RBI issues Overseas Direct Investment vide FEM (Overseas Investment) Regulations, 2022

On 22-08-2022, the Reserve Bank of India (‘RBI’) has issued the Foreign Exchange Management (Overseas Investment) Regulations, 2022 to facilitate business between Indian and foreign entities.

Key Points:

  1. Indian entity can lend or invest in any debt instrument issued by the foreign entity or extend non- fund-based commitment after fulfilling the conditions-

    • Eligible to make Overseas Direct Investment (‘ODI’)

    • ODI should be in the foreign entity

    • The Indian entity has acquired control in foreign entity at the time of making commitments

  2. While lending or investing in debt instruments, the Indian entity should check whether the loan is duly backed by a loan agreement or not and if the rate of interest is charged on an “arm’s length”.

    Note: “Arm’s length” means a transaction between 2 related parties that is conducted as if they were unrelated to avoid any conflict of interest.

  3. In the case of financial commitment by way of a guarantee, it can be issued to or on behalf of the foreign entity:

    • Corporate or performance guarantee by Indian entity

    • Corporate or performance guarantee by a group of Indian entity in India, being a holding company (holding 51% stake in Indian entity), or subsidiary company (51% held by Indian entity), or a promoter group company which should be a corporate body.

    • Personal guarantee by the resident individual promoter

    • Bank guarantee backed by a counter- guarantee or by collateral by the Indian entity and issued by a bank in India.

  4. In case where a guarantee is extended jointly by 2 or more Indian entities, 100% of the amount has to be reckoned towards the individual limits of both the Indian entities.

  5. In case there is a performance guarantee, 50% of the amount has to be reckoned towards the financial commitment limit.

  6. In case of financial commitment by way of pledge, the Indian entity can pledge the equity capital of the foreign entity, held directly by the Indian entity in a foreign entity, in favour of Authorized Dealer (‘AD’) Bank or a public financial institution in India or an overseas lender, for availing fund based or non- fund-based facilities for itself or for any foreign entity in which it has made ODI.

  7. In case of financial commitment by creating charge by way of mortgage, pledge, hypothecation on

    • The assets in India in favour of an AD bank or a public financial institution in India or an overseas lender as security for availing of the fund based or non-fund-based facility or both, for any foreign entity in which it has made ODI or for its step-down subsidiary outside India

    • The assets outside India of the foreign entity y in which it has made ODI or of its step-down subsidiary outside India in favour of an AD bank in India or a public financial institution in India as security for availing of the fund based or non-fund-based facility or both, for itself or any foreign entity in which it has made ODI or for its step-down subsidiary outside India or in favour of a debenture trustee registered with SEBI in India for availing fund-based facilities for itself

  8. In case of acquisition or transfer by way of deferred payment, the payment of amount of consideration for the equity capital ca deferred for a definite period from the date of the agreement as is contained in the agreement in accordance with the conditions:

    • The foreign securities equivalent to the amount of total consideration should be transferred or issued, upfront by the seller to the buyer

    • The full and final consideration should be in compliance with the applicable pricing guidelines

  9. The resident of India acquiring equity capital has to submit the share certificates to the AD bank within 6 months from the date of effecting remittance/ the date on which the dues to such person are capitalized/ the date on which the amount due was allowed to be capitalized.

  10. An Indian resident having ODI in a foreign entity should realize and repatriate to India all the dues receivable from the foreign entity, within 90 days from the date when such receivables fall due/ the date of transfer or disinvestment/ the date of actual distribution of assets made by the official liquidator.

  11. A person resident in India who has made ODI or making financial commitment or undertaking disinvestment in a foreign entity have to report the financial commitment, disinvestment within 30 days of receipt of such proceeds and restructuring within 30 days from the date of such restructuring.

  12. In the case of Overseas Portfolio Investment or its transferring, a report of the same has to be made within 60 days from the end of the half- year in which such investment or transfer is made as of September or March end.

  13. An Annual Performance Report needs to be submitted with respect to each foreign entity every year by 31st December.

  14. In case of delay in reporting, Late submission fee has to be submitted. This facility can be availed within a maximum period of 3 years from the date of submission or filing.

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