Overseas Direct Investment (ODI)

Introduction :

In an increasingly interconnected global economy, Indian businesses and resident individuals are looking beyond domestic borders for growth opportunities. Overseas Direct Investment (ODI) represents a strategic avenue for expanding business operations, establishing international presence, and accessing new markets.

Governed by the Foreign Exchange Management Act, 1999 and administered by the Reserve Bank of India, ODI has become more streamlined and accessible than ever before. This comprehensive guide walks you through everything you need to know about ODI in India

What is Overseas Direct Investment?

Overseas Direct Investment (ODI) is the investment made by persons resident in India in foreign entities engaged in legitimate business activities. Unlike portfolio investments, ODI represents a commitment to establishing operational control or significant stake in overseas ventures.

Who Can Invest Overseas?

Indian Entities, Resident Individual, LLP, Mutual Funds, Venture Capital Funds, and Alternative Investment Funds, Registered Trusts and Societies.

Financial Commitment Limits :

• Indian Entities: General Limit: Up to 400% of the Indian entity's net worth as of the last audited balance sheet.

• Resident Individuals:Limited to the overall ceiling under the Liberalised Remittance Scheme (typically USD 250,000 per financial year).

The Process of Making an ODI :

Step 1: Designation of Authorized Dealer (AD) Bank : Select an Authorized Dealer Category-I (AD) bank to route all transactions. If multiple parties invest in the same foreign entity, they must use a single designated AD bank for that entity (though different banks can be used for different foreign entities).

Step 2: Obtain Unique Identification Number (UIN) : Before sending any remittance, the investor must obtain a UIN from the Reserve Bank for the target foreign entity. This is done by submitting Form FC to the AD bank.

Step 3: Complete Documentation

Prepare comprehensive documentation including:

• Board Resolution: Approving the proposed investment

• Form FC: Duly filled with investment details

• Background Documents: Describing the transaction's business rationale

• Valuation Certificate: For pricing compliance (unless exempted under specific circumstances)

• Organizational Chart: Showing the structure of the Indian entity and its subsidiaries

• Financial Statements: Latest audited balance sheets of both entities

• Regulatory Approvals: Any permits required by host country authorities

• Other documents

Step 4: Submission and Remittance: The AD bank submits the application to the Reserve Bank for processing. Once the UIN is generated, the bank facilitates the remittance in freely convertible currency through normal banking channels.

Step 5: Evidence of Investment: Within six months of remittance, submit evidence of investment (share certificates or equivalent documents per host country norms) to the AD bank. Failure to do so within the deadline triggers mandatory repatriation.

Pricing Guidelines/ Compliance (Valuation) :

All ODI transactions must comply with arm's length pricing, determined through:

• Internationally accepted pricing methodologies

• Comparable market transactions

Note: Valuation report is not required at the time of subscription to MOA of foreign company.

Disclaimer: This blog post provides general information about ODI regulations based on the Foreign Exchange Management (Overseas Investment) Rules, 2022, and does not constitute financial or legal advice. Readers should consult qualified professionals before making investment decisions.

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