dividend, fee, royalty etc payable form the overseas entity, within a period of 60 days of its falling due, or within the extended period if the RBI permits.
- Any changes made in the JV/ WOS such as change in the shareholding pattern, diversification of its activities, setting up of step down subsidiaries within 30 days of the approval of the decisions by the competent authority concerned of such JV/WOS in terms of the local laws of the host country.
- In case of divestment, he sale proceeds has to be repatriated to Indian within 90 days from the date of sale of the shares/securities and reporting needs to be done to the Reserve Bank through the designated AD. The reporting of the divestment/ liquidation of the foreign entity has to be done in form ODI- Part III.
Responsibility for filing an APR in case multiple IPs/ RIs have invested in the same overseas JV/WOS
In case multiple Indian Party/ Resident Individuals, have made the investment in the same overseas JV/WOS, the responsibility to submit the APR lies with the IP/RI having a maximum stake in the JV/WOS.
Sources of funds for making the Overseas Direct Investment (ODI):
For making the investment overseas, the below mentioned sources of funds can be utilised-
- By drawing the foreign exchange form the Authorised Dealer Bank in India
- Balances held in The Exchange Earner’s Foreign Currency (EEFC) Account of The Indian Party
- Proceeds of Foreign Currency Convertible Bonds (FCCBs)/ External Commercial Borrowings (ECBs)
Swap of Shares - By exchange of American Depository Receipts/Global Depository Receipts (ADRs/GDRs) issued as per the scheme for the issue of Foreign Currency Convertible Bonds and Ordinary Shares Scheme, 1993. and the guidelines issued there under from time by the Government of India
- Proceeds of Foreign Currency funds raised by ADR/ GDR issues
- Capitalisation of exports and dues from the foreign entity.
Transactions to be routed through a single AD bank
Please note that all the transactions of a particular overseas JV/WOS shall be routed through a single Authorised Dealer Bank. In case the Indian Party decides to change the existing Authorised Dealer Bank, an NOC should be obtained from the Bank.
Submitting of APR based on the un-audited annual accounts of the overseas JV/ WOS
The Indian party can submit the APR based on the un-audited annual accounts of the JV/WOS provided-
- It is certified by the Statutory Auditors of the Indian Party that as per the laws of the host country of the JV/WOS, the audit of the accounts of the JV/ WOS is not mandatory, and the figures in the APR are as per the un-audited accounts of the overseas JV/WOS; and
- That the un-audited annual accounts of the JV/WOS have been adopted and ratified by the Board of the Indian Party.
The exemption from filing the APR based on the unaudited balance sheet will not be available in respect of JV/WOS in a country, which is under the observation of the Financial Action Task Force (FATF) or in respect of which enhanced , due diligence is recommended by FATF or any other country/jurisdiction as prescribed by Reserve Bank of India.
Disclaimer: This article has been prepared in good faith on the basis of information available on the date of publication without any independent verification. The Author does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this publication nor its usefulness in achieving any purpose. The Author will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person using or relying on information in this publication. Readers are requested to consult a professional before taking any action.
(Author – Sonika Bharati, FCS, LL.B. is a Company Secretary in Practice from Delhi and can be contacted at [email protected])
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After we return ODI amount back to India, do we still have to file APR, with company still operating overseas and I continue to be single owner of company.
article was very helpful for students of Professional courses. Thanks a lots.