Outbound Investment Under FEMA

Introduction

Outbound investment under FEMA plays an essential role in the international market where Indian entities make investments in Foreign companies or assets. This foreign investment is a vital tool for those Indian businesses seeking global expansion. As per the RBI (Reserve Bank of India) report, OFDI (Outward Foreign Direct Investment stood at $ 3.77 billion in May 2021 that shows the growing trends of Indian companies in the expanding global marketplace. These investments are compliances and regulated under the FEMA act, 1999 that helps the Indian entities to get several opportunities of global market accessibility and resources. In this article we will get the complete understanding over this topic including its meaning, eligibility criteria, requirements, process and regulatory compliance.

What is Outbound Investment?

Outbound Investment refers to an investment done via an Indian entity in a foreign business. In a simple context, Foreign Direct Investment (FDI) occurs when an Indian investor buys equity in a foreign company, or Oversea Direct Investment (ODI) where Indian aunties acquire foreign assets or set up overseas subsidiaries. Indian entities can expand globally by various methods such as Joint Ventures (JVs), Wholly Owned Subsidiaries (WOS) or through acquiring stakes in foreign companies.

By Outbound Investment under FEMA, help Indian business to make accessibility in the international market through advanced technology and strategic resources. However, these investments are compliances and regulated according to the FEMA guidelines. Indian entities who engage with the ODI must adhere to the limits and approval procedure which is specified by the Reserve Bank of India.

Types of Outbound Investment

Permitted Routes for Outbound Investment

There are two main routes for Outbound Investment. These are -

• Automatic Route: The Automatic route in Outbound investment permits some limited investment in Companies without any prior approval from the RBI (Reserve Bank of India). The amount of investment may vary according to the investment and investor types.
• Approval/ Government Route: In the Approval/Government Route in outbound investment required permission from the Indian Government for investment. There are some specified compliances that must be followed that are prescribed by the RBI. The approval timeline may vary according to the RBI’s complex procedure.

Eligibility criteria for Outbound Investment under FEMA

There are some eligibility criteria for Outbound Investment under FEMA which is mentioned below that must meet by the Indian entities:

• Any Indian Entities, LLPs or Partnerships may make outbound investment with the FEMA limits.
• The Indian Entities can invest more than 400% of their net worth according to the last audited balance sheet under the Automatic Route. If this limit exceeds, the RBI approval is required.
• Under FEMA, financial items linked to the Indian Rupee (such as derivatives or any instruments tied to India's currency), and real estate (except from development projects) are prohibited sectors for outbound investments.
• Individuals are allowed to invest within the limits of LRS (Liberalised Remittance Scheme). Presently it is $250,000/per year.

Forms and Required Documentation for Outbound Investment under FEMA

There are some Forms that should be submitted to the RBI for Outbound Investment under FEMA. These are as follow:

1. Form ODI: This ODI form is mandatory to file for any direct oversea investment which is made by any Indian companies. This is the prior form for reporting outbound investment and it is filled by authorized dealer banks.
2. Form APR: APRs are required in accordance with Regulation 15 of the FEMA (Transfer or Issue of any Foreign Securities) Regulations, 2004, for every Indian entity with an Overseas Direct Investment (ODI).
3. Form FC-TRS (If applicable): if shares are transferred between a foreign business and an Indian entity, Form FC-TRS is required to be filled.

Process of Outbound Investment under FEMA

Any foreign entity who wishes to invest in India, may follow a procedure. The stepwise process of Outbound investment under FEMA is as follow:

Step 1: Determine the Investment Route

• Identify whether the investment falls under the Automatic Route (no prior approval needed) or the Government Route (approval required for sectors such as defense, telecom, etc.).

Step 2: Remittance of Funds

• After identifying the investment route, the foreign investor should remit funds abroad by authorized banking channels via AD category-I banks.

Step 3: File Form ODI

• Before remitting funds or under the 30 days of setting up a foreign entity, file Form ODI with the RBI through the Authorized Dealer (AD) Bank to track the outbound investment.

Step 4: Issue of Shares

• The Indian entities or individuals may invest in equity or debt instruments of the foreign entities.

Step 5: Comply with Investment Limits and Reporting

• Make sure that the investment should not be above 400% of the Indian Company's net worth otherwise RBI approval is required.
• Monitor the annual reporting requirements by sending in the overseas entity's Annual Performance Report (APR).

Step 6: Approval for Certain sectors

• Under FEMA, financial items linked to the Indian Rupee (such as derivatives or any instruments tied to India's currency), and real estate (except from development projects) are prohibited sectors for outbound investments. For this RBI approval is mandatory.

Regulatory and Compliances requirements

Here are the compliances and regulations mentioned below:

• Make sure that the compliance with the 400% net worth cap for the Outbound Investments. For the higher investment RBI approval is mandatory.
• It is also needed to ensure, if the investment adheres to the Automatic route, must require approval under the Government Route.
• Share issuance and transfer must comply with internationally accepted pricing standards, supported by a valuation certificate.
• Make complete the KYC checks for the foreign investors by the AD bank.
• It is required to file some forms such as Form ODI, Form APR and Form FC-TRS (if applicable) before the due dates for the reporting of foreign transactions by the authority.
• To confirm receipt of foreign funds get the FIRC (Foreign Inward Remittance Certificate) from the bank.
• For the sectors under the government route get the government approval prior to investing.

Why Bizfoc

Bizfoc provides a comprehensive professional guidance over Outbound investment that guarantees compliance with FEMA guidelines. Our service includes:

• Expert Guidance: Our professional team will provide expert and detailed advice over different form filing that is required to file for Outbound investment that helps to monitor the foreign investments via RBI.
• Document Preparation: Our expert team helps you to collect and prepare all the necessary documents that make your procedure more fluent.
• Form Submission: We have a number of experienced team members who ensure timely and accurate filing that also avoids hefty penalties.

Connect with us and make your Outbound investment under the FEMA easier and penalty free.

Conclusion

Outbound Investment under FEMA is a crucial tool for the Indian entities who are eager to expand their presence globally. The RBI’s regulatory framework helps to maintain transparency and also secure India's foreign exchange reserves. By following the sectoral limits, pricing standards and filing the Form ODI and APR under the timeline, Indian entities may expand their business strategically. By maintaining these compliances and regulations with RBI and government authority, the entities can get several opportunities to enhance their operations.

Frequently Asked Questions