TaxTMI 
TaxTMI 
Foreign Exchange Management (Overseas Investment) Directions, 2022
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....anagement Act, 1999. In this direction, a significant 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 summ....
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.... the Central Government 5 Approval from the Reserve Bank 6 No Objection Certificate (NOC) from the lender bank/regulatory body/investigative agency 7 Rights issue and bonus shares 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 Instruct....
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....ority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders' agreements or voting agreements that entitle them to ten percent or more of voting rights or in any other manner 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....
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....nlisted debt instruments; or • any security which is issued by a person resident in India who is not in an IFSC; or • any derivatives unless otherwise permitted by Reserve Bank; or • any commodities including Bullion Depository Receipts (BDRs). b) OPI by a person resident in India in the listed equity capital of a listed entity, even after its delisting, shall continue to be treated as OPI until any further investment is made in the entity, i.e., any further investment 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 (i....
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....rmission/automatic route subject to the provisions contained in the OI Rules, OI Regulations and these directions. Accordingly, overseas investment may be made in a foreign entity engaged in a bona fide business activity, directly or through SDS/special-purpose vehicle (SPV). (2) The person intending to make any financial commitment shall fill up the Form FC as provided in the "Master Direction - Reporting under Foreign Exchange Management Act, 1999" duly supported by the requisite documents and approach the designated AD bank for making the investment/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 ....
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....ring 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 entity has already issued a guarantee in accordance with the FEMA provisions before an investigation has begun or account is classified as NPA/wilful defaulter and subsequently is required to honour such contractual obligation, such remittance due to the invocation will not constitute fresh financial commitment and hence NOC shall not 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....
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....rds 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 of Payment The mode of payment by a person resident in India for making overseas investment shall be in accordance with regulation 8 of the OI Regulations. It is further provided that: (i) Overseas investment by way of cash is not permitted. (ii) In terms of Regulation 5(B) of Notification No. FEMA 10(R)/2015-RB, 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 o....
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....he 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 balance sheet of the foreign entity, the proportionate amount of accumulated losses based upon the share of the Indian entity/investor, the amount of diminution in the value of the outstanding dues towards the Indian entity/investor post restructuring and that such diminution does not exceed the proportionate 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 prov....
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....e 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 provided under the LRS where such investment is reckoned towards the LRS limit. Acquisition of foreign securities by way of inheritance or gift in accordance with paragraph 2 of Schedule III of OI Rules shall not be reckoned towards the LRS limit and hence, shall not require reporting under LRS. 18. 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 rela....
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....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 countries/ jurisdictions as advised by the Central Government under rule 9(2) of OI Rules. It is clarified that financial products linked to Indian Rupee shall include non-deliverable trades involving foreign currency-INR 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, resultin....
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....nancial 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 entity and accordingly be reported by the Indian entity. The concept of utilising the net worth of the subsidiary/holding company by the Indian entity has been discontinued henceforth. Further, for computing the 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 provision....
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.... 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 Rules/Regulations and other applicable provisions as under a) Engaged in Financial Services activity Engaged in Financial Services activity Subject to the provisions contained in paragraph 2(1) of schedule I of the OI Rules. Where such investment is in....
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....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/interest under Employee Stock Ownership Plan (ESOP)/Employee Benefits Scheme does not exceed 10 per cent of the paid-up capital/stock of the foreign entity and does not lead to control, such ....
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....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 bank. (4) A bank in India, being licensed by the Reserve Bank under the provisions of the Banking Regulation Act, 1949, may acquire the shares of Society for Worl....
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....seas 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 required, for different foreign entities. (2) In case such a person resident in India wa....
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....ion 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 reasonableness, up to a maximum of USD 100,000 per foreig....
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....A.P. (DIR Series) Circular No. 6 September 6, 2006 9. A.P. (DIR Series) Circular No. 41 April 20, 2007 10. A.P. (DIR Series) Circular No. 49 April 30, 2007 11. A.P. (DIR Series) Circular No. 50 May 4, 2007 12. A.P. (DIR Series) Circular No. 59 May 18, 2007 13. A.P. (DIR Series) Circular No. 68 June 1, 2007 14. A.P. (DIR Series) Circular No. 72 June 8, 2007 15. A.P. (DIR Series) Circular No. 75 June 14, 2007 16. A.P. (DIR Series) Circular No. 2 July 19, 2007 17. A.P. (DIR Series) Circular No. 11 September 26, 2007 18. A.P. (DIR Series) Circular No. 12 September 26, 2007 19. A.P. (DIR Series) Circular No. 34 April 3, 2008 20. A.P (DIR Series) Circular No. 48 June 3, 2008 21. A.P. (DIR Series) Circular No. 53 June 27, 2008 22. A.P. (DIR Series) Circular No. 7 August 13, 2008 23. A.P. (DIR Series) Circular No.14 September 5, 2008 24. A.P (DIR Series) Circular No. 5 July 22, 2009 25. A.P. (DIR Series) Circular No. 36 February 24, 2010 26. A.P (DIR Series) Circular No. 45 April 1, 2010 2....