- DIRECT INVESTMENT OUTSIDE INDIA: - Means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment.
- INDIAN PARTY: - Means a
- Company incorporated in India or a body created under an Act of Parliament or a
- Partnership firm registered under the Indian Partnership Act, 1932
- Limited Liability Partnership (LLP) incorporated under the LLP Act, 2008
- Any other entity in India as may be notified by the Reserve Bank.
- TRUST: - Means a Trust registered under the Indian Trust Act,1982
- SOCIETY: - Means a Society registered under the Societies Registration Act,1860
- REAL ESTATE and BANKING BUSINESS are the prohibited sectors for overseas direct investment but does not include development of townships, construction of residential/commercial premises, roads or bridges.
- Indian banks operating in India can set up JVs/WOSs abroad provided they obtain clearance under the Banking Regulation Act, 1949, from the Department of Banking Regulation (DBR), CO, RBI
- An overseas entity, having direct or indirect equity participation by an Indian Party, shall not offer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreign currency, rupee exchange rates, stock indices linked to Indian market, etc.) without the specific approval of the Reserve Bank.
ROUTES FOR OVERSEAS INVESTMENT
- AUTOMATIC ROUTE- No prior Approval from RBI is not required. The Investor should approach Authorized Dealer Category – I bank with an application in Form ODI and the prescribed enclosures / documents.\
- APPROVAL ROUTE- The Investor should approach RBI for approval through Authorized Dealer Category – I bank.
1. INDIVIDUAL- Under Automatic Route, up to specified limit mentioned under Liberalized Remittance Scheme.
- Permissible Current & Capital Account Transactions
- Investment by way of Gift, Inheritance, ESOP
- Investment in lieu of Professional Services
Persons Resident in India has been granted General permission to for purchase / acquisition of securities.
LIBERALISED REMITTANCE SCHEME (LRS)
A resident Indian can remit, up to the USD 250,000 per annum under the Liberalised Remittance Scheme (LRS), for any permissible current and capital account transactions including purchase of securities and also setting up/acquisition of JV/WOS overseas.
PERMISSIBLE CURRENT & CAPITAL ACCOUNT TRANSACTIONS
- The permissible current account transactions by an individual under LRS are:
- Private visits to any country (except Nepal and Bhutan)
- Gift or donation
- Going abroad for employment
- Maintenance of close relatives abroad
- Travel for business, or attending a conference or specialised training or for meeting expenses for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/ check-up
- Expenses in connection with medical treatment abroad
- Studies abroad
- Any other current account transaction which is not covered under the definition of current account in FEMA 1999.
- The permissible capital account transactions by an individual under LRS are:
- opening of foreign currency account abroad with a bank
- purchase of property abroad
- making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt instruments; acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;
- setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide business
- extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013
- Prohibited Items under the Scheme:
- Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
- Remittance from India for margins or margin calls to overseas exchanges / overseas Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market counterparty.
- Remittance for trading in foreign exchange abroad.
- Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
- Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
INVESTMENT IN FOREIGN SECURITIES BY WAY OF –GIFT/ INHERITANCE/ ESOP
- A person resident in India being an individual may acquire foreign securities:
- by way of gift from PROI;
- by way of inheritance from PRI/PROI
- Issue by a company incorporated outside India under cashless employee stock option scheme provided it does not involve any remittance from India
- A person resident in India being an individual who is an employee/ director of Indian office/ branch of a foreign entity/ subsidiary of foreign entity in India/ Indian company in which foreign entity has direct/ indirect equity holding*, may accept shares offered by such foreign entity provided that:
- the shares under ESOP scheme are offered by the issuing company globally on uniform basis; and
- An annual return is submitted by the Indian company to RBI through AD Bank giving details of remittance/ beneficiary etc.
INVESTMENT IN LIEU OF PROFESSIONAL SERVICES
- A resident individual may acquire shares of foreign entity in part/full consideration of professional services rendered to the foreign company or in lieu of director’s remuneration provided:
The limit of acquiring shares in terms of the value shall be within the LRS limit in force at the time of acquisition.
- Reserve Bank permission if value of shares exceeds the LRS limit.
- RBI will take following factors into consideration before giving permission:
- Net Worth of the individual or Nature of his/her Profession;
- Extent of foreign earnings / balance in EEFC and/or RFC account;
- Financial and business track record of the foreign entity;
- Potential for forex inflow to the country;
- Other likely benefits.
GENERAL PERMISSIONS TO PERSONS (INDIVIDUAL) RESIDENT IN INDIA FOR PURCHASE/ ACQUISITION OF SECURITIES ABROAD
- Out of funds held in the RFC account;
- As bonus shares on existing holding of foreign currency shares;
- When not permanently resident in India, from the foreign currency resources outside
General permission is also available to sell the shares so purchased or acquired.
- INDIAN PARTY: Under Automatic Route, up to 400% of Net Worth subject to certain conditions: -
- All transactions relating to a JV / WOS should be routed through one branch of an Authorized Dealer bank to be designated by the Indian Party.
- Indian Party not on RBI’s caution list / under investigation by enforcement Agency.
- The Partnership / Proprietorship firm is classified as a “Status Holder” in terms of Foreign Trade Policy.
- The bank is satisfied that the exporter is KYC (Know Your Customer) compliant and is engaged in the proposed business and meets the requirement as indicated at above.
- The exporter has not come under adverse notice of any Government agency like Directorate of Enforcement, Central Bureau of Investigation, Income Tax, etc. and does not appear in the exporters' caution list of the Reserve Bank or in the list of defaulters to the banking system in
- The amount of investment outside India does not exceed 10 per cent of the average export realization of the preceding three financial years or 200 per cent of the net owned funds of the firm, whichever is lower.
- The RT/RS should be registered under the Indian Trust Act, 1882/ Societies Registration Act, 1860.
- The Trust deed/ Memorandum of Association permits the proposed investment overseas. (Additionally, proposed investment should also be approved by the trustee(s)/ governing body/council or a managing / executive committee).
- The AD Category – I bank is satisfied that the RT/RS is KYC (Know Your Customer) compliant and is engaged in a bonafide activity.
- The RT/RS has been in existence at least for a period of three years.
- The RT/RS has not come under the adverse notice of any Regulatory / Enforcement agency like the Directorate of Enforcement, Central Bureau of Investigation (CBI), etc
- In case of Approval Route, a Physical Application shall be forwarded to RBI through AD Bank to the Central Office address.
- Before forwarding the physical application to RBI, the designated AD Bank should submit the Form ODI in the on-line ODI application under approval route and the transaction number generated by the application should be mentioned in the letter.
- In case the proposal is approved, the AD bank should effect the remittance under advice to Reserve Bank so that the UIN (Unique Identification Number) is allotted.
POST INVESTMENT COMPLIANCES
- Annual Return on FLA- required to be submitted by July 15 every year directly by all the Indian companies which have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year to RBI.
- Annual Performance Report (APR)- required to be submitted to the Reserve Bank, through the designated Authorized Dealer, every year on or before June 30 in Part III of Form ODI in respect of each JV or WOS outside India.
- Receive Share Certificates- An Indian Party which has acquired foreign security shall receive share certificates or any other documents as an evidence of investment in the foreign entity within 6 months from the date of effecting remittance or the date on which the amount to be capitalized becoming due or the date on which the amount due was allowed to be capitalized.
REPORTING OF FORM ODI
Part I- Application for allotment of Unique Identification Number (UIN) and reporting of Remittances Transactions
- Section A- Details of the IP RI
- Section B- Capital Structure and other details of JV/ WOS/ SDS
- Section C- Details of Transaction/ Remittance/ Financial Commitment of IP/ RI
- Section D- Declaration by the IP/ RI
- Section E- Certificate by the statutory auditors of the IP/ self-certification by RI
- Section F- Certificate by the Statutory Auditor of the Indian Party (to be retained by
AD Category-I bank)
Part II- Reporting of remittances (or financial commitment)
Part III- Annual Performance Report (APR)
Every year on or before December 31st, in respect of each JV or WOS outside India
Part IV- Report on Closure/Disinvestment/Voluntary Liquidation/Winding up of JV / WOS.