{"id":8466,"date":"2021-09-15T08:43:48","date_gmt":"2021-09-15T08:43:48","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=8466"},"modified":"2021-09-15T11:20:10","modified_gmt":"2021-09-15T11:20:10","slug":"rbi-proposes-overseas-direct-investment-rules","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/rbi-proposes-overseas-direct-investment-rules\/","title":{"rendered":"RBI Proposes Overseas Direct Investment Rules"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Recently, the Reserve Bank of India proposed Overseas Direct Investment Rules and financial commitments by businesses in India, and the regulator has proposed to liberalise regulatory structure for ODI-FDI structures. <\/p>\n\n\n\n<p>In current times, Overseas Direct Investment (ODI) has become popular. ODI refers to direct investment outside India, which means investments through the Automatic Route or the Approval Route via contribution to the Capital Subscription to Foreign Company\u2019s Memorandum or through purchase of present shares of an overseas company by either market purchase or stock exchange or through private placement, presenting a long-term interest in the overseas company. Scroll down to check RBI\u2019s Overseas Direct Investment Rules.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3b17a98f010\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3b17a98f010\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-proposes-overseas-direct-investment-rules\/#What_do_you_mean_by_Authorised_Dealer_Banks_and_Indian_Party\" title=\"What do you\nmean by Authorised Dealer Banks and Indian Party?\">What do you\nmean by Authorised Dealer Banks and Indian Party?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-proposes-overseas-direct-investment-rules\/#What_is_ODI-FDI_Framework\" title=\"What is\nODI-FDI Framework?\">What is\nODI-FDI Framework?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-proposes-overseas-direct-investment-rules\/#Proposed_Overseas_Direct_Investment_Rules\" title=\"Proposed Overseas Direct Investment Rules\">Proposed Overseas Direct Investment Rules<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/rbi-proposes-overseas-direct-investment-rules\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_do_you_mean_by_Authorised_Dealer_Banks_and_Indian_Party\"><\/span>What do you\nmean by Authorised Dealer Banks and Indian Party?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before\nmoving to the RBI\u2019s Overseas Direct Investment Rules, it is essential to know\nthe meaning of Authorised Dealer Banks and Indian Party. <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image001-3-1024x455.png\" alt=\"Meaning of Authorised Dealer Banks and Indian Party\" class=\"wp-image-8470\" width=\"512\" height=\"228\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image001-3-1024x455.png 1024w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image001-3-300x133.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image001-3-768x341.png 768w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image001-3.png 1034w\" sizes=\"(max-width: 512px) 100vw, 512px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Authorised Dealer Banks<\/em><\/strong>:\nOverseas Direct Investment (ODI) can be made only through registered Authorised\nDealers with the Reserve Bank of India. The Resident Individual or Indian Party\nis required to route all transactions concerning particular foreign JV\/WOS only\nvia one branch of an Authorised Dealer. This branch would be the designated\nAuthorised Dealer concerning JV\/WOS, and all communications &amp; transactions\nrelating to the investment in that specific JV\/WOS are to be reported only via\nthis designated branch of an Authorised Dealer.<\/li><\/ul>\n\n\n\n<p>In\ncase the JV\/WOS is being established overseas by two or more Indian promoters,\nthen all Indian promoters jointly called the Indian Party and the Resident\nIndividual would be required to route all transactions concerning JV\/WOS only\nthrough a single designated Authorised Dealer. In case the Resident Individual\nor Indian Party desires to switch over to another Authorised Dealer, an\napplication by a method of a letter may be made to the RBI after getting a No\nObjection Certificate (NOC) from the present Authorised Dealer.<\/p>\n\n\n\n<ul><li><strong><em>Indian Party<\/em><\/strong>: It is a company registered in India, or it&#8217;s a body created under Parliament Act or a Partnership Firm incorporated under the <strong><em>Indian Partnership Act, 1932 or an <a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/limited-liability-partnership-registration\">LLP (Limited Liability Partnership)<\/a> <\/em><\/strong>incorporated in the <strong><em>LLP Act, 2008 <\/em><\/strong>and other company in India as may be informed by the Reserve Bank of India. When more than one such entity, body, or company makes an investment in the overseas JV\/WOS, such fusion will also form an Indian Party.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_ODI-FDI_Framework\"><\/span>What is\nODI-FDI Framework?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>ODI-FDI\nframework refers to an Indian company that invests in an overseas entity which\ninvestors or has investment already in India; it is also known as <strong><em>Round\nTripping<\/em><\/strong>. The FEMA Regulations does not classify round-tripping\nevidently. It&#8217;s a market practice to approach the RBI when Indian Companies or\nentities acquire\/invest in overseas companies which have holdings in India.<\/p>\n\n\n\n<p>The\nRBI has proposed that if an Indian company invests in an overseas company that\ninvests in India, there shouldn&#8217;t be tax evasion or avoidance.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Proposed_Overseas_Direct_Investment_Rules\"><\/span>Proposed Overseas Direct Investment Rules<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Besides\nODI-FDI Framework, there are three important changes standout in the Overseas\nDirect Investment Rules by the regulator, and you can check the same below:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"1024\" height=\"455\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image003-1024x455.png\" alt=\"Proposed Overseas Direct Investment Rules\" class=\"wp-image-8471\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image003-1024x455.png 1024w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image003-300x133.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image003-768x341.png 768w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/09\/image003.png 1034w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure><\/div>\n\n\n\n<ol><li>Treatment of Step-down Subsidiaries;<\/li><li>Difference between ODI &amp; OPI;<\/li><li>Plugging the Gift Gap.<\/li><\/ol>\n\n\n\n<ul><li><strong><em>Difference between ODI &amp; OPI<\/em><\/strong>: The current definition for ODI defines it as:<ol><li>Investment via contribution to the capital subscription to the MOA (Memorandum of Association) for overseas company;<\/li><li>Through purchase of current shares of an overseas company by market purchase\/private placement or via a stock exchange, not including Portfolio Investment.<\/li><\/ol><\/li><\/ul>\n\n\n\n<p>Now\nthe RBI has proposed a threshold for ODI. The new definition, as suggested by\nthe regulator, is mentioned below:<\/p>\n\n\n\n<ol><li>Equity capital acquisition of the unlisted overseas company, subscription to the MOA of the overseas company;<\/li><li>Investment in 10% more of the Paid-up capital of a listed overseas company;<\/li><li>Acquisition of indirect or direct control\/power in the overseas company.<\/li><\/ol>\n\n\n\n<ul><li><strong><em>Regulating Financial Commitments<\/em><\/strong>: At present, an Indian Party is permitted to give loans or guarantee in favour of the overseas company where it has equity participation. The regulation proposes to strengthen the present regime.<\/li><\/ul>\n\n\n\n<p>Remember\nthis objective; the rules proposed by the regulator define an overseas company\nand step-down subsidiary for the 1<sup>st<\/sup> time. Financial commitments\nthat an Indian company can offer on their behalf are also added.<\/p>\n\n\n\n<p><strong><em>Foreign\nCompany will be defined as:<\/em><\/strong><\/p>\n\n\n\n<ol><li>A company which is registered\n&amp; incorporated outside India;<\/li><li>An incorporated company that is\ninvolved in a strategic sector.<\/li><\/ol>\n\n\n\n<p>In\nthe case where such an overseas company having ODI and authorise by the Indian\ncompany having ODI and control by an Indian company establishes a subsidiary,\nthen it will become a step-down subsidiary. Moreover, a subsidiary of a\nstep-down subsidiary will be a step-down subsidiary. The Indian company and its\npromoters can offer personal, bank guarantee, corporate, performance on behalf\nof both overseas company and step-down subsidiary within the limit of the\nfinancial commitment as per the FEMA. Here the primary objective is to make\nsure that any loan, guarantee, or pledge that an Indian Company offers for\neither an overseas company or a step-down subsidiary should abide under the\nOverseas Direct Investment Rules.<\/p>\n\n\n\n<ul><li><strong><em>Plugging the Gift Gap<\/em><\/strong>:\nAccording to the existing FEMA Rules, people can get overseas securities as a\ngift from an individual. Different ingenuous foreign structures have been\nimplemented earlier through third parties.<\/li><\/ul>\n\n\n\n<p>With\nthe gift route, the Indian founders have avoided round-tripping concerns,\ntransferring money outside &amp; resulting in severe Overseas Direct Investment\ncompliances. To prevent Indian founders from the transfer of value of domestic\nassets in this way, the regulator has proposed a limitation on the gift receipt\nof overseas securities from relatives only. As the regulator is concerned over\nsuch structures, the draft Overseas Direct Investment Rules propose limiting\nthis permission by allowing receiving gifts from relatives only as provided\nunder the Company Law and not from any third party or individual.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If we conclude the overall purpose of the Overseas Direct Investment Rules proposed by the <strong>RBI<\/strong><sup><a href=\"https:\/\/www.rbi.org.in\/\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup>, it seems to match the essential directional objective that we see across our economic laws that value transfers happen at fair prices and is not effectively done by either exaggerating or understating values.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/implications-of-the-new-outsourcing-framework-for-non-bank-psos\/\">What are the Implications of the New Outsourcing Framework for Non-Bank PSOs?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Recently, the Reserve Bank of India proposed Overseas Direct Investment Rules and financial commitments by businesses in India, and the regulator has proposed to liberalise regulatory structure for ODI-FDI structures. In current times, Overseas Direct Investment (ODI) has become popular. ODI refers to direct investment outside India, which means investments through the Automatic Route or [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":8469,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[56],"tags":[850],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8466"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=8466"}],"version-history":[{"count":26,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8466\/revisions"}],"predecessor-version":[{"id":8502,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/8466\/revisions\/8502"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/8469"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=8466"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=8466"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=8466"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}