The Finance Ministry on August 22 introduced new set of rules for domestic entities, including companies and large family offices and start-ups, opting for overseas direct investment route (ODI), which could impact their acquisition decisions in a big way.
Key highlights
- The Foreign Exchange Management (Overseas Investment) Rules, 2022 will subsume regulations relating to the Overseas Investments and Acquisition and Transfer of Immovable Property Outside India Regulations, 2015.
- The new rules, effective from August 22, made explicit distinction between ODI (all investments in unlisted foreign entities and more than 10 per cent in listed foreign entities) and Overseas Portfolio Investment/OPI (investment by listed companies in foreign listed securities).
- The rules state that all transactions of ODI must happen at fair value. Besides, round tripping structures now do not require approval from Reserve Bank of India, if the structure involves less than two levels of subsidiaries.
- The finance ministry has eased the ’round-tripping’ rules by allowing Indian entities to invest in foreign companies that may route this investment back into India provided certain transparency conditions are met. Round tripping is a practice where funds are transferred from one country to another and transferred back to the origin country for purposes like black money laundering or to get the benefit of tax concession/evasion/avoidance from countries like Mauritius which enjoy low taxes etc.
- The rules also clarified that gift of foreign securities is permitted only between relatives. Earlier, anyone could have gifted securities to Indian persons. The ODI route is for non-individuals entities like corporates and trusts. Individuals use a different route to remit money outside called the Liberalised Remittance Scheme (LRS).
