FEMA — Overseas Direct Investment (ODI) Rules for Indian Companies

Overseas Direct Investment (ODI) refers to investment by Indian residents (individuals and companies) in equity or debt instruments of foreign entities, or contribution to capital of a foreign entity. ODI is regulated under the Foreign Exchange Management (Overseas Investment) Rules and Regulations, 2022 — which replaced the earlier ODI Regulations effective August 22, 2022. Here is the complete guide.

Categories of Overseas Investment

• Overseas Direct Investment (ODI): Investment of 10% or more in total paid-up equity capital of a foreign entity — considered a direct investment giving significant control/management role
• Overseas Portfolio Investment (OPI): Less than 10% of paid-up equity capital or any investment in listed foreign entities — treated as portfolio/financial investment

ODI — Automatic Route

• Indian companies can make ODI without prior RBI approval under automatic route up to 400% of their net worth (as per last audited balance sheet) in any financial year
• Individuals can invest up to the Liberalised Remittance Scheme (LRS) limit of USD 250,000 per year under automatic route
• No restriction on the nature of foreign entity's business (after 2022 reforms)

Prohibited ODI

• ODI in companies registered in FATF non-compliant jurisdictions (grey-listed/black-listed countries)
• Investment in foreign entities primarily engaged in real estate activity, dealing in financial products linked to Indian Rupee without RBI permission
• Investments funded by borrowed funds (round-tripping) are prohibited

Instruments — ODI-I, ODI-II, ODI-III

• ODI-I: Equity shares/compulsorily convertible instruments in listed or unlisted foreign entities
• ODI-II: Non-convertible, optionally convertible, partially convertible instruments (debt) — with certain conditions
• ODI-III: Guarantees and performance bonds extended to foreign entities

Form OA — Reporting

• Every ODI transaction must be reported to the AD Bank (Authorised Dealer Bank) through Form OA — filed on the FIRMS portal (RBI's online system)
• Prior reporting required before remittance (not post-facto)
• Annual Performance Report (APR) must be submitted to AD Bank by December 31 each year — reporting financial details of the foreign JV/WOS
• Share certificates, transferred to LRS/ODI account for record-keeping

Conclusion

The 2022 FEMA ODI Regulations simplified overseas investment for Indian companies — but reporting compliance through FIRMS/Form OA remains mandatory. SPOTON provides FEMA ODI advisory, Form OA filing and annual APR compliance for companies in Kerala expanding globally. Contact us for expert FEMA compliance services.