How Indian Investors Will Benefit From Revised Outbound Investment Rule

Revised rules on overseas investment provide much-needed clarity regarding Indian entities extending debt and financial liability to foreign companies. Additionally, the revised guidelines have simplified how Indian companies and individuals can invest in foreign companies. To promote the ease of doing business, in consultation with the RBI, the central government has simplified procedures and streamlined rules under the Foreign Exchange Management Act 1999.

RBI pointed out that the scheme simplifies the existing framework for overseas investment by persons residing in India to cover broader economic activity and significantly reduces the need to seek specific approvals. This will reduce the compliance burden and associated compliance costs.

Some of the key changes were – investment by a resident of India in the share capital of a foreign entity is classified as ODI (Overseas Direct Investment), also allowing Indian residents to invest in the issue of rights or receive free shares in a foreign entity.

In addition, the government has introduced a “late submission fee” for late reporting. In addition, exemption from the approval requirement for deferred payment of consideration; investment/divestment by persons residing in India under investigation by any investigative agency/regulatory body; issuance of corporate guarantees to or on behalf of a second or higher tier subsidiary (SDS); and amortization due to disinvestment.

In addition, the government has improved the clarity of the various definitions and has also introduced the concept of “strategic sector”.

According to the RBI website, overseas investment by a resident of India improves the scale and scope of business operations for Indian entrepreneurs by providing global growth opportunities. Such ventures, through easier access to technology, research and development, wider global market and lower cost of capital, as well as other advantages, increase the competitiveness of Indian entities and strengthen their brand value. These investments abroad are also important drivers of foreign trade and technology transfer, thus stimulating national employment, investment and growth through these interconnections.

Here is how Indian investors will benefit from the revised rules on overseas investment:

Rohin Agarwal, VP of Avener Capital, said, “Indian entities in the existing enterprise space as well as the upcoming startup space are increasingly venturing overseas to identify new new frontiers of growth. RBI’s FEMR regulations are intended to provide the desired clarity in terms of an Indian entity extending debt and financial liability to any foreign entity, including its indented subsidiaries.”

Meanwhile, Anish Shah, Associate Partner – M&A Tax and Regulatory Services, BDO India said: “Amongst many things, the new framework now allows investments by Indian entities in a foreign entity that has invested or is investing in a company India, subject to safeguard on The new framework also introduced the concept of offshore portfolio investment in which equity investment by an unlisted Indian entity of up to 10% in an unlisted foreign entity in certain situations such as rights issue, bonus issue, share exchange, merger, etc. will not be classified as ODI, which will result in relaxation of certain compliances.”

Whereas, Xerxes Antia, Partner, BTG Legal said, “These new rules and regulations aim to simplify the way Indian businesses and individuals can invest in global businesses.”

Antia added, “These new rules and regulations focus on building possible structures for global expansion and fundraising. The terms of financial commitment in the form of capital, debt or guarantee have been set out in these new regulations. also a provision for deferred payment for acquisitions abroad, subject to a commercial agreement. That said, the total commitment for overseas investment cannot exceed 4x the net worth of an Indian company.

“To facilitate compliance, late filing of returns may be accomplished by paying a late filing fee, subject to certain limitations at affiliates,” Antia added.

Finally, Antia said: “There are still a few sectors where investment is prohibited – real estate, gambling and INR financial products. Apart from these, investment in foreign start-ups (excluding internal charges) has been permitted, and existing Indian companies that do not provide “financial services” can still invest in foreign companies that provide financial services (subject to certain conditions, such as profits within 3 recent years, etc.).”

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