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TMI BlogForeign Exchange Management (Overseas Investment) Directions, 2022X X X X Extracts X X X X X X X X Extracts X X X X ..... step has been taken with operationalisation of a new Overseas Investment regime. Foreign Exchange Management (Overseas Investment) Rules, 2022 have been notified by the Central Government vide Notification No. G.S.R. 646(E) dated August 22, 2022 and Foreign Exchange Management (Overseas Investment) Regulations, 2022 have been notified by the Reserve Bank vide Notification No. FEMA 400/2022-RB dated August 22, 2022 in supersession of the Notification No. FEMA 120/2004-RB dated July 07, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] and Notification No. FEMA 7 (R)/2015-RB dated January 21, 2016 [Foreign Exchange Management (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015]. The new regime simplifies the existing framework for overseas investment by persons resident in India to cover wider economic activity and significantly reduces the need for seeking specific approvals. This will reduce the compliance burden and associated compliance costs. 3. Some of the significant changes brought about through the new rules and regulations are summarised below: (i) enhanced clarity with respect to var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Acquisition of a foreign entity through bidding or tender procedure 9 ODI in startups 10 Acquisition or transfer by way of deferred payment 11 Mode of Payment 12 Pricing Guidelines 13 Transfer or liquidation 14 Restructuring 15 Opening of Foreign Currency Account abroad by an Indian entity 16 Obligations of the Person Resident in India 17 Reporting 18 Delay in Reporting 19 Restriction on further financial commitment or transfer 20 Restrictions and prohibitions Part III - Specific provisions 21 Financial commitment by an Indian entity 22 Overseas investment by resident individuals 23 Overseas investment by a person resident in India, other than an Indian entity or a resident individual 24 Overseas investment in an IFSC in India by a person resident in India 25 Acquisition or Transfer of Immovable Property outside India Part IV - Other Operational Instructions to AD banks 26 Designated banks 27 Overseas investment under OI Rules/Regulations 28 General procedural instructions for online reporting - Annex-II: List of the circulars/ master direction superseded - Appendix A: Request Form for creation of user id in the OID Application Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner in the entity. (iv) "Indian entity" - the extant concept of Indian party (IP) where all the investors from India in a foreign entity were together considered as IP, has been substituted under the new regime with the concept of Indian entity where each investor entity shall be separately considered as an Indian entity. Indian entity shall mean a company defined under the Companies Act, 2013 or a body corporate incorporated by any law for the time being in force or a Limited Liability Partnership formed under the Limited Liability Partnership Act, 2008 or a partnership firm registered under the Indian Partnership Act, 1932. (v) "subsidiary"/ "step down subsidiary (SDS)" of a foreign entity means an entity in which the foreign entity has control and the structure of such subsidiary/SDS shall comply with the structural requirements of a foreign entity, i.e., such subsidiary/SDS shall also have limited liability where the foreign entity's core activity is not in strategic sector. The investee entities of the foreign entity where such foreign entity does not have control (as defined above) shall not be treated as SDSs and therefore need not be reported henceforth. (vi) "Overseas D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment made in the equity capital of the foreign entity after its delisting shall be made as ODI. c) A listed Indian company may make OPI, including by way of reinvestment, in accordance with schedule II of the OI Rules. 'Reinvestment' means that the OPI proceeds are exempted from repatriation provisions as long as such proceeds are reinvested within the time specified for realisation and repatriation as per Notification No. FEMA 9(R)/2015-RB namely, Foreign Exchange Management (Realisation, repatriation and surrender of foreign exchange) Regulations, 2015. d) An unlisted Indian entity may make OPI in accordance with schedule II of the OI Rules. 1[e) The investment (including sponsor contribution) in units or any other instrument (by whatever name called) issued by an investment fund overseas, duly regulated by the regulator for the financial sector in the host jurisdiction, shall be treated as OPI. Accordingly, in jurisdictions other than IFSCs, listed Indian companies and resident individuals may make such investment. Whereas in IFSCs, an unlisted Indian entity also may make such OPI in units or any other instrument (by whatever name called) issued by an investment fund or vehi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestment/remittance. (3) In respect of any case under the approval route, the applicant shall approach their designated AD bank who shall forward the proposal to the Reserve Bank after due scrutiny and with its specific recommendations. The application for overseas investment under the approval route would continue to be submitted to the Reserve Bank in physical/electronic form through email as hitherto, in addition to the online reporting. The designated AD bank before forwarding the proposal shall submit the relevant sections of the Form FC in the online OID application and the transaction number generated by the application shall be mentioned in their reference. The following documents shall be submitted along with the proposal: * Background and brief details of the transaction. * Reason(s) for seeking approval mentioning the extant FEMA provisions. * Observations of the designated AD bank with respect to the following: * Prima facie viability of the foreign entity; * Benefits which may accrue to India through such investment; * Financial position and business track record of the Indian entity and the foreign entity; * Any other material observation. * Recommen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be required. 7. Rights issue and bonus shares (1) A person resident in India, who has acquired and continues to hold equity capital in a foreign entity in accordance with the OI Rules/Regulations may acquire equity capital through exercise of rights or by way of bonus shares in accordance with rule 7 of the OI Rules. (2) The acquisition of equity capital through exercise of such rights shall be reported in Form FC. Where such person does not exercise the rights but renounces such rights in favour of a person resident in India or a person resident outside India, such renouncement shall not require reporting. Further, the acquisition of bonus shares shall not be treated as fresh financial commitment and will not require reporting. 8. Acquisition of a foreign entity through bidding or tender procedure (1) AD banks may, on being approached by an eligible person resident in India, allow remittance towards Earnest Money Deposit (EMD) after obtaining Form A2 duly filled in or may issue bid bond guarantee on their behalf in accordance with regulation 9(5) of OI Regulations for participation in bidding or tender procedure for acquisition of a foreign entity. On winning the bid, AD ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, Foreign Exchange Management (Foreign Currency Accounts by a resident in India) Regulations, 2015, an Indian entity can make remittances to its office/branch outside India only for the purpose of normal business operations of such branch or office. Accordingly, no remittance shall be made by any Indian entity to its branch/office outside India for making any overseas investment. (iii) A person resident in India shall not make any payment on behalf of any foreign entity other than by way of financial commitment as permitted under the OI Rules/Regulations. (iv) Any investment/financial commitment in Nepal and Bhutan shall be done in a manner as provided in Notification No. FEMA 14(R)/2016-RB, namely, Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016. All dues receivable on investments (or financial commitment) made in freely convertible currencies, as well as their sale/winding up proceeds are required to be repatriated to India in freely convertible currencies only. 12. Pricing Guidelines (1) The AD bank, before facilitating an overseas investment related transaction, shall ensure compliance with the provisions contained in rule 16 of OI Rules. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of accumulated losses. (3) These provisions shall not be used where the assets are simply revalued in the books of the Indian entity without any restructuring of the balance sheet of the foreign entity. 15. Opening of Foreign Currency Account abroad by an Indian entity An Indian entity may open, hold and maintain Foreign Currency Account (FCA) abroad for the purpose of making ODI in accordance with the provisions contained in Regulation 5 (D) of Notification No. FEMA.10(R)/2015-RB, namely, Foreign Exchange Management (Foreign Currency Accounts by a resident in India) Regulations, 2015. 16. Obligations of the Person Resident in India (1) A person resident in India making ODI shall meet the obligations laid down in regulation 9 of OI Regulations. (2) A person resident in India acquiring equity capital in a foreign entity, which is reckoned as ODI, shall submit the evidence of investment as per regulation 9(1) of OI Regulations to the AD bank within six months, failing which the funds remitted overseas shall be repatriated within the said period of six months. The evidence of investment shall be retained by the designated AD bank, who shall monitor the receipt of requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delay in Reporting (1) In case a person resident in India has made a delay in filing/submitting the requisite form/return/document, such person may file/submit the requisite form/return/ document, etc. and pay the Late Submission Fee (LSF) through the designated AD bank in accordance with regulation 11 of OI Regulations. (2) The LSF for delay in reporting of overseas investment related transactions shall be calculated as per the following matrix: Sr. No. Type of Reporting delays LSF Amount (INR) 1 Form ODI Part-II/ APR, FLA Returns, Form OPI, evidence of investment or any other return which does not capture flows or any other periodical reporting 7500 2 Form ODI-Part I, Form ODI-Part III, Form FC, or any other return which captures flows or returns which capture reporting of non-fund based transactions or any other transactional reporting [7500 + (0.025% × A × n)] Notes: a) "n" is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points. b) "A" is the amount involved in the delayed reporting. c) LSF amount is per return. d) Maximum LSF amount will be limited to 100 per cent of 'A' and will be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R exchange rates, stock indices linked to Indian market, etc. (2) The financial commitment by a person resident in India in a foreign entity that has invested or invests into India at the time of making such financial commitment or at any time thereafter, either directly or indirectly, resulting in a structure with more than two layers of subsidiaries is not permitted in accordance with rule 19(3) of the OI Rules. It is provided that no further layer of subsidiary or subsidiaries shall be added to any structure existing with two or more layers of subsidiaries post notification of the OI Rules/Regulations. Note: It may be noted that subsidiary shall have the meaning as provided in the OI Rules i.e. an entity in which the foreign entity has control (which includes a stake of 10% or more in an entity as per the OI Rules). Part III - Specific provisions 21. Financial commitment by an Indian entity An Indian entity, within the overall limit provided in schedule I of the OI Rules and subject to regulation 3 of OI Regulations, may make financial commitment by way of ODI as per schedule I of the OI Rules, financial commitment by way of debt as per regulation 4 of OI Regulations and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial commitment limit of the group company, any fund-based exposure of such group company to the Indian entity or of the Indian entity to such group company, as the case may be, shall be deducted from the net worth of such group company. (5) The provisions related to financial commitment by way of pledge/charge [regulation 6 of OI Regulations] are summarised below : Security by Indian entity In whose favour Facility availed Amount reckoned towards financial commitment A) Pledge the equity capital of the foreign entity /its SDS outside India. AD bank or a public financial institution in India or an overseas lender. Fund/non-fund based facilities for Indian entity. Nil. Fund/non-fund based facilities for any foreign entity/its SDSs outside India. The value of the pledge or the amount of the facility, whichever is less. A debenture trustee registered with SEBI in India. Fund based facilities for Indian entity. Nil. B) Create charge on its assets (other than A above) in India [including the assets of its group company or associate company, promoter and / or director]. AD bank or a public financial institution in India or an overseas lender. Fund/non-fund based f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Subject to the provisions contained in paragraph 2(1) of schedule I of the OI Rules. Where such investment is in IFSC, the requisite approval by the financial services regulator concerned shall be decided within 45 days from the date of receipt of application complete in all respects failing which it shall be deemed to be approved Not engaged in Financial Services activity Subject to the guidelines issued by the respective regulator b) Not engaged in Financial Services activity Engaged in Financial Services activity except banking or insurance Indian entity has posted net profits during the preceding three financial years. However, an Indian entity not meeting 3-year profitability condition may make such ODI in a foreign entity in IFSC in India. Engaged in general and health insurance Apart from the 3 years profitability criteria, such insurance business is supporting the core activity undertaken overseas by such Indian entity. For instance, health insurance to support medical/hospital business, vehicle insurance to support the manufacturing/export of motor vehicles, etc. c) Overseas investment in any sector by banks and non-banking financial institutions regulated by the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital/stock of the foreign entity and does not lead to control, such Investment shall be categorised as OPI. (3) In case of swap of securities both the legs of the transaction shall comply with FEMA provisions, as applicable. However, where swap of securities results in acquisition of any equity capital which is not in conformity with the OI Rules/Regulations, e.g., ODI in foreign entity engaged in financial services activity, foreign entity having a subsidiary/SDS, etc., such equity capital must be disinvested within a period of six months from the date of such acquisition. (4) Resident individuals are not permitted to transfer any overseas investment by way of gift to a person resident outside India. (5) Shares/interest under ESOP/Employee Benefits Scheme - AD banks may allow remittances, towards acquisition of the shares/interest in an overseas entity under the scheme offered directly by the issuing entity or indirectly through a Special Purpose Vehicle (SPV) /SDS. Where the investment qualifies as OPI, the necessary reporting in Form OPI shall be done by the employer concerned in accordance with regulation 10(3) of OI Regulations. Where such investment qualifies as ODI, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1949, may acquire the shares of Society for Worldwide Interbank Financial Telecommunication (SWIFT) as per the by-laws of SWIFT, provided the bank has been permitted by the Reserve Bank for admission to the 'SWIFT User's Group in India' as a member. (5) Any overseas investment by the sole proprietorship or unregistered partnership firms may be made by the proprietor concerned or the individual partners concerned within their limit available under the LRS in accordance with schedule III of the OI Rules. If the proposed investment is in strategic sector, any application for making overseas investment in excess of the LRS limit may be made under the government approval route. (6) Overseas investment by registered trust/society may be made under the approval route in accordance with paragraph 1 of schedule IV of OI Rules. 24. Overseas investment in an IFSC in India by a person resident in India A person resident in India may make overseas investment in an IFSC in India in accordance with schedule V of OI Rules. The following is further provided: 2[(1) A person resident in India, being an Indian entity or a resident individual, may make investment (including sponsor contribution) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to switch over to another AD, it may approach the new AD after obtaining an NOC from the existing AD bank. (3) All communication from the person resident in India to the Reserve Bank should be routed through the nodal branch of the designated AD bank. For proper follow up, the AD bank shall maintain person-wise record in respect of each foreign entity. 27. Overseas investment under OI Rules/Regulations (1) AD banks may allow remittance towards overseas investment up to the permissible limits on receipt of application in Form FC together with form A-2, duly filled in, from the person making such investments subject to their complying with the conditions prescribed in the OI Rules/Regulations/Directions. AD banks shall render themselves liable for penal action under section 11 and 13 of FEMA, 1999, if they facilitate remittances towards financial commitment without obtaining the requisite duly completed Form FC. Explanation: AD banks may note that an additional timeline of 15 days is made available to them for reporting of investments/financial commitment by their constituents to RBI in the OID application (other than first remittance, which requires to be reported in OID syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by a resident individual shall be reckoned towards their LRS limit. A person resident in India may capitalise pre-incorporation expenses (i.e., financial commitment by way of ODI) or recognise such expenses as receivables (i.e., financial commitment by way of debt) or account them as expenses in their books. It is clarified that unless recognised as financial commitment such expenses shall not attract provisions of OI Rules/Regulations. 28. General procedural instructions for online reporting (1) The existing application for online reporting of overseas investment related transactions by Authorised dealers (ADs) has provision for Maker, Checker and Authoriser. The AD Maker shall initiate the transaction and submit to the AD Checker for verification before submission to Reserve Bank. In case of delay in reporting for any reason the transaction shall be reported to RBI only after a middle management level officer designated as an authoriser ratifies it by recording the reasons for the same. (2) The AD Maker, AD Checker and AD Authoriser as above identified by the AD Bank may obtain a user-id, if not obtained already, for accessing the online OID application by submitting a requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular No. 131 May 31, 2012 33. A.P (DIR Series) Circular No. 133 June 20, 2012 34. A.P. (DIR Series) Circular No.15 August 21, 2012 35. A.P (DIR Series) Circular No. 25 September 7, 2012 36. A.P. (DIR Series) Circular No. 29 September 12, 2012 37. A.P (DIR Series) Circular No. 99 April 23, 2013 38. A.P (DIR Series) Circular No. 100 April 25, 2013 39. A.P (DIR Series) Circular No. 8 July 11, 2013 40. A.P (DIR Series) Circular No. 23 August 14, 2013 41. A.P (DIR Series) Circular No. 24 August 14, 2013 42. A.P (DIR Series) Circular No. 41 September 10, 2013 43. A.P. (DIR Series) Circular No. 83 January 3, 2014 44. A.P (DIR Series) Circular No. 131 May 19, 2014 45. A.P. (DIR Series) Circular No. 1 July 3, 2014 46. A.P (DIR Series) Circular No. 48 December 9, 2014 47. A.P (DIR Series) Circular No. 54 December 29, 2014 48. A.P (DIR Series) Circular No. 59 January 22, 2015 49. A.P. (DIR Series) Circular No. 61 April 13, 2016 50. A.P. (DIR Series) Circular No. 62 April 13, 2016 51. A.P. (DIR Series) Circular No. 28 January 25, 2017 52. A.P. (DIR Series) Circular No. 4 May 12, 2021 53. FED Master Direction No. 15/2015-16 January 1, 2016, as amended ..... X X X X Extracts X X X X X X X X Extracts X X X X
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