Foreign Exchange Management (Overseas Investment) Rules 2022

Foreign Exchange Management (Overseas Investment) Rules 2022

Subject: Economy

Section: External sector

Context: Indian corporate entities can make overseas investments beyond the prescribed limit in strategic sectors such as energy and natural resources after obtaining necessary permissions.

Concept:

Foreign Exchange Management (Overseas Investment) Rules 2022:

• It has been  notified under the Foreign Exchange Management Act, will be administered by the Reserve Bank of India (RBI), and shall subsume all existing norms pertaining to overseas investments as well as the acquisition and transfer of immovable property outside India.
• It demarcates Overseas Direct Investment and Overseas Portfolio Investment.
• An Indian entity can invest up to four times of its net worth in a foreign entity .
• It is permitted to invest  up to 50 per cent of its net worth in overseas portfolio investment.
  • A person resident in India can make a contribution to an investment in the equity or OPI as per the limit under the liberalized Remittance Scheme of RBI. 
• Overseas Investment in excess of the limits is allowed in the strategic sectors-include energy, natural resources and such other sectors as may be decided by the Government
• An Indian entity may make Overseas Direct Investment (ODI) by way of buying shares either through subscription, acquisition through bidding or tender procedure by way of rights issue or allotment of bonus, shares, capitalisation, swap of securities and through merger, demerger, amalgamation or any scheme of arrangement.
• An Indian Financial institution may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity.
  • Earlier Overseas Direct Investment by a non-financial sector Indian entity cant invest  into a foreign firm engaged in financial services activity.
• Non-financial sector entities can make a direct investment under the automatic route into a foreign entity engaged in financial services activity (except banking and insurance).
• A resident individual can invest in non financial companies without any limit, to acquire foreign securities by way of inheritance, gift from a person residing in India and in case the gift giver is in abroad (as per th provisions of the Foreign Contribution (Regulation) Act 2010)
• Employee or a director of an office in India or branch of an overseas entity or a subsidiary in India of an overseas entity, or of an Indian entity in which the overseas entity has direct or indirect equity holding allowed acquisition of shares or interest under Employee Stock Ownership Plan or Employee Benefits Scheme or sweat equity shares.
• Indian entities or residents can make ODI in startups recognised under the law in the host country, but only from its internal accruals.
• No Indian resident will be permitted to make investments in foreign entities that are engaged in real estate business, gambling in any form and dealing with financial products linked to the Indian rupee without the central bank’s specific approval.
• The new regime has proposed that the approval route items would now be allowed under the automatic route:
  • issuance of corporate guarantees to or on behalf of second or subsequent level step-down subsidiary (SDS) of an Indian entity earlier required the Reserve Bank’s approval.
  • Any disinvestment involving write-off beyond the specified limits earlier required prior approval from the Reserve Bank.
  • The acquisition of equity capital in a foreign entity on a deferred payment basis has been permitted under the automatic route that was earlier under the approval route.
• An Indian entity that is not engaged in financial services activity in India, may make Overseas Direct Investment (ODI) in a foreign entity in International Financial Services Centre (IFSC), which is directly or indirectly engaged in financial services activity, except banking or insurance.
  • A person resident in India can make a contribution to an investment fund or vehicle setup in IFSC as Overseas Portfolio Investment.
• It has also introduced the facility of late submission fee for filing various overseas investment-related returns / documents on lines similar to that for Foreign Investment and External Commercial Borrowings related transactions.
• The separate reporting requirements for setting up/winding up of step-down subsidiaries or alteration in the shareholding pattern of the foreign entity have now been dispensed