Not just that India is receiving the FDI, i.e. Foreign Direct Investment, many individuals and companies are also making investment outside India. Globalisation has fueled the businesses go cross borders and achieve their goals. Overseas Direct India means investments, by way of contribution to capital (LLP or Partnership) or subscription to the Memorandum of a foreign entity (in a company) or by way of purchase of existing shares of a foreign company by way of market purchase or private placement or stock exchange, for the purpose of a long-term interest in the foreign entity (JV or WOS). For the persons who wish to make investments outside India, there are two ways of investing outside India.
Under Automatic Route, Indian Party does not require prior approval from RBI is not required to make investments overseas. Valuation of shares is also not required at the time of investing in shares of a new company, but if investing in any existing company (or in case of subsequent remittance). The initial remittance can be done with a CA certificate.
Under the Approval Route, first the approval has to be obtained from RBI through Authorised Dealer Bank (AD Bank) with specific documents like Board resolution, background of the investment and proposal, observation notes from the Authorised Dealer bank, what benefit shall it bring to India, details of Indian and overseas entity.
Permitted forms:
One can invest overseas in the form of Joint Venture (JV) or Wholly Owned Subsidiary (WOS). The only requirement that is to be followed is that one JV/WOS can route all its transactions through one branch of that AD only.
For different JVs or WOS, Different branches of same AD may be opted. If the AD is to be switched, the same can be done by a letter to RBI after obtaining a certificate of No objection from the AD Bank.
Limit of investment for Indian parties or Resident Indians:
Indian Party, i.e. a company incorporated in India or an entity created under Partnership or LLP Act and any other RBI recognized entity, is called an Indian Party. An Indian Party can invest upto 400% of its net worth in the form of equity and loans, whereas Resident Indian, i.e. a person residing in India for more than 182 days, can invest upto limits as prescribed under the LRS of RBI, presently $250,000.
Prohibited sector:
Indian Party can invest in any kind of activities overseas which are bonafide, the only restriction is about buying selling of real estate or trading of TDRs. Construction or development of townships is not prohibited. Banks can set up JV/WOS upon clearance from RBI and Department of Banking Regulation.
Compliances after investment:
Minimum 2 compliances are prescribed post investments
1. Report of allotment of shares – Share certificate copies to be submitted within 6 months of investment
2. FLA – this is annual compliance required to be done for submissions of details of Foreign Liabilities and assets outside India on or before 15 July every year for the previous FY
3. APR- Annual Performance Report in ODI II on or before 31st December
