OVERSEAS DIRECT INVESTMENT

Table of content

  1. Overseas Direct Investment
  2. Introduction
  3. Conditions for Overseas Direct Investment
  4. Permissible sources for funding overseas direct investment
  5. Methodology
  6. Routes of Investment
  7. Automatic Route
  8. Approval Route
  9. Related Matters.
  10. Recurring Obligations
  11. Repatriation
  12. Disinvestment Procedure and issues.
  13. Advisory
  14. Introduction
  15. Alternative 1 – Acquisition of a company
  16. Limits and regulations to be made under the Automatic Route
  17.  Valuation norms
  18.  Procedure for direct investment in a JV/WOS under the Automatic Route
  19. Procedure to be followed for investment proposed to be made under the Approval Route
  20. Alternative 2 – As an individual under $75000 scheme (Remittances)
  21. Procedure to be followed for investment proposed to be made under the Approval Route.
  22. Taxation

Introduction

Direct investment outside India’ means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment.

Joint Ventures/Wholly Owned Subsidiaries abroad promote economic co-operation between India and the host countries. They result in transfer of technology and skills, sharing the results of Research & Development, access to the global market, promotion of the brand image, generation of employment and utilization raw materials available in India and the host country, increased exports of plant and machinery and goods and services from India, foreign exchange earnings through dividend earnings, royalty, technical know-how fee, etc. Since globalization of trade is a two-way process, integration of the Indian economy with the rest of the world with all its attendant benefits is achieved through overseas investment. It is the reverse of Foreign Direct Investment (FDI) i.e. Indian direct investment abroad.

1.1  Conditions for Overseas Direct Investment

1.2 Permissible sources for funding overseas direct investment

Funding for overseas direct investment can be made by one or more of the following sources:

In respect of (6) and (7) above, the ceiling of 100 per cent of the net worth does not apply. Further, if the source of funding is through availing ECB, the permissible limit is 400% of the net worth of the Indian Party.

1.3 Methodology

1.3.1  Routes of Investment

Automatic

Approval

 

An Indian Party does not require any prior approval from the Reserve Bank for making overseas direct investments. The Indian Party should approach an Authorized Dealer Category – I bank with an application in Form ODI and the prescribed enclosures / documents for affecting the remittances towards such investments.

 

 

Proposals not covered by the conditions under the automatic route require the prior approval of the Reserve Bank for which a specific application in form ODI with the documents prescribed therein is required to be made through the Authorized Dealer Category – I banks.

 

 

1.3.2 Automatic Route

An Indian Party is eligible to make overseas direct investment under the Automatic Route:-

When more than one such company, body or entity makes investment in the foreign entity, such combination will also form an “Indian Party”.

1.3.3  Approval Route

Sectors in which ODI’s are allowed with prior RBI Approval

1.3.4   Related Matters

Listed Indian companies are permitted to invest up to 50% of their net worth in shares/bonds/fixed income  securities rated not below investment grade issued by listed overseas companies.

1.4 Recurring Obligations

An Indian Party will have to comply with the following: –

In case of disinvestment, sale proceeds of shares/securities shall be repatriated to India immediately on receipt thereof and in any case not later than 90 days from the date of sale of the shares /securities and documentary evidence to this effect shall be submitted to the Reserve Bank through the designated Authorised Dealer.

1.5 Repatriation

Indian promoter companies participating in JV/WOS abroad should repatriate to India their foreign exchange entitlements/earnings due from the overseas concern by way of dividend, royalty, technical know-how fees, etc. Bank certificates supporting repatriation should be furnished to the concerned Regional Office of Reserve Bank. They are also required to submit to the concerned Regional Office of Reserve Bank every year an Annual Performance Report in form APR along with certified true copies of audited Profit and Loss Account statement and Balance Sheet together with the report of the Board of Directors of the overseas company adopting the accounts. Till such time the overseas concern commences commercial operations/production, Indian companies are also required to submit to Reserve Bank, a Half-yearly Progress Report in form HPR on the status of implementation of the project. Failure to repatriate the entitlements/earnings and submit the required reports and other information/clarifications, as and when called for by Reserve Bank, will amount to violation of the terms and conditions of the approval granted by Reserve Bank and as such, will be an offence under FERA 1973.

1.6 Disinvestment Procedure and issues