Overseas Direct Investment (ODI) in India | ODI Investment @ ICICI Bank (2024)

Example 1: Indian Company ABC Pvt. Ltd. engaged in the Smart Phone manufacturing business sets up an overseas company to expand its operations and leverage on the cheap labour costs of the host country.

Example 2: Mr. X, a resident individual, finds potential in an overseas company and wants to invest and contribute to the growth of the company.

The eligible limit for the financial commitment by an Indian Party is % of its net worth (the maximum permissible amount is USD billionper financial year), as per the latest audited balance sheet.

According to the prevailing regulations, resident individuals may remit up to $ <2,50,000>, per financial year.

Indian Parties are not permitted to invest in a foreign entity engaged in Real Estate business activity. Real Estate (meaning buying and selling of Real Estate or trading in Transferable Development Rights (TDRs), not including the development of townships, construction of residential/commercial premises, roads or bridges) and banking business, are two activities which need prior approval of RBI, before investing.

An Indian Party is also prohibited from investing in an overseas entity, which offers financial products linked to the Indian Rupee (such as non-deliverable trades involving foreign currency, stock indices linked to the Indian market, rupee exchange rates, etc.) and any investments in these entities, need prior approval from the Reserve Bank of India.

• a Company
• a Body created under an Act of Parliament
• a Partnership Firm registered under the Indian Partnership Act, 1932
• Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008
• Any other entity in India, as notified by the RBI
• Resident Individuals under the Liberalised Remittance Scheme (LRS).

Direct investment outside India means investments outside India under automatic route and approval route by contribution to capital or subscription to Memorandum of Association of a foreign entity or purchase of existing shares of a foreign unit either by market purchase, private placement, or stock exchange, not including portfolio investment.

An Indian Party (IP) that is eligible to make direct investment outside India under automatic route is defined as '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, or a Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act, 2008 (6 of 2009), investing in a Joint Venture or Wholly Owned Subsidiary overseas, and includes any other entity in India as may be notified by the Reserve Bank'. So, when more than one such company, body, or entity invest in the foreign unit, all such companies or institutions or entities shall together constitute the 'Indian Party'.

Source:https://www.rbi.org.in/

Financial Commitment' comprises of the direct investment made by the Indian party through equity, loan, 100 percent of the amount of guarantees and 50 percent of the performance guarantees issued by an Indian Party to or on behalf of its overseas Joint Venture Company or Wholly Owned Subsidiary. The eligible limit for the financial commitment by an Indian Party is 400% of its net worth (the maximum permissible amount is USD 1billionper financial year) as per the latest audited balance sheet.

Source:https://www.rbi.org.in/

Yes, it is permissible for an Indian Party to consider the net worth of the Indian subsidiary/holding company for making an overseas investment to the extent not availed of by the holding company or the subsidiary company autonomously subject to:

• The holding company holds at least 51% direct stake in the Indian Party
• The Indian Party holds at least 51% of direct stake in its subsidiary company
• The holding or subsidiary company furnishes a letter of disclaimer for the same in favour of the Indian Party.

The facility is not available to/from partnership firms.

Any of the below sources can fund the overseas investments in JV/WOS:

• Drawal of foreign exchange from an Authorised Dealer bank in India
• Balances held in Exchange Earner's Foreign Currency (EEFC)Accountof the Indian Party
• Proceeds of Foreign Currency Convertible Bonds (FCCBs)/External Commercial Borrowings (ECBs)
• Swap of shares
• In exchange ofAmerican 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 thereunder from time to time by the Government of India
• Proceeds of foreign currency funds raised by ADR/GDR issues
• Capitalisationof exports and dues from foreign entity

• Indian Party has to submit the Share Certificates or any other documentary evidence for the investment to the designated AD Bank within six months of the remittance/investment.
• An Annual Performance ReportOverseas Direct Investment(ODI Part II) in respect of each JV or WOS has to be submitted by the Indian Party to the designated AD Bank before the stipulated timeline every year.
• Indian Party is obligated to repatriate all dues receivable from the foreign entity, such as dividend, technical fees, royalty, etc., within 60 days of its falling due, or similar further period as the Reserve Bank may permit.
• Indian Party has to report the changes made concerning JV/WOS like diversification of its activities/setting up of step down subsidiaries/change in the shareholding pattern 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.
• The sale proceeds in case of disinvestment shall be repatriated to India within 90 days from the date of sale of the shares/securities and reporting needsto be done to Reserve Bank through designated AD Bank within 120 days from the date of disinvestment.

To invest, the Indian Party should comply with the below conditions:

• Should be registered with the concerned regulatory authority in India for engaging in financial sector activities
• Net profit should be earned during the preceding three financial years from the financial services activities
• Necessary approvals to be obtained from the concerned regulatory authorities concerned both in India and abroad for venturing into such financial sector activity
• Capital adequacy norms prescribed by the concerned regulatory authority in India should be fulfilled.

An Indian Party cancapitalisedues and entitlements from the foreign entity such as export proceeds, royalties, other fees for technical know-how supply, managerial, consultancy and other services within the permissible ceilings under the automatic route. Export proceeds which are beingcapitalisedbeyond the prescribed period ofrealisationwill require prior approval of the Reserve Bank.

Indian software exporters are allowed to receive 25 percent of the value of the exports made to an overseas software startup company in the form of shares without entering into Joint Venture Agreements, with prior approval from the Reserve Bank.

No, Indian Parties are not permitted to invest in a foreign entity engaged in real estate business activity. Real estate (meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs) not including the development of townships, construction of residential/commercial premises, roads or bridges) and Banking business are two activities which need prior approval of RBI before investing.

Indian Party is also prohibited from investing in an overseas entity which offers financial products linked to Indian Rupee (such as non-deliverable trades involving foreign currency, stock indices linked to the Indian market, rupee exchange rates, etc.) and any investments in these entities need prior approval from Reserve Bank.

Source:https://www.rbi.org.in/

Resident individuals can purchase equity shares presented by a foreign company under its ESOP Schemes, if he/sheis an employee, or, a director of an Indian office or branch of a foreign company, or, of a subsidiary in India of a foreign company, or, an Indian company in which foreign equity holding, either direct or through a holding company/Special Purpose Vehicle (SPV) irrespective of the percentage of the direct or indirect equity stake in the Indian company provided (i) the shares under the ESOP Scheme are offered by the issuing company globally on a uniform basis and (ii) an Annual Return is submitted by the Indian company to the Reserve Bank through the AD Category – I,Bank giving details of remittances/beneficiaries, etc.

Source:https://www.rbi.org.in/

The Authorised Dealer Banks are permitted to allow remittance for acquiring shares under an ESOP Scheme, wherein the shares under the scheme are offered directly by the issuing company or offered indirectly through a trust/SPV/step down subsidiary, provided:

• Thecompany issuing the shares, directly or indirectly, effectively holds in the Indian company, whose employees/directors are offered shares, at least 51percent of its equity
• Theshares under ESOP Scheme are offered globally on a uniform basis by the issuing company
• AnAnnual Return is submitted by the Indian company to the RBI through the Authorised Dealer Banks, giving details of remittances,beneficiaries,etc. in the prescribed format.

Source:https://www.rbi.org.in/

Yes, provided the following conditions are met:

• Theshares should have been issued per the Rules/Regulations framed under Foreign Exchange Management Act, 1999
• Theshares should be repurchased in terms of the initial offer document
• AnAnnual Return in the prescribed form should be submitted through the Authorised Dealer Banks, giving details of remittances, beneficiaries.

Yes, provided that the proceeds are repatriated instantly on receipt thereof and in any case not later than 90 days from the date of sale of such securities.

Source:https://www.rbi.org.in/

The Liberalised Remittance Scheme (LRS) of the RBI allows resident individuals to send a certain amount of money during a fiscal year to another country for investment and expenditure.

According to the prevailing regulations, resident individuals may remit up to $2,50,000 per financial year. The scheme is not available to corporates, HUF, Trusts, partnership firms, etc.

The applicants must have maintained the bank account for a minimum period of one year before the remittance for capital account transaction. The same bank will be designated AD bank.He/Shehas to furnish Form A-2 regarding the purpose of the remittance and declare that the funds belong to him and will not be used for purposes prohibited or regulated under the scheme.

Source:https://www.rbi.org.in/

The APR can be submitted by the Indian Party based on the un-audited annual accounts of the JV/WOS provided**:

(i)The Statutory Auditors of the Indian Party certify that law of the host country does not mandatorily require auditing of the books of accounts of JV/WOS and the figures in the APR are as per the un-audited accounts of the overseas JV/WOS; and

(ii)That the un-audited annual accounts of the JV/WOS have been adopted and ratified by the Board of the Indian Party.

(**The above exemption from filing the APR based on the unaudited balance sheet will not be available in respect of JV/WOS in a country/jurisdiction which is either 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.)

Source:https://www.rbi.org.in/

Notification No. FEMA.120/RB-2004 (Foreign Exchange Management (Transfer or Issue ofanyForeign Security)-Amendment Regulations, 2004) prescribes regulation as under:

General Permission is granted under Regulation 22 (1) (i) that aResidentIndian person, being an individual, may acquire foreign securities as gift from a person resident outside India.