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Overseas Direct Investment (ODI) is a term that is frequently used in the age of globalisation. In recent years, it has been identified that the trend of investing in foreign entities is growing annually. Numerous residents and Indian businesses are investing in or obtaining stakes in international enterprises.
Overseas Direct Investment refers to a sort of investment made by Indian corporations with international entities outside of Indian Territory. We can engage in ODI in several ways, such as investing in foreign entities or adding to their capital. Aside from market purchases and stock exchange assistance, we may also buy shares of international companies.
The FEM (Overseas Investment) Rules, 2022, have replaced the FEM (Transfer or Issue of any Foreign Security) Regulations, 2004, and the FEM (Acquisition and Transfer of Immovable Property outside India) Regulations, 2015.
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Overseas Direct Investment is the term for investments made outside of India that are made through either the Automatic Route or the Approval Route and involve making a capital contribution, subscribing to a foreign entity’s memorandum, or purchasing existing shares of a foreign entity through the market purchase, a private placement, or a stock exchange. These investments signify a long-term interest in the foreign entity (JV or WOS).
The terms “joint venture” and “wholly owned subsidiary” have been replaced by the word “foreign entity”, which refers to a limited liability entity created, registered, or incorporated outside of India, including IFSC in India. Foreign entities with limited liability are a brand-new requirement, even though the registration and incorporation criteria are the same as those for JV and WOS.
There are two categories of compliance for overseas direct investment in India:
Pre-compliance: Within 30 days of making the investment, the Indian party is required to submit the ODI form as part of the pre-compliance.
Post-Investment Compliance: In accordance with these compliance requirements, the Indian Party shall:
The Annual Performance Report must always be accompanied by the following:
The government has broadened the late submission fee (LSF) concept to include overseas investments following the successful deployment of LSF for foreign direct investment applications. This can be used to regularise reporting delays without going through the compounding procedure and applies to any form or return filing delay under the OI Rules or Regulations.
Before, the legislation only allowed for adjudication of such reporting errors, or the defaulting party had to go through a laborious compounding procedure. By paying the necessary LSF within three years of the reporting due date, such filing lapses can now be rectified without having to go through the compounding process.
Forms that must be filed have undergone revisions, while other requirements, such as those for compliance, have been relaxed. While the amendments encourage easy reporting compliances, the new rules require thorough compliance monitoring.
A resident of India who has made a financial commitment to a foreign entity in accordance with the Act or regulations or rules made thereunder is not permitted to transfer that investment or make any additional direct or indirect financial commitments to a such foreign entity until any reporting delays have been resolved.
Without the specific permission of the Reserve Bank of India[1], it is against the rules for an Indian resident to invest in a foreign company that engages in the following:
Every day, the globalisation phenomenon grows enormously. To avoid legal problems, the Indian parties must keep in mind the Overseas Direct Investment requirements in India. Before making investments abroad, there are a few crucial points to remember. Before acting, Indian parties should take the time to assess the effectiveness and performance of foreign entities.
The RBI has made the long-awaited adjustment to the regulations governing these structures, enabling Indian companies to grow their footprint abroad and bring in downstream capital.
Read our Article: What are the types of Foreign Direct Investment?
I am a driven and meticulous professional who completed B.Com BL (Hons) from Tamil Nadu Dr. Ambedkar Law University and completed Master of Laws in specialization (Criminal Law with Cyber Crimes). I have extensive experience in Criminal Litigation and want to utilise my legal knowledge in writing also I have proficiency in writing legitimate content with comprehensive research. My core areas of interest are Business Law, Intellectual Property Rights, and Cyber crimes.
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