Overseas Direct Investment (ODI)

Posted Date : 06-Nov-2019 , 05:03:21 pm | Posted By CASANSAAR print

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Overseas investment in Joint Venture (JV) and wholly-owned subsidiaries (WOS) have been recognized as important avenues for promoting global business by Indian entrepreneurs in terms of Foreign exchange earnings like dividend, royalty, technical know-how and other entitlements on such investments.

Who is an Indian Party?
An Indian Party is eligible to make an overseas direct investment under the Automatic Route. 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 Limited Liability Partnership (LLP).

How much amount can be invested through ODI?
Under Automatic Route, 400% of Net worth as on the date of Last Audited Balance sheet of the Indian party (effective from 03.07.2014). However, any financial commitment exceeding USD 1 Billion (or its equivalent) in a financial year would require Prior Approval of RBI.

The Ceiling of 400% of net worth will not be applicable if the investment is made from Exchange Earners Foreign Currency account of Indian party or out of funds raised from ADRs/GDRs.

Can an Indian party invest in Nepal, Bhutan, and Pakistan through ODI?
Investments in Nepal are permitted only in Indian rupees. Investments in Bhutan are permitted in Indian Rupees as well as in freely convertible currencies. The Automatic route facility is not available for investments in Pakistan. But Approval Route is available for Investments by Indian parties in Pakistan.

Can a Proprietorship Concern invest in Foreign Company?
Yes, As per Foreign Trade policy of the Ministry of Commerce and industry, following revised terms and conditions are required to be complied with for considering the proposal of ODI, by RBI under approval route:

The Proprietorship concern/unregistered partnership firm in India is classified as “STATUS HOLDER”;
Export outstanding does not exceed 10% of the average export realization of the previous 3 years and consistent export performance;
The Proprietorship concern/unregistered partnership firm has not under the adverse notice of any Government agency like the Directorate of Enforcement, CBI, Income tax department, etc. and does not appear in the exporters’ caution list of RBI or the list of defaulters to the banking system in India;
The amount of proposed investment outside India does not exceed 10% of the average of the last three years’ export realization or 200% of net owned funds of the proprietorship concern/unregistered partnership firm in India, whichever is lower.

Can a Proprietorship Concern take shares from Foreign Company instead of Fees due?
Yes, a Proprietorship Concern may apply to RBI through the authorized dealer in Part I of the Form ODI for permission to accept shares instead of fees due to it.
Provided that-

Value of shares shall not exceed 50% of the fees receivable by the Indian company
Indian Concern’s shareholding in any one company outside India by virtue of shares accepted as aforesaid shall not exceed 10% of the paid-up capital of the company outside India

Can a Resident invest in Foreign Company?
w.e.f. August 05, 2013, a resident individual (single or in association with another resident individual or with an Indian Party) may make overseas direct investment in the equity shares and compulsorily convertible preference shares of a joint venture (JV) or wholly-owned subsidiary (WOS) outside India.

The limit of ODI by a resident individual shall be within the overall limit prescribed by RBI under the Liberalised Remittance Scheme (LRS).

Can a Resident withdraw the investment from Foreign Company?
Yes, Disinvestment by a resident individual shall be allowed after one year from the date of making the first remittance for setting up or acquiring the JV or WOS abroad.

The Disinvestment proceeds shall be repatriated to India immediately and in any case not later than 60 days from the date of disinvestment and the same may be reported to the designated AD.

No, Write off shall be allowed in case of disinvestments by the resident individuals.

Can an Indian Party/ Resident Indian acquire shares of a foreign entity without upfront payment or on a deferred payment basis?
No, the provisions of Notification No. FEMA 120/RB-2004 dated July 7, 2004, as amended from time to time, does not permit the acquisition of foreign shares without payment or on a deferred payment basis.

Reporting by Indian Party
Indian Party is required to report such acquisition in Form ODI to the AD Bank for the report to RBI within 30 days from the date of the transaction.

Is it mandatory to furnish Annual Performance Reports (APR) of the overseas JV/WOS based on its audited financial statements?
An Indian Party which has made an Overseas Direct Investment (ODI) has to submit an Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank by 30th of June every year.

What are the penalties for non-submission of Annual Performance Reports (APRs)?
Delayed submission/ non-submission of APRs entail penal measures, as prescribed under FEMA 1999.

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