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On 22nd August 2022, vide notification no. 400/2022-RB the Reserve Bank of India (RBI)issued the regulations which are known as Foreign Exchange Management (Overseas Investment) Regulations, 2022. This Regulation prescribes the financial commitment which should be made by an Indian entity while making overseas investments under different instruments, acquisition or transfer of deferred payment, obligation of a resident person and the mode of payment, and reporting requirements of overseas investment. If you’re an Indian entity intending to make overseas investments, then you need to know all about this regulation before proceeding to make overseas investments.
Table of Contents
When a resident Indian acquires equity capital by subscribing to an issue or by purchasing from a non-resident Indian or where the non-resident acquires equity capital in India by purchasing from a resident Indian and where the equity capital is considered as ODI, and the payment of the amount of consideration for the equity capital so acquired will defer the prescribed period from the date of agreement and subject to the conditions as provided below:
The above two conditions are subject to an exception that the deferred part of the consideration in an acquisition of equity capital of a foreign entity by a resident Indian is treated as on-fund based commitment. Furthermore, the buyer can be indemnified by the seller to the extent and subject to terms and conditions as is mutually agreed and incorporated in the form of an agreement. However, the agreement should be in compliance with the provisions of the rules and regulations formulates thereunder.
Mode of Payment for Overseas Investment
A resident Indian making Overseas Investment can make payment in the following manner:
APR may also be filed on the basis of unaudited financial statements where the resident Indian does not have control in the foreign entity and laws of the host country do not provide for mandatory audit of books of accounts. In such a case, APR should be filed by statutory auditor of the Indian entity or by a CA where statutory audit is inapplicable.
Delay in reporting
A resident Indian who fails to submit evidence of investment on time or fails to make any filing within the specified time can file it after the expiry of due date along with Late Submission Fee within a period as may be advised and at a rate and manner as may be specified by RBI from time to time. Late filing can be done only within a maximum period of 3 (three) years from the due date of filing.
Restriction on financial commitment or transfer
If a resident India has made a financial commitment in a foreign entity as per the Act or rules framed thereunder, then he shall not make any further financial commitment towards foreign entity or transfer such investment till the time any delay in reporting is regularized.
In consequence, it can be said that the Foreign Exchange Management (Overseas Investment) Regulation, 2022 prescribes the mode in which overseas investment is to be made, the obligations of the resident Indian making overseas investment, the mode of payment and the reporting requirements. This will bring clarity while making overseas investments and will ensure efficiency in reporting.
Read our Article: Analysis of the Foreign Exchange Management (Overseas Investment) Rules, 2022
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