In Part I of the OI Series (A Primer to Overseas Investments), we laid down the key concepts introduced in the new OI Regulations and also highlighted the restrictions. In this article, we highlight the many changes the Regulations have introduced.
Approvals and the RBI
The OI Regulations has done away with few approvals from the RBI to streamline investment procedures. However, on several investments, it does require RBI’s nod, which are elaborated hereunder.
No requirement
An unregulated Indian entity may invest in an offshore entity without the requirement of RBI approval, provided the Indian entity has posted net profits during the preceding three financial years. Note that the overseas entity here should not be engaged in banking or insurance business.
RBI approval required
RBI’s approval is required wherever the investment crosses the prescribed ceiling threshold.
RBI’s approval is also required for:
deferred payment of consideration, investment/ disinvestment by persons resident in India under investigation by any investigative agency/ regulatory body;
issuance of corporate guarantee to or on behalf of second or subsequent step down subsidiary and write-off on account of disinvestment.
Investment Opportunities for Resident Individuals
Resident Individuals can now invest overseas by remitting through OPI as well as ODI. However, the same is not permitted in entities providing financial services. Investments may also be held as ESOPs or be received as gifts from relatives. However, it must be noted that such a gift from a resident outside India to a resident in India can only be in accordance with Foreign Contribution (Regulation) Act, 2010 (FCRA).
Further, a resident individual may also make overseas investments in International Financial Services Centre (IFSC) where the foreign entity has a subsidiary or a step-down subsidiary outside the IFSC where the resident individual has control over the foreign entity.
A person resident in India may now, without the permission of the RBI, acquire immovable property outside India on a lease not exceeding five years.
Investments in Financial Services Sector
A company can now invest (four times its profit if it has been profitable for three financial years) in a foreign entity engaged in the business of financial services (direct or indirect). It is not necessary that the Indian entity is itself engaged in the financial services sector. It must be noted that the profits of FT 2020-21 and FY 2021-22 are excluded while considering the preceding three-year requirement. This relaxation has been allowed on account of the impact COVID-19 had. It is to be noted that investments in banking and insurance business are prohibited.
Throughout the OI Regulations, the Central Government and the RBI have maintained that the banking and the insurance sector is excluded from overseas investments. However, wherever possible relaxations and liberalization are provided for, and are welcomed by the stakeholders. Clarifications and the newly added definitions were much required as well.
The OI Regulations appears to be a move in the right direction, with potential to increase offshore investments by Indian entities as well as individuals.
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