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TMI BlogOverseas InvestmentX X X X Extracts X X X X X X X X Extracts X X X X ..... mers/ constituents with a view to implementing the OI Rules and the OI Regulations. 3. Instructions issued on Overseas Investment by persons resident in India have been compiled in this Master Direction. The list of underlying circulars which form the basis of this Master Direction is furnished in the Annex I. Reporting instructions related to Overseas Investment are provided in Part VIII of Master Direction no. 18 on 'Reporting under Foreign Exchange Management Act, 1999 ' dated January 01, 2016. AD Category-I Banks may bring the contents of these Directions to the notice of their customers / constituents concerned. 4. This Master Direction has been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/ approvals, if any, required under any other law. Yours faithfully (N Senthil Kumar) General Manager Master Direction - Overseas Investment These Directions shall be called Master Direction - Overseas Investment which shall be read with the provisions contained in Foreign Exchange Management (Overseas Investment) Rules, 2022 (hereinafter referred to as OI Rules ) and Foreign Exchange Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear and limited. In case of a foreign entity being an investment fund or vehicle, duly regulated by the regulator for the financial sector in the host jurisdiction and set up as a trust outside India, the liability of the person resident in India shall be clear and limited not exceeding the interest or contribution in the fund in any manner. Further, the trustee of such fund shall be a person resident outside India. (ii) strategic sector shall include energy and natural resources sectors such as Oil, Gas, Coal, Mineral Ores, submarine cable system and start-ups and any other sector or sub-sector as deemed fit by the Central Government. The restriction of limited liability structure of foreign entity shall not be mandatory for entities with core activity in any strategic sector. Accordingly, Overseas Direct Investment (ODI) can be made in such sectors in unincorporated entities as well. An Indian entity is also permitted to participate in a consortium with other international operators to construct and maintain submarine cable systems on co-ownership basis. AD banks may allow remittances for ODI in strategic sector after ensuring that Indian entity has obtained necessary permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a foreign entity, which is in the nature of fully and compulsorily convertible instruments. Accordingly, any instrument which is redeemable or non-convertible or optionally convertible shall be treated as debt for the purpose of OI Rules/Regulations/Directions. (viii) financial commitment by a person resident in India means the aggregate amount of investment by way of ODI, debt other than Overseas Portfolio Investment (OPI) and non-fund based facility or facilities extended by it to all foreign entities. An Indian entity may lend or invest in any debt instruments issued by a foreign entity or extend non-fund based commitment to or on behalf of a foreign entity, including overseas SDSs of such Indian entity, subject to the following conditions: the Indian entity is eligible to make ODI; the Indian entity has made ODI in the foreign entity; the Indian entity has acquired control in the foreign entity on or before the date of making such financial commitment. (ix) Overseas Portfolio Investment (OPI) means investment, other than ODI, in foreign securities. The following is further provided: a) OPI shall not be made in: any unlisted debt instruments; or any security which is issued by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment made overseas in accordance with schedule IV of the OI Rules in securities as stipulated by SEBI by Mutual Funds (MFs), Venture Capital Funds (VCFs) and Alternative Investment Funds (AIFs) registered with SEBI shall be considered as OPI. (x) Listed equity capital or instrument - Wherever a reference is made in these directions or OI Rules or OI Regulations to listed equity capital or a listed instrument overseas, it shall mean that such equity capital or instrument, as the case may be, shall be listed on a recognised stock exchange outside India. Part II General provisions 2. Exemptions from applicability of OI Rules/Regulations/Directions The provisions contained in the OI Rules/Regulations/Directions shall not apply, and general permission shall be available for acquisition or transfer of any investment outside India made as per rule 4 of the OI Rules. 3. Permission for making overseas investment (1) A person resident in India may make or transfer any investment or financial commitment outside India under general permission/automatic route subject to the provisions contained in the OI Rules, OI Regulations and these directions. Accordingly, overseas investment may be made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s investment/financial commitment in Pakistan/other jurisdiction as may be advised by the Central Government from time to time or in strategic sectors/specific geographies in accordance with rule 9 of OI Rules shall be forwarded by the AD banks from their constituents to the Reserve Bank as per the laid down procedure for onward submission to the Central Government. 5. Approval from the Reserve Bank Financial commitment by an Indian entity, exceeding USD 1 (one) billion (or its equivalent) in a financial year shall require prior approval of the Reserve Bank even when the total financial commitment of the Indian entity is within the eligible limit under the automatic route. 6. No Objection Certificate (NOC) from the lender bank/regulatory body/investigative agency (1) Any person resident in India having an account appearing as a Non-Performing Asset (NPA) or is classified as wilful defaulter or is under investigation by a financial sector regulator/ investigative agency shall obtain an NOC from the lender bank/regulatory body/investigative agency concerned in accordance with rule 10 of OI Rules, before making financial commitment or undertaking disinvestment. (2) Where an Indian ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate in this regard from the statutory auditors/chartered accountant of the Indian entity/investor. 10. Acquisition or transfer by way of deferred payment (1) AD bank shall verify the bona fides of the transactions from the underlying agreement/documents in case of deferment of payment of consideration in accordance with regulation 7 of OI Regulations. The period of deferment shall be defined upfront. In case the remittance towards acquisition of equity capital is to be made post subscription to Memorandum of Association, the period within which such remittance is to be made shall be defined in the underlying agreement/documents/applicable laws else the remittance shall be made on or before acquisition of/setting up of the foreign entity. (2) The part of the payment towards consideration deferred by the person resident in India shall be treated as non-fund based financial commitment by such person and shall be reported accordingly. Subsequent payments towards deferred consideration shall be reported in Form FC as conversion of non-fund based financial commitment to equity. The valuation in accordance with pricing guidelines, wherever applicable, shall be done upfront. 11. Mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AD banks for ascertaining the bona fides in cases involving write-off of the investment. 13. Transfer or liquidation A person resident in India holding equity capital in accordance with OI Rules may transfer such investment in accordance with rule 17 of OI Rules. It is clarified that where the transferor is required to repatriate all the dues before disinvestment, such requirement shall not apply to the dues that do not arise on account of investment in equity or debt like export receivables, etc. 14. Restructuring (1) A person resident in India who has made ODI in a foreign entity, may permit restructuring of the balance sheet by such foreign entity in accordance with rule 18 of OI Rules. The aggregate investment in both the equity and debt of the foreign entity shall be taken into consideration for computing the proportionate amount of accumulated losses. However, in case the restructuring involves only equity, investment only in equity of the foreign entity may be taken into consideration for computing proportionate losses. (2) The certificate required to be furnished in accordance with rule 18 of OI Rules shall mention the amount of accumulated losses as per the audited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter is issued by the Reserve Bank. 17. Reporting (1) All reporting with respect to overseas investment by a person resident in India shall be made in accordance with regulation 10 of OI Regulations through the designated AD bank as per the revised reporting forms and instructions contained in the Master Direction Reporting under Foreign Exchange Management Act, 1999 . The reporting forms can be downloaded from Reserve Bank s website www.rbi.org.in. Any incomplete filing shall be treated as non-submission. (2) Any acquisition of foreign securities through conversion of Indian Depository Receipts (IDRs) shall be duly reported as ODI or OPI, as applicable. (3) The Annual Performance Report (APR) shall be certified by a chartered accountant where the statutory audit is not applicable, including in case of resident individuals. It is also clarified that where APR is required to be filed jointly, either one investor may be authorised by other investors for filing APR, or such persons may jointly file the APR. (4) A resident individual making overseas investment must comply with the reporting requirements as provided under the OI Regulations and reporting shall also be done as provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OI Regulations/earlier corresponding regulations, neither makes such submission/filing within the specified time nor makes such submission/filing along with LSF as provided in regulation 11 of OI Regulations, such person shall be liable for penal action under the provisions of FEMA, 1999. (3) The LSF may be paid by way of a demand draft drawn in favour of Reserve Bank of India and payable at the Regional Office concerned (in accordance with UIN mapping given in the table below). Sr.No UIN with prefix UIN mapped to 1. AH RO Ahmedabad 2. BG RO Bengaluru 3. BL or BY or PJ RO Mumbai 4. BN or CA or GA or GH RO Kolkata 5. CG or JM or JR or KA or ND or PT or WR RO New Delhi 6. HY RO Hyderabad 7. KO or MA RO Chennai 19. Restriction on further financial commitment or transfer AD bank shall not facilitate any outward remittance/further financial commitment by a person resident in India towards a foreign entity until any delay in reporting is regularised and may be guided by regulation 12 of OI Regulations. 20. Restrictions and prohibitions (1) AD bank shall not facilitate any transaction in respect of any foreign entity engaged in an activity mentioned in rule 19(1) of OI Rules or located in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee [regulation 5 of OI Regulations] that- a) In the case of performance guarantee, time specified for the completion of the contract shall be treated as its validity period. b) No prior approval from the Reserve Bank shall be needed for remitting the funds from India on account of invocation of a performance guarantee extended in accordance with OI Rules/Regulations. c) Any guarantee, to the extent of the amount invoked, shall cease to be a part of the non-fund based financial commitment but will be considered as financial commitment by way of debt. Such invocation shall be reported in Form FC. d) Roll-over of guarantee shall not be treated as fresh financial commitment. However, such roll-over shall be reported in Form FC. e) A group company of the Indian entity may extend a guarantee in accordance with the OI Regulations if such group company is eligible to make ODI as per the OI Rules and such guarantee shall be counted towards the utilisation of the financial commitment limit of such group company and shall be reported by the group company concerned. In case of a resident individual promoter, the same shall be counted towards the financial commitment limit of the Indian entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge is created shall not be from any country or jurisdiction in which financial commitment is not permissible under the OI Rules; the creation/enforcement of such pledge/charge shall be in accordance with the relevant provisions of the Act or rules or regulations made, or directions issued thereunder; The assets on which charge is being created are not securitised; The period of charge, if not specified upfront, shall be co-terminus with the period of facility (like loan or other facility) for which charge has been created; in the event of enforcement of charge created on domestic assets, such domestic assets shall be transferred by way of sale to a person resident in India only; Wherever creation of charge involves pledge of shares of an Indian company in favour of an overseas lender, the pledge shall also be governed by the extant FEMA provisions contained in FEM (Non-Debt Instruments) Rules, 2019. (7) The provisions pertaining to ODI in financial services activity [paragraph 2 of schedule I and paragraph 2 of schedule V of OI Rules] are summarised below: Indian entity ODI in foreign entity Subject to the financial commitment limit, reporting and documentation as per the OI Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial commitment, the same shall be reckoned towards the financial commitment limit. However, only that part of the ECB shall be reckoned towards the financial commitment limit that exceeds the amount of the corresponding pledge or creation of charge on assets which has already been counted towards the financial commitment limit. 22. Overseas investment by resident individuals With effect from August 05, 2013, resident individuals (single or in association with another resident individual or with an Indian entity) were permitted to make ODI. A resident individual may make overseas investment in accordance with schedule III of OI Rules. The following is further provided: (1) Where a resident individual has made ODI without control in a foreign entity that subsequently acquires or sets-up a subsidiary/SDS, such resident individual shall not acquire control in such foreign entity. (2) Overseas investment by way of capitalisation, swap of securities, rights/bonus, gift, and inheritance shall be categorised as ODI or OPI based on the nature of the investment. However, where the investment, whether listed or unlisted, by way of sweat equity shares, minimum qualification shares and shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith SEBI may, in accordance with paragraph 2 of schedule IV of OI Rules, invest overseas in securities as stipulated by SEBI within an overall cap of USD 7 billion and USD 1.5 billion, respectively. Further, a limited number of qualified MFs are permitted to invest cumulatively up to USD 1 billion in overseas Exchange Traded Funds, as may be permitted by SEBI. Such investment shall be considered as OPI irrespective of whether the securities are listed or not. (2) MFs/VCFs/AIFs desirous of availing this facility may approach SEBI for necessary permission. Operational modalities regarding eligibility criteria, individual limits, identification of recognised stock exchanges, investible universe, monitoring of aggregate ceilings, etc., shall be as per the guidelines issued by SEBI. General permission is available to such investors for sale of securities so acquired. (3) An AD bank, including its overseas branch, may acquire or transfer foreign securities in terms of host country regulations/laws, as applicable, in the normal course of its banking business. The provisions contained in OI Rules/Regulations shall not apply to such acquisition or transfer of foreign securities by an AD ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns contained in rule 21 of OI Rules. The following is further provided: (1) An AD bank may allow an Indian entity having an overseas office to acquire immovable property outside India for the business and residential purposes of its staff, provided total remittances do not exceed the following limits as laid down for initial and recurring expenses, respectively: 15 per cent of the average annual sales/income or turnover of the Indian entity during the last two financial years or up to 25 per cent of the net worth, whichever is higher; 10 per cent of the average annual sales/income or turnover during the last two financial years. Part IV - Other Operational Instructions to AD banks 26. Designated banks (1) An eligible person resident in India making ODI (or financial commitment) in a foreign entity is required to route all its transactions relating to such investment (or financial commitment) through the AD bank designated by it. In case a foreign entity is being set up by two or more persons resident in India, then all such persons shall route all transactions in respect of that foreign entity only through one designated AD bank. However, different AD banks may be designated, if re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard policy laying down the requirements or documents or information to be obtained by their branches to ensure compliance with said provisions of FEMA. (4) AD banks shall ensure bona fides of the transaction, compliance with FEMA provisions, compliance with Know Your Customer (KYC) Guidelines and compliance with anti-money laundering guidelines/laws. Any doubtful case/suspicious transaction shall be referred to Directorate of Enforcement (DoE) for further investigation and necessary action. (5) In case of ODI by way of capitalisation of export proceeds or other entitlements, Indian entity/resident individual shall make an application in Form FC to its designated AD bank. AD bank may ensure necessary reporting in Form FC, compliance with OI Rules/Regulations and necessary reporting in EDPMS, wherever applicable, for facilitating such transactions. In case where such proceeds are overdue beyond the period specified for realisation/repatriation, before permitting such capitalisation AD bank may grant necessary extension post proper due diligence. (6) Pre-incorporation expenses AD bank may allow remittance towards pre-incorporation expenses after satisfying itself of the reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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