ODI - Clearing the misconception
ODI (Overseas Direct Investment) refers to investment by Indian residents in foreign entities, more than just buying equity shares.
It is not limited to purchasing equity shares of an entity outside India. It can take various forms.
Ways to make an ODI
ODI can be made or held through:
- Initial subscription to shares of a foreign entity
- Purchase of equity shares
- Capitalization of exports
- Swap of securities
- Scheme of arrangement (as per Indian or foreign laws)
ODI routes – Automatic vs Approval
Automatic route:
No RBI approval needed for investment, provided certain conditions are met.
Approval route:
Prior RBI approval required for foreign investments not covered under the automatic route.
How to do the ODI process?
- Approach your Authorized Bank
- Submit the initial agreement and relevant documents between the Indian entity/individual and the overseas entity
- Maintain a bank account with the same authorized bank to proceed
Consequences of delay in ODI filing
- LSF (Late Submission Fee): ₹7,500 (basic), applicable if financial commitment date and ODI filing date differ
- Delay > 3 years: Requires additional documents + RBI approval + Penalty
Restrictions for individuals
- Indian residents cannot invest in a foreign entity that has a subsidiary in India if they have control over that foreign entity.
- This restriction does not apply to Indian companies/entities.
*Control here means, if a foreign entity plans to set up a business in India, and the shareholders of both the foreign entity and the Indian entity are the same individuals, those individuals cannot make the investment under ODI in their individual capacity.
Stay Compliant, Invest Smart!
- Ensure your overseas investment follows RBI guidelines.
- Avoid legal risks and FEMA penalties.
Need guidance on ODI? Contact us today!